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The Italian investor with a Swiss account

The 26 per cent tax on financial income

The typical client of a Lugano private bank is an Italian resident individual whose portfolio of shares, bonds and funds is booked in Switzerland. Since the end of banking secrecy described in Chapter E.II, these portfolios are declared in Italy, and their income is taxed under the Italian regime for financial income. Since 1 July 2014 that regime applies a uniform rate of 26 per cent to dividends, interest and capital gains of individuals not engaged in business, with a reduced rate of 12.5 per cent for Italian and white-listed government bonds.1 The tax is levied in two ways. If the income is collected through an Italian intermediary, such as an Italian bank or an Italian fiduciary company acting as nominal holder of the Swiss account, the intermediary withholds the tax as a final withholding tax or substitute tax. If the client holds the account directly in his own name and receives the income in Switzerland, he must declare it in section RM of his income tax return and pay the substitute tax himself.

For dividends from foreign companies collected through an Italian intermediary, Article 27 paragraph 4 of Presidential Decree No. 600 of 1973 provides that the 26 per cent withholding is applied to the amount of the dividend net of the withholding tax applied in the foreign state.2 The Swiss withholding tax thus reduces the Italian tax base but is not credited against the Italian tax. The rule produces an effective combined burden that is higher than either of the two rates. On a Swiss dividend of CHF 100, the Swiss tax after refund is CHF 15. The Italian tax is 26 per cent of CHF 85, or CHF 22.10. The total burden is CHF 37.10, or 37.1 per cent of the gross dividend, even if the refund procedure works perfectly.3 If the investor does not file the Swiss refund claim, the Swiss tax remains at CHF 35 and the Italian tax falls to 26 per cent of CHF 65, or CHF 16.90, for a total of CHF 51.90.

The credit for Swiss withholding tax: administration against courts

The Agenzia delle Entrate holds that no credit for foreign taxes is available for income subject to a final withholding tax or substitute tax in Italy. It bases this view on Article 165 paragraph 1 TUIR, which grants the credit only where foreign income forms part of the taxpayer's total income (reddito complessivo), and income subject to a final withholding tax or a substitute tax does not. Paragraph 8 of the same article adds that the credit is lost if the return is not filed or the foreign income is not declared in it.4 Most Italian treaties, including Article 24 paragraph 2 of the convention with Switzerland, contain a clause that excludes the credit where the income is subjected in Italy to a final withholding tax "at the request of the recipient". The administration has read the domestic rule and the treaty clause together as excluding the credit for portfolio dividends altogether.

Italian courts have begun to take a different view. The Corte di Cassazione held in judgments of 1 September 2022 (No. 25698) and 16 April 2024 (No. 10204) that a treaty provision prevails over incompatible domestic law. In 2024 a first-instance tax court in Siena applied this reasoning to German dividends and held that the credit must be granted where the Italian tax applies by operation of law and not at the request of the recipient.5 In a judgment of 14 February 2025 (No. 68), the Corte di giustizia tributaria di primo grado of Bergamo reached the same conclusion for Swiss dividends. The taxpayer held Swiss shares through a Swiss bank and had borne Swiss withholding tax as well as Italian tax at 26 per cent for the years 2018 to 2021. The court held that under the Swiss-Italian convention the credit for Swiss tax may be denied only where the Italian final tax is applied "at the request of the recipient". Since the Italian tax on dividends is compulsory, the credit must be granted.6 The Italian association of accountants AIDC adopted the same position in its standard of conduct No. 227.7

The question is not settled. The Bergamo judgment is a decision at first instance, and the Agenzia delle Entrate has not changed its position. Taxpayers who wish to rely on it must pay the tax and then claim a refund, with the prospect of litigation through several instances. The calculation of the credit is also uncertain. If the credit were granted against an Italian tax calculated on the gross dividend, the combined burden on a Swiss dividend of CHF 100 would be 26 per cent: Italian tax of CHF 26 less a credit of CHF 15, plus the Swiss tax of CHF 15. If the Italian tax continues to be calculated on the net amount under Article 27 paragraph 4 and the credit is limited to the Italian tax on the foreign income, the result would lie between the two figures. For portfolios with substantial Swiss dividend income, a refund claim may be worthwhile. Practitioners should file it within the forty-eight months that Italian law allows for refund claims and document that the Swiss refund to 15 per cent has been claimed, since the credit is limited to the tax that is definitively borne under the convention.8

