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Italy removed Malta and Cyprus from the black list

Tuesday, August 10, 2010
By way of a ministerial decree issued on July 27, 2010 Italy removed Malta and Cyprus from the black list for the purposes of the application of Italian controlled foreign company rules and provisions on tax residency of individuals.

As a result of the removal, Italian owned foreign companies established in Malta and Cyprus are no longer subject to Italian CFC rules, and Italian individuals who move to Malta or Cyprus are no longer presumed to be resident in Italy for tax purposes unless they prove the contrary (the burden to prove that the move is fictitious and tax residency remained in Italy is upon the tax administration).

Finally, Cyprus has been inserted in the white list for the purposes of the application of the portfolio income exemption exempting foreign source portfolio investment income from Italian 12.5 percent withholding or substituted tax.    

Following this decision, foreign investments and holdings held through a Maltese or Cypriot subsidiary of an Italian parent company, will only be subject to taxation in the country of the subsidiary, which is substantially lower than in Italy. By utilizing the EU Parent - Subsidiary Directive, profits can be distributed to the Italian holding company (parent company) free of any withholding tax. By this decision Malta and Cyprus have become very favorable tools to utilize for Italian companies as well as individuals from an international tax point of view.