Investment Funds 2025 Comparisons

The Italian investment funds market has largely overcome the challenges posed by the COVID-19 pandemic, returning to a stable and growth-oriented trajectory. ESG-driven strategies remain a cornerstone of the market, with private equity and venture capital funds maintaining a strong focus on sustainable projects. The state-owned investment arm, Cassa Depositi e Prestiti (CDP), remains a key player, leveraging the country’s savings to support initiatives in renewable energy, digital transformation, and social impact ventures by acting as a limited partner in various AIFMs.

Retail investor demand for ESG-focused UCITS also remains robust, reflecting the market’s steady commitment to sustainability. This consistent focus, combined with regulatory support, reinforces Italy’s position as a reliable and attractive jurisdiction for responsible investment strategies.

Applicable regulations impose on each AIFM the obligation to appoint a single custodian for the assets of each managed AIF. The role of custodian may be carried out by regulated entities only, such as Italian banks, Italian branches of foreign banks, Italian investment firms and Italian branches of foreign investment firms.

The depositary performs the custodian duties of financial instruments in its custody, and verifies the property and the registration of other assets. The depositary also holds the liquid assets of the AIF. In the performance of its duties, the depositary:

• verifies the legitimacy of the disposal, issuance, repurchase, reimbursement and annulment of the units/shares of the fund, as well as the distribution of the proceeds to investors;
• verifies the accuracy of the calculation of the value of the units/shares;
• verifies, in operations relative to the fund, that the counter-obligation is fulfilled within the established terms;
• carries out the instructions of the AIFM, unless they conflict with Italian law, the management rules of the AIF or the prescriptions of the supervisory authorities; and
• if the liquidity is not deposited with the depositary, monitors the liquidity flows of the fund.

The depositary is responsible to the AIFM and the AIF’s investors for any prejudice they may suffer as a consequence of the breach of its obligations. In the event of loss of financial instruments in custody, unless the depositary can prove that the default was caused by accident or by force majeure, it must be held to return, without undue delay, financial instruments of the same kind or a sum for a corresponding amount, and will be held liable for any other loss suffered by the AIF or the investors due to failure to respect its obligations, whether intentional or due to negligence. In such cases, the provisions of Articles 100 and 101 of EU Regulation 231/2013 will apply.

Activities related to the valuation of the AIF’s assets may be carried out internally (by an independent person in the case of a fully licensed AIFM – ie, someone not involved in any management activity of the AIF’s assets) or externally by a service provider, pursuant to the principles established by EU Regulation 231/2013 and the Regulations on collective asset management adopted by the Bank of Italy on 19 January 2015.

The valuation policies and procedures adopted by the AIFM are subject to review at least annually. Within the valuation process, specific controls and checks are carried out by the internal control functions with respect to their respective areas of competence. The net asset value of the AIF is equal to the current value at the reference date of the valuation of the assets of which they consist, net of any liabilities. Investors have the right to obtain a copy of the document setting out the valuation criteria from the AIFM, free of charge.

Borrowing for AIFs is accessible on market-standard conditions, even though not many financial institutions have developed a dedicated desk to fund finance. Restrictions on borrowing are usually regulated in the relevant constitutional document of the AIF, and may include the term of duration and the maximum assets compared to total assets of the AIF, and are reflected in the relevant financing agreement, provided that the AIFMD leverage regulation applies.

A revolving credit facility for a maximum single duration of six or 12 months is the most common instrument used by AIFs, specifically to manage short-term liquidity needs or to rationalise the timing of capital calls. Lenders usually take forms of security, the magnitude of which depends on the amount of the financing and the relevant complexity. The most common form of security is a pledge on the cash available on the AIF’s bank accounts. Financing agreements regulating fund finance usually provide for specific remedies upon the occurrence of an event of default, such as the ability of the lender, subject to certain conditions, to issue drawdown notices to investors on behalf of the AIFM, in order to ask investors to pay – out of their undrawn commitments – the balance of the outstanding financing.

Direct Taxes

Under Italian tax law, alternative funds established in Italy are deemed to be resident therein for income tax purposes, regardless of their legal form, and are liable to Italian corporate income tax (IRES), generally applied at a rate of 24%.

Italian tax law establishes that proceeds realised by Italian alternative funds are exempt from IRES.

As a consequence, proceeds realised by alternative funds arising from their investments will be received gross of any Italian withholding tax or substitutive tax (with some exceptions – eg, under certain conditions, interest from certain unlisted bonds), and will not be subject to Italian income taxes.

Italian AIFs are not liable to Italian local operating profit tax (IRAP), ordinarily applied at a rate of 3.9%.

Based on the wording of Italian tax law, and according to the interpretation of the Italian tax authorities, Italian alternative funds (even those under contractual form) are entitled to the application of the double taxation treaties entered into by Italy, and may request that the Italian tax authorities issue a tax residence certificate supporting their status for such purposes. However, the actual application of the double taxation treaties depends on the interpretation of the sourcing state.

Indirect Taxes

Management fees invoiced by the management company to the funds are exempt for Italian value-added tax (VAT) purposes (no Italian VAT will be charged on management fees), but fees due to the depository may trigger some VAT leakage. Indeed, the Italian tax authorities have taken the view that certain services rendered by the depository (eg, custody services and mandatory supervision services) will trigger VAT at a rate of 22%, and some others (eg, net asset value calculation) will be treated as VAT-exempt. As a consequence, Italian VAT applied by the depository in the first case will not generally be recoverable in the hands of the funds.