Common misconception. Italian clients of Lugano banks often believe that the Swiss withholding tax of 35 per cent is "credited" in Italy so that they pay 26 per cent in total. Under the practice of the Agenzia delle Entrate, the Swiss tax only reduces the Italian tax base. The combined burden on a Swiss dividend is 37.1 per cent after a successful Swiss refund to 15 per cent and 51.9 per cent without it. Some Italian tax courts have granted a credit since 2024, but the administration has not accepted that view.

Notes

  1. Decree-Law No. 66 of 24 April 2014, converted by Law No. 89 of 23 June 2014, Art. 3; Agenzia delle Entrate, Circular No. 19/E of 27 June 2014, https://agenziaentrate.gov.it/portale/documents/20143/298850/Circolare+n19E+del+27+giugno+20 14_Cir19e+del+27+06+14.pdf/429c76f6-6236-4071-79ae-65af4aadd134 (increase from 20 to 26 per cent from 1 July 2014; 12.5 per cent retained for Italian government bonds and bonds of white-listed states). ↩
  2. AIDC, Norma di comportamento n. 227 (above), quoting Art. 27 para. 4 of Presidential Decree No. 600 of 1973 ("al netto delle ritenute applicate dallo Stato estero"). ↩
  3. Own calculation on the basis of Art. 10 para. 2 of the convention and Art. 27 para. 4 of Presidential Decree No. 600 of 1973 (above). ↩
  4. TUIR, Art. 165 para. 1 ("Se alla formazione del reddito complessivo concorrono redditi prodotti all'estero, le imposte ivi pagate a titolo definitivo su tali redditi sono ammesse in detrazione") and para. 8, Brocardi.it, https://brocardi.it/testo-unico-imposte-redditi/titolo-iii/capo-ii/art165.html; AIDC, Norma di comportamento n. 227 (above) (administrative position based on Art. 165 para. 1). ↩
  5. Roberto Pellizzari, Matteo Esposito and Annalisa Gobbo, "Sì al foreign tax credit sui dividendi di fonte estera", LCA Studio Legale, 16 May 2024, https://www.lcalex.it/wp-content/uploads/2024/05/Si-al-foreign-tax-credit-sui-dividendi-di-fonte-estera.pdf (Corte di giustizia tributaria di primo grado di Siena, No. 68/1/2024 of 11 April 2024); AIDC, Norma di comportamento n. 227 (above) (Cass. No. 25698/2022 and No. 10204/2024). ↩
  6. Samuele Valente, "Convenzione tra Italia e Svizzera sui dividendi: è arduo negare il credito", ItaliaOggi, 22 July 2025, https://www.italiaoggi.it/diritto-e-fisco/fisco/convenzione-tra-italia-e-svizzera-sui-dividenti-e-arduo-negare-il-credito-aggnvfh4 (Corte di giustizia tributaria di primo grado di Bergamo, No. 68 of 14 February 2025). ↩
  7. AIDC, Norma di comportamento n. 227 (above). ↩
  8. Presidential Decree No. 602 of 29 September 1973, Art. 38 paras. 1 and 2 (refund claim within forty-eight months, for the recipient of amounts subject to withholding from the date of the withholding), Brocardi.it, https://www.brocardi.it/disposizioni-riscossione-imposte-redditi/titolo-i/capo-ii/art38.html; Legislative Decree No. 546 of 1992, Art. 21 para. 2 (above). The limitation of the credit to the tax paid "a titolo definitivo" follows from Art. 165 para. 1 TUIR (above) and the treaty limitation in Art. 10 para. 2. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.

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