Fiduciary Administration Without Title for Financial Products Held Abroad by Italian Tax Residents: Exemption from IVAFE and No Taxation on Investments in Supplementary and Mandatory Pension Funds
Regulatory Framework and General Principles
Italian tax residents holding financial products abroad are subject to the Tax on the Value of Financial Assets Held Abroad (IVAFE). This tax was introduced under Article 19, paragraphs 13 and 18, of Decree-Law No. 201 of December 6, 2011, converted with amendments into Law No. 214 of December 22, 2011, to align the tax treatment of assets held abroad with those held in Italy. The tax rate for 2023 is 0,2% or 0.4% for territories with preferential tax regimes, calculated on the market value of the assets, with differentiated rates depending on the type of financial instrument.
Fiduciary administration of these assets without direct title transfer to the fiduciary company presents specific tax considerations, both in relation to IVAFE and the substitute stamp duty regulated by Article 13, paragraph 2-ter, of Legislative Decree No. 231/2007.
Application of IVAFE
Italian tax residents must pay IVAFE on financial products or instruments, bank accounts, financial assets, artwork, collections, or similar items held abroad. The tax is applied according to the following rules:
- Standard Rate: 0.2% on the market value of financial assets, increasing to 0.4% for assets located in countries with preferential tax regimes.
- Taxable Value: Calculated based on the nominal value or, if unavailable, the market value of the asset at year-end or the time of disposal.
Non-Application of IVAFE and Application of Substitute Stamp Duty
Financial assets held abroad and entrusted to resident financial intermediaries, such as fiduciary companies authorized by the Ministry of Enterprises and Made in Italy (MIMIT) for fiduciary administration of third-party assets, can facilitate the taxpayer’s compliance with declaration obligations. This fiduciary arrangement guarantees exemption from IVAFE and subjects the assets to substitute stamp duty under Article 13, paragraphs 2-bis and 2-ter, of the Fee Schedule, Annex A, Part One, of Presidential Decree No. 642 of 1972.
Exemption from Substitute Stamp Duty
The exemption from substitute stamp duty for financial products held abroad applies when these products are linked to pension-related purposes. The law identifies two main categories:
- Supplementary Pension Funds
The exemption applies to communications concerning financial products held through supplementary pension funds. These funds, regulated under current legislation, are exempt because they are intended to support workers’ additional pension savings. - Mandatory Pension Institutions
Similarly, the exemption covers communications related to financial products held via mandatory pension institutions, whether public or private.
The Italian Revenue Agency clarified this in:
- Interpello No. 678/2021: Communications linked to financial products serving pension purposes, even if held abroad, are exempt from substitute stamp duty. This aligns with the principle that such instruments serve public interest objectives.
- Circular No. 48/E of 2012: The exemption extends to all financial instruments associated with regulated pension schemes (both supplementary and mandatory), regardless of the foreign location of the assets.
However, this exemption applies exclusively to substitute stamp duty, not to IVAFE. The exemption from IVAFE is only granted in cases where foreign assets are under fiduciary administration without title transfer to the fiduciary company.
Practical Implications
The exemption from substitute stamp duty for investments in pension and provident funds represents a significant tax incentive for taxpayers managing their savings abroad through pension-related instruments.
However, this benefit does not apply to individuals holding such investments directly, without the intermediation of an authorized fiduciary company acting as a financial intermediary.
Fiduciary administration is, therefore, an essential tool for Italian tax residents seeking efficient and compliant management of foreign financial assets, ensuring proper fiscal treatment and eliminating IVAFE liability.
