An Italian company selling a qualifying shareholding pays tax on only 5% of the capital gain — an effective IRES rate of approximately 1.2%. The remaining 95% is exempt under the Participation Exemption (PEX) under Art. 87 TUIR. This is one of the most advantageous capital gains provisions in the EU — but it requires all four qualifying conditions to be met simultaneously, and failing any one of them produces a full 24% IRES charge on the entire gain.
Most foreign SRL owners planning a sale don't know whether they currently qualify for PEX. The most common failure is the Year 1 classification error: shares must be recorded as long-term financial assets (immobilizzazioni finanziarie) in the first balance sheet in which they appear. This classification cannot be made retrospectively — missing it in Year 1 permanently disqualifies those shares from PEX.
There is also a symmetry trap no competitor covers: a loss on PEX-qualifying shares is non-deductible. If you expect a loss on a subsidiary that meets all four PEX conditions, selling at a loss provides zero Italian tax relief.
This guide runs through the four PEX conditions, the loss symmetry trap, the 16% step-up revaluation option available under the 2024 Budget Law, and how the seller's double tax treaty determines whether Italy can tax a non-resident seller at all.
Company Italy's Milan lawyers and commercialisti structure PEX-compliant exits and prepare perizia giurata revaluations for foreign-owned SRLs.
Important: This article provides general tax information for educational purposes. Italian tax law changes frequently. Always consult a qualified Italian tax advisor before making tax or financial decisions.
Italy's Participation Exemption (PEX): How to Pay 1.2% Instead of 24%
The PEX (Art. 87 TUIR) exempts 95% of a qualifying capital gain from IRES. The remaining 5% is taxed at 24% — producing an effective rate of approximately 1.2% on the total gain.
| Taxpayer | PEX Applies? | Tax on Gain | Effective Rate |
|---|---|---|---|
| Italian company (SRL/SPA) — PEX qualifying | Yes | 5% of gain × 24% IRES | ~1.2% |
| Italian company (SRL/SPA) — non-qualifying | No | 24% IRES on full gain | 24% |
| Italian individual (any participation size) | N/A — PEX for companies only | 26% flat substitute tax | 26% |
| Non-resident company — DTT country | Depends on DTT | Usually 0% in Italy (seller's country taxes) | 0% in Italy |
Why PEX exists: Italy created the PEX to prevent double taxation within corporate groups. A subsidiary's profits were already subject to IRES. Without PEX, when the parent sold the subsidiary, the same underlying profits would be taxed again as a capital gain — the PEX prevents this second layer of IRES.
PEX is exclusively for corporate sellers. Italian SRL and SPA shareholders can use it; individual shareholders cannot. Individuals pay a 26% flat substitute tax on all capital gains from shares, regardless of holding period or shareholding percentage (Law 205/2017, effective January 1, 2019).
Rateizzazione (Art. 86(4) TUIR): For capital gains on business assets (not shares) held for more than 3 years, the gain can be spread over up to 5 consecutive tax periods in equal installments. This does not apply to share disposals covered by PEX — but is relevant for non-PEX asset disposals.
For the corporate tax framework into which PEX operates, see our Italian corporate tax guide.
The Four Conditions: Your PEX Checklist
All four conditions must be satisfied simultaneously. Failing any one means 24% IRES on the full gain.
Condition 1: Minimum 12-month continuous holding period
Shares must have been held without interruption for at least 12 months before disposal. The starting point is the date of acquisition or subscription. For shares acquired in multiple tranches at different times, the FIFO rule applies: the earliest-acquired shares are treated as sold first. This can disqualify part of a gain if some shares were acquired less than 12 months before the sale.
Condition 2: Classification as immobilizzazioni finanziarie
The shares must be classified as long-term financial assets (immobilizzazioni finanziarie) in the first financial year in which they are held. This classification must appear in Year 1's balance sheet. It cannot be reclassified retrospectively to qualify for PEX.
This is the most common failure for foreign SRL owners: if shares were initially classified as current assets (circolante) — perhaps because the initial holding was intended to be short-term — those shares are permanently disqualified from PEX. No subsequent reclassification cures the defect.
Condition 3: Subsidiary not resident in a blacklisted jurisdiction
The subsidiary being disposed of must not be resident in a jurisdiction on Italy's CFC blacklist (Art. 47-bis TUIR). EU member states are not blacklisted. The UAE's position on Italy's list should be verified with current guidance before any transaction — blacklist compositions change.
