As known, the 2023 Budget Law modified the taxation of capital gains earned by non-Italian residents by setting out the following two measures, applicable starting from capital gains earned from 1 January 20231:

• Capital gains derived from the disposal, for consideration, of shareholdings in non-resident companies and entities, more than half of whose value is derived, in any of the 365 days prior to the disposal, directly or indirectly, from real estate located in Italy, are deemed to be earned in the Italian territory for income tax purposes.
• The domestic tax exemption for non-Italian residents in respect of capital gains derived from the disposal of shares, securities and other financial instruments which are “non-qualified” shareholdings in Italian resident companies and entities (i.e., those not exceeding, in terms of voting rights or capital ownership, respectively, 2% and 5% for listed shareholdings, 20% and 25% for unlisted shareholdings, computed over a 12-month period) is no longer applicable if more than half of their value is derived, in any of the 365 days prior to the disposal, directly or indirectly, from real estate located in Italy2.

In both cases:

• the disposal of shares and similar securities listed in regulated markets does not fall in the scope of the “land rich” rules;
• real estate assets acquired or built/refurbished for trading purposes and those directly used for carrying on a business activity shall not to be included in the computation of the one-half value triggering these land rich provisions;
• the land rich rules are not applicable to capital gains realised by foreign Undertakings for Collective Investments compliant with UCITS IV EU Directive or, for those not compliant, which are managed by a regulated manager compliant with the AIFMD EU Directive, in both cases set-up in an EU or EEA country.

In this context, the Italian Tax Authorities have made public a reply to a ruling (i.e., Resolution no. 76, dated 22 December 2023) in which they confirmed that an interest in an Italian REIF is not comparable to a participation in the capital or equity of a company or (commercial) entity as it does not attribute to the REIF unitholder the same administrative and economic rights typical of shares and similar securities. In fact, Italian REIF unitholders have exclusively a credit right towards the REIF for the reimbursement of the units subscribed and have no right of direct or indirect participation in the management of the REIF.

On this basis, as per Italian Tax Authorities’ explicit indication, the sale of Italian REIF units, despite Italian real estate rich, does not fall in the scope of the domestic land rich rule; therefore, capital gains realised by non-Italian resident unitholders continue to benefit from the domestic capital gains tax exemption(*), provided they are tax resident in tax co-operative jurisdictions (i.e., territories which allow the exchange of tax information with Italy, which are included in the so-called Italian “white list”).

The land rich rules introduced in the Italian income tax domestic framework initially seemed to apply to capital gains earned by non-residents from the disposal also of, among others, any interests in Italian REIFs, regardless of its percentage and the tax qualification of the foreign investor and of the Italian REIF, considering that these rules do not clearly define the concept of “entities”.

A first flavour of the interpretation finally provided with Resolution no. 76 at hand was given “indirectly” by the Italian Tax Authorities in the occasion of an economic press event held at the beginning of 2023 where, in replying to a question on a different (although related) topic, they verbally stated that the purpose of the new land rich rules is to attract to Italian taxation capital gains derived from disposal of “non-qualified” shareholdings into Italian companies (see above for definition): in particular, only reference to the tax law provision which contemplates “companies and economic bodies” was made in the response, without mentioning the law provision including Italian REIFs.

Finally, on 22 December the Italian Tax Authorities, properly solicited by a tax ruling request, officially provided their guidance on this specific matter, confirming that capital gains derived from the sale of interests in Italian REIFs do not fall in the scope of the relevant land rich rule(*). Therefore, provided the stated requirements are met, Italian REIFs foreign unitholders can continue claiming the domestic financial capital gain tax exemption (which the new land rich rule – i.e., its second part, concerning Italian shareholdings - has made not applicable to equity interests in Italian real estate rich companies and “commercial” entities).

The same conclusion should apply also to the sale of shares in a RE SICAF, the latter representing an Undertaking for Collective Investment of Savings as well, although incorporated as Italian limited company by shares.

(*) With the possible exception described in the last section of this note (“Our view”).

1 This is merely a summary of the new law provisions and concrete case applications.

2 Conversely, interests in Italian companies and entities which exceed the above stated thresholds are considered as “qualified” shareholdings and related capital gains are always taxable in Italy, despite the companies and entities are real estate rich or not, also if earned by non-residents, unless the latter can claim the benefit of a Double Tax Treaty providing for taxation of these capital gains in other jurisdictions.