Dividends are distributions of profits or retained earnings from a corporation (e.g., LLC) to its shareholders. They must be clearly distinguished from salaries or other remuneration paid to directors/managers. Dividends are investment income and not remuneration for work or services rendered.
Normally, profit distributions are made pro rata to shareholdings, unless otherwise specified in the articles of association or shareholders’ agreement.
The profit distribution is determined by a resolution of the shareholders' meeting. The shareholders' meeting decides on the scope and amount of the profits to be distributed (e.g., from annual profits or retained earnings). The prerequisite is that the capital maintenance rules must be complied with; in particular, the distribution must not impair share capital or non-distributable reserves (e.g., legal reserves or reserve funds).
In practice, distributions should be economically justified, properly approved, and correctly recorded. This includes, in particular, the proper minutes of the shareholders’ meeting and clear evidence of the distributable profit/reserve base.
Taxes: Two levels
Level 1 – Company
Profits are generally taxed at the company level (IRES and IRAP). Dividends are therefore a distribution of after-tax profits and are not deductible as expenses for the distributing company, but reduce equity.
Level 2 – Recipient
Taxation depends on the recipient’s status (individual/entrepreneur/corporation) and tax residence (Italy/abroad). Withholding tax and assessment rules apply here.
Dividends to Italian private individuals
For private individuals resident in Italy, taxation is normally carried out typically via a 26% substitute/withholding tax (depending on the case and intermediary).
Foreign dividends may be subject to reporting and declaration requirements.
Dividends to entrepreneurs and companies: important change from 2026
Historically, dividends in the business/enterprise sphere often benefited from partial relief (e.g., for IRES companies: 95% exemption / 5% taxable).
As of 1 January 2026, partial relief is no longer automatic and applies only if minimum thresholds are met (≥5% participation or ≥EUR 500,000 tax value/acquisition cost); otherwise, dividends may be fully taxable (depending on the recipient’s tax regime).
Dividends abroad: withholding tax, double taxation agreement, and EU rules
If an Italian company pays dividends to recipients not resident in Italy, Italian withholding tax (often 26%) is generally payable, which can be reduced by a double taxation agreement (DTA) (often, for example, to 5% or 15%, depending on the respective DTA and the level of participation).
In certain EU/EEA cases, specific regimes may apply (e.g., exemption under the EU Parent–Subsidiary Directive if conditions are met).
Frequently asked questions (FAQ)
1. Are dividends considered "salary" and subject to social security contributions?
No. Dividends are investment income and are generally not subject to social security contributions.
2. What documents are important for a distribution?
Annual financial statement, resolution on the appropriation of profits, proof of distributable reserves/retained earnings, and correct accounting and payment documentation.
3. Does the company pay IRES again on dividends?
The distributing company regularly taxes the profit before distribution (IRES level). The dividend is then typically not a deductible expense.
4. How are dividends taxed for private individuals in Italy?
Often via a 26% tax/withholding tax.
5. What has changed for companies/holdings since 2026?
Since January 1, 2026, the 95% partial exemption for dividends in business assets has been linked to minimum thresholds (including 5% or EUR 500,000); otherwise, full taxability applies.
6. Can I reduce Italian withholding tax on outbound dividends?
Often yes – via DTA relief, but only if the requirements are met and the correct documentation is provided (certificate of residence, etc.).