Condition 4: Subsidiary carries on genuine commercial activity
The subsidiary must operate a genuine commercial enterprise with real staff, operations, and revenue. Real estate holding companies (società di gestione immobiliare) are explicitly excluded from PEX — capital gains on disposal of real estate-holding companies are fully taxable at 24% IRES. Agenzia delle Entrate applies a substance test: does the entity have employees, contracts, genuine business activity?
For the relationship between the PEX blacklist and CFC rules under Art. 47-bis TUIR, see our guide on tax residence and transfer pricing in Italy.
The Symmetry Trap: Why PEX Losses Are Non-Deductible
Italy's PEX is a symmetric regime: if gains are exempt, losses are non-deductible. This is the most counterintuitive rule in Italian capital gains taxation.
| Scenario | Tax Treatment |
|---|---|
| PEX-qualifying gain (5% included) | 5% × 24% IRES = ~1.2% effective rate |
| PEX-qualifying loss (same qualifying shares) | NOT deductible — Art. 87(7) + Art. 101 TUIR |
| Non-PEX gain (shares fail one or more conditions) | 100% taxable at 24% IRES |
| Non-PEX loss (shares fail one or more conditions) | Fully deductible against other income |
The policy rationale: Italy designed PEX as a symmetrical treatment. If gains are largely not taxed (1.2% effective rate), losses cannot be deductible. This prevents cherry-picking: claiming a deduction on a loss while ignoring the exemption on a gain.
Practical implication for foreign groups: If a foreign group has an underperforming Italian subsidiary it wants to sell at a loss — and that subsidiary meets all four PEX conditions — the loss provides zero Italian tax benefit. It cannot be offset against other Italian taxable income.
Planning option: If PEX is disadvantageous because a loss is expected, consider whether it is feasible to intentionally fail one of the four conditions — for example, holding the shares for less than 12 months. Doing so allows the loss to be deductible. However, intentionally structuring around PEX to crystallize a deductible loss raises concerns under the general anti-abuse rule (Art. 10-bis L. 212/2000) and requires specialist legal advice.
Rateizzazione alternative for non-PEX situations: For business asset gains (not share disposals) on assets held more than 3 years, the five-year installment spreading reduces the annual IRES impact.
Pre-Exit Planning: The 16% Step-Up Revaluation Tool
Budget Law 2024 (Law 213/2023) extended the step-up facility, allowing holders of Italian SRL quotas or SPA shares to revalue their cost basis by paying a 16% substitute tax on the difference between a sworn appraisal value and the original cost. This increases the tax cost basis for calculating future capital gains.
When the step-up makes economic sense:
| Scenario | Without Step-Up | With Step-Up (16%) | Decision |
|---|---|---|---|
| PEX clearly applies | ~1.2% effective IRES on gain | 16% substitute tax upfront | Step-up makes no sense — 1.2% < 16% |
| PEX does NOT apply (e.g., real estate holding company) | 24% IRES on full gain | 16% substitute tax on gain | Step-up saves 8 percentage points |
| PEX qualification uncertain | Risk of 24% exposure | 16% certain cost for certainty | Risk-adjusted — often worth it |
| Individual shareholder | 26% flat tax on gain | 16% substitute tax on gain | Step-up saves 10 percentage points |
Worked example (PEX does not apply):
- SRL quotas: cost basis €100,000; current fair value €500,000; planned gain = €400,000
- Without step-up: 24% IRES × €400,000 = €96,000 tax
- With step-up: 16% × €400,000 = €64,000 substitute tax (paid now to reset cost basis)
- Step-up saves: €32,000
When step-up does NOT make sense: If PEX clearly qualifies (all four conditions met), the effective rate of approximately 1.2% on the gain is far better than the 16% step-up cost. Paying 16% upfront to avoid a 1.2% eventual tax is economically counterproductive.
Perizia giurata: The step-up requires a sworn expert appraisal (perizia giurata) confirming the fair value of the shares. Professional cost: typically €2,000–€15,000 depending on company complexity.
Timeline: The step-up revaluation as at January 1, 2024 applies to disposals in subsequent years. Allow at least 3–6 months for the appraisal process before any planned transaction.
