With the publication of Law No. 182/2024 in Official Gazette No. 283 on December 3, 2024, the new Double Taxation Convention between Italy and the People's Republic of China, signed in Rome on March 23, 2019, was ratified and executed. The provisions will take effect starting January 1, 2026.
Article 29 of the Convention establishes that the Agreement will enter into force on the thirtieth day following the receipt of the last ratification notification. Its provisions will apply:
- With regard to taxes withheld at source: on amounts earned from January 1 of the first calendar year following the Agreement's entry into force.
- With regard to other income taxes: for fiscal periods beginning on or after January 1 of the first calendar year following the Agreement's entry into force.
The new Convention, more aligned with the OECD 2017 Model, introduces significant changes compared to the previous one (in effect since 1990):
1. Dividends
The Agreement provides for a reduction of the withholding tax rate for Italian companies based in China and vice versa, from 10% to 5%, provided the following conditions are met:
- Direct participation: at least 25% of the capital of the company distributing the dividends.
- Holding period of shares: at least 365 days.
2. Interests
The Agreement introduces a reduction of the interest rate to 8%, which applies under the following conditions:
- Interest paid to financial institutions.
- Loans with a minimum duration of three years, intended to finance investment projects.
There is also a full exemption from withholding tax on interest payments made by:
- The government or local authorities.
- The Central Bank.
- Entities fully owned by the government.
3. Royalties (Licensing Fees)
The Agreement sets the following maximum rates applicable to royalties:
- 10% for royalties related to copyrights (including software, films, TV or radio broadcast recordings), patents, trademarks, designs and models, secret formulas or processes, as well as industrial, commercial, or scientific information.
- 10% on 50% of the gross amount (effectively 5%): for royalties related to the use of industrial, commercial, or scientific equipment.
4. Capital Gains
The Agreement establishes the following provisions for the taxation of capital gains arising from the sale of assets and shares:
- Profits from the sale of real estate located in the other contracting state are taxable in that state.
- Profits from the sale of movable assets connected to a permanent establishment in the other state are taxable in that state.
- Profits from the sale of ships, aircraft, and movable property used in international traffic are taxable exclusively in the state of residence of the selling company.
- Profits from the sale of shares deriving more than 50% of their value from real estate located in the other state are taxable in that state.
- If the seller holds at least 25% of the shares of a company resident in the other contracting state for a period of at least 12 months, the gains from this sale are taxable in the other state.
- Profits from the sale of assets other than those mentioned above are taxable exclusively in the state of residence of the seller.
Diacron is committed to providing comprehensive support and tailored solutions to address the complexities of international taxation. Contact us for dedicated consultancy.