For the step-up within a comprehensive pre-exit strategy, see our guide on tax planning strategies in Italy.
Non-Resident Sellers and Double Tax Treaties
When the seller is a foreign company or individual (non-Italian resident), Italy's taxing rights on the capital gain from selling Italian SRL quotas depend on the applicable double tax treaty.
OECD Model Tax Convention Art. 13: Under the standard OECD model, gains from ordinary share disposals are taxed only in the seller's home country. Italy, as the source country where the SRL is located, generally cedes taxing rights.
Practical result for common jurisdictions:
- UK seller (UK Ltd or individual): Under the UK-Italy DTT (1988), ordinary gains on Italian SRL quotas are taxed only in the UK. Italy cannot tax = 0% Italian capital gains tax.
- US seller (US C-Corp or individual): Under the Italy-US DTT (1999), ordinary gains are taxed only in the US. 0% Italian tax.
- UAE seller (no treaty): No Italy-UAE double tax treaty exists. Italy applies its standard IRES rate or withholding provisions to the gain. Specialist advice is required.
Critical exception — real estate rich company (OECD Model Art. 13(4)): If the shares being sold derive their value primarily from Italian real estate — meaning more than 50% of the company's asset value is Italian real property — Italy retains the right to tax the gain even under the DTT. This exception is critical for:
- Real estate investment structures
- Italian property-holding SRLs
- Companies where real estate has appreciated significantly relative to other assets
US seller structure considerations: US C-Corp vs. LLC treatment matters for treaty qualification. A US LLC treated as transparent for US tax purposes may or may not qualify for treaty benefits depending on the treaty's fiscally transparent entity provisions — requires specialist analysis.
FAQ
Q: What is the capital gains tax rate in Italy for companies?
Italian companies pay IRES at 24% on capital gains. However, if the Participation Exemption (PEX) under Art. 87 TUIR applies, 95% of the gain is exempt — reducing the effective tax rate to approximately 1.2% (5% of gain × 24% IRES). All four PEX conditions must be met simultaneously. Non-qualifying gains are taxed at the full 24% IRES rate.
Q: What is the participation exemption (PEX) in Italy?
The PEX (Art. 87 TUIR) exempts 95% of a capital gain on the disposal of qualifying shareholdings from IRES. Four conditions must be met cumulatively: (1) 12-month minimum holding period; (2) shares classified as immobilizzazioni finanziarie in Year 1; (3) subsidiary not resident in a blacklisted jurisdiction (Art. 47-bis TUIR); (4) subsidiary carries on genuine commercial activity. Real estate holding companies are explicitly excluded.
Q: Do non-residents pay capital gains tax in Italy on Italian shares?
Generally no, if a bilateral double tax treaty applies. Under the OECD model (Art. 13), ordinary share gains are taxed only in the seller's home country. Italy retains taxing rights only on gains from shares that derive their value primarily from Italian real estate (the "real estate rich company" rule under Art. 13(4)).
Q: Can capital losses offset capital gains in Italy?
Only if the shares do NOT qualify for PEX. Losses on PEX-qualifying shares (or shares that would qualify for PEX) are non-deductible under Art. 87(7) + Art. 101 TUIR. If the shares fail one of the four PEX conditions, the loss is fully deductible against other taxable income.
Q: How long must I hold shares to qualify for Italy's participation exemption?
At least 12 months of continuous ownership before the disposal. For partial disposals of shares acquired at different times, the FIFO rule applies — the earliest-acquired shares are treated as sold first. The holding period begins from the date of acquisition or subscription.
Q: What is the FIFO rule and how does it affect partial share disposals under PEX?
The FIFO (First In, First Out) rule under Art. 87 TUIR applies when shares in the same company were acquired in multiple tranches at different times, and only some of those shares are being sold. The shares acquired earliest are treated as sold first. This means: if you acquired 60% of an SRL in Year 1 (qualified for PEX) and 40% in Year 2, and you sell 50% of the total in Year 3, the FIFO rule treats the earliest shares as sold first — the Year 1 shares qualify for PEX. However, if the earlier-acquired shares had a higher cost basis and the later shares a lower one, the FIFO rule may affect the gain calculation in your favor or against depending on the specific numbers. Careful modeling is required before any partial disposal.
Q: Does the PEX apply when an Italian individual shareholder sells SRL shares?
No. The Participation Exemption under Art. 87 TUIR is exclusively available to Italian corporate sellers (SRL, SpA, and similar Italian capital companies). Italian individual shareholders are subject to a flat 26% substitute tax (imposta sostitutiva) on all capital gains from shares — regardless of holding period, shareholding percentage, or whether the shares would meet the PEX conditions. Law 205/2017 unified the tax rate at 26% for individuals from January 1, 2019. There is no minimum holding period or commercial activity test for the 26% rate; it applies automatically.
Q: How does Italy's real estate rich company rule affect capital gains on Italian SRL shares?
Under OECD Model Art. 13(4) — incorporated into most of Italy's double tax treaties — Italy retains the right to tax capital gains from selling shares that derive more than 50% of their value from Italian real property, even when the seller is a non-resident in a treaty jurisdiction. For non-treaty sellers, Italy's domestic IRES or WHT applies to the gain regardless of asset composition. This exception is critical for real estate investment structures, property-holding SRLs, and any company where Italian real estate has appreciated significantly. A valuation of the company's assets must be performed to assess whether the 50% threshold is met before assuming treaty protection eliminates Italian tax.
Q: What is the perizia giurata (sworn appraisal) and who can prepare it for the step-up revaluation?
A perizia giurata is a sworn expert appraisal of the fair market value of SRL quotas or SpA shares, prepared by a qualified professional and sworn before a court or notary in Italy. It is required to support the 16% step-up revaluation under Budget Law 2024 (Law 213/2023) — the appraisal value sets the new cost basis for calculating future capital gains. The appraiser must be a registered dottore commercialista, ragioniere commercialista, or a court-registered expert. Professional cost: €2,000–€15,000 depending on company complexity and size. The appraisal must be completed and the 16% substitute tax paid by the applicable legal deadline for the election to be valid.
Q: Can capital losses on Italian shares be carried forward to offset future gains?
For shares that do NOT qualify for PEX (non-qualifying shares), capital losses are fully deductible against Italian taxable income in the year of disposal, or carried forward for up to 5 tax periods (Art. 101 TUIR). For shares that qualify for PEX (or that would qualify if sold at a gain), losses are non-deductible in the current year and also cannot be carried forward — this is the symmetry rule under Art. 87(7) TUIR. There is no mechanism to convert a PEX-qualifying loss into a deductible one after the fact. Planning must occur before the disposal decision if a loss is expected.
Q: How does Italy tax capital gains on cryptocurrency held by an Italian SRL?
Italian SRLs holding crypto-assets realized capital gains that are taxed at the standard IRES rate of 24% — not at the individual flat rate of 26% that applies to individuals. The gains are recognized when crypto is sold for fiat currency, exchanged for other crypto, or used to purchase goods and services. Since January 1, 2023, Italy applies specific crypto-asset taxation rules under Law 197/2022 (Budget Law 2023). The PEX does not apply to crypto-asset gains — PEX is limited to equity shareholdings in qualifying companies. Cost basis tracking and proper booking of crypto transactions in the SRL's contabilità ordinaria from Day 1 is essential.
How We Can Help
Italy's Participation Exemption offers a 1.2% effective capital gains rate for qualifying shareholdings — but all four conditions must be satisfied from Day 1, the symmetry trap means losses on those same shares provide zero relief, and pre-exit planning (including PEX condition verification and the 16% step-up revaluation) should start at least 12 months before any transaction.
Company Italy's Milan lawyers and commercialisti structure PEX-compliant exits, prepare perizia giurata revaluations, and advise on treaty-based capital gains exemptions for foreign SRL owners. Our offices in Milan, Rome, and Florence serve clients across Italy.
Start your exit planning consultation with our Milan team:
- Milan: +39 02 8088 1240 | Via Monte Napoleone 8, 20121 Milano
- Rome: +39 06 4520 7330 | Via del Corso 184, 00186 Roma
- Florence: +39 055 264 8120 | Via de' Tornabuoni 17, 50123 Firenze
- Email: info@company-italy.com
See our Italian tax advisory services or the Italian corporate tax guide.
This article is for general information only and does not constitute professional tax advice. Italian tax regulations change frequently — always verify with a qualified Italian tax professional. Contact our tax team for a consultation.