The Italian tax authorities have clarified that services that are “strictly connected” and specific to, and essential for, the management of AIFs (eg, certain fees charged by advisory companies or placement agents) are treated as exempt. According to the Italian tax authorities, certain services (eg, compliance, internal audit and risk management) can be considered as VAT-exempt where such services are rendered under an “outsourcing” process for regulatory purposes (esternalizzazione di funzioni).

Operations carried out by real estate funds (purchase/sale/lease of real estate properties) may be subject to VAT, depending on the nature of the transaction. The management company of the investment fund is deemed to be the taxable person for VAT purposes for the activities carried out by the fund. The fund’s VAT liability is determined separately from that of the management company and that of the other funds managed by the same management company.

The tax treatment of proceeds arising in the hands of alternative fund investors depends on both the type of proceeds and the type of investors.

Tax Regime of Investors Into AIFs (Other Than Real Estate Funds)

Any amount received that can be regarded as capital reimbursement is not subject to taxation. In this regard, the actual qualification of the sums distributed must be verified based on the information provided by the management company itself upon the relevant payments.

For funds other than real estate investment funds, a 26% (final or advanced) withholding tax is generally applied by the investment fund’s management company on proceeds arising from such investments. In particular, reference will be made to proceeds from:

• distributions of the fund (either in cash or in kind); and
• liquidation of the funds or redemption/transfer of the funds’ units – in such a case, the taxable base of the proceeds is determined as the difference between the value of the units on the redemption/liquidation/transfer date and the weighted average subscription/purchase price.

In more detail, proceeds realised by Italian resident investors holding fund units as private assets are subject to a 26% final withholding tax, to be applied by the management company.

For proceeds arising from the transfer of fund units, the 26% final withholding tax must be levied by the management company or by the Italian financial intermediary that has been engaged by the investor to manage the transfer of the fund units. If the management company or any other Italian financial intermediary does not act as the withholding tax agent with regard to such proceeds, the investor will be required to include them in its annual income tax return and autonomously pay the final substitute tax at a rate of 26%.

The above 26% withholding tax does not apply to proceeds paid to (or realised by) Italian individual investors holding the fund units through a portfolio that is subject to the “discretionary portfolio regime” (regime del risparmio gestito). Such proceeds are included in the increase of the portfolio’s net asset value, and are potentially subject to 26% taxation on an accrual basis.

Proceeds realised by Italian resident investors holding the fund units as business assets, entities engaged in entrepreneurial activity and permanent establishments of foreign investors qualify as business income and are fully subject to tax in the hands of the recipient (eg, 24% IRES for Italian resident companies or 27.5% IRES for banks), and also to IRAP for some taxpayers (eg, banks). A 26% advance withholding tax is levied upon the payment of such proceeds by the management company, but is not applicable to proceeds realised by insurance companies if the fund units qualify as assets allocated to cover the actuarial reserves according to the applicable life insurance regulations.

Italian non-mandatory pension funds (forme di previdenza complementare), Italian undertakings for collective investment and Italian real estate investment funds are not subject to tax with regard to proceeds arising from an investment into alternative funds, and no withholding tax or substitute tax is withheld and/or levied by the management company on such proceeds.

Proceeds realised by non-resident investors from a participation in an alternative fund are, in principle, subject to 26% withholding tax, to be levied by the management company. However, no withholding tax applies on proceeds paid out by alternative funds, provided that the foreign recipient does not have a permanent establishment for tax purposes in Italy and is either:

• the beneficial owner of the income and resident for tax purposes in a country that grants an adequate exchange of information with the Italian tax authorities (“White List Countries”); or
• an “institutional investor” established in a White List Country.

The definition of “institutional investor” for these purposes includes:

• entities that are subject to regulatory supervision in the state in which they are incorporated or created (eg, foreign banks and insurance companies);
• entities that have specific expertise in investment in financial instruments (eg, foreign investment funds), including tax-transparent entities not subject to regulatory supervision; and
• entities that have been set up with the exclusive purpose of managing investments for institutional investors that are subject to regulatory supervision, including tax-transparent entities that are not subject to regulatory supervision, provided that both such institutional investors and the management company of the entity are established in White List Countries.

The exemption also applies to entities or international bodies set up in compliance with international treaties that are in force in Italy, and to central banks or organisations, as well as managing official state reserves.

The White List Countries are numerous, and include the vast majority of countries of residency/establishment of institutional players and international financial firms (eg, the EU, the UK, the USA, Cayman Islands, BVI, Liechtenstein, UAE, Singapore, Jersey, Guernsey).

In order to obtain the above-mentioned exemption from Italian taxation, non-Italian resident investors must deposit the units with an Italian qualifying financial intermediary and submit proper documentation and self-declaration to the management company, stating the fulfilment of the requirements to benefit from the exemption.

If there is a negative difference between the sale and the purchase price (increased by any cost or expense related to the acquisition of the fund units), the latter amount can be used to offset other income, with certain limitations, depending on the nature of the investor.

Tax Regime of Investors Into Real Estate Funds

Distributions of proceeds from real estate investment funds to resident investors are subject to 26% (final or advanced) withholding tax, to be applied by the management company. Proceeds included in the positive difference between the redemption or liquidation value of a fund’s units and their average subscription or acquisition price are subject to the same tax treatment. No withholding tax applies to Italian non-mandatory pension and investment funds.

In order to counteract tax-abusive structures, Italian tax law provides for certain anti-abuse provisions where the above regime does not apply to Italian resident investors (the fund is treated as tax-transparent – ie, the taxpayer is taxed on proceeds realised by the fund, regardless of their actual distribution). This is the case where the investor holds (directly or indirectly) more than 5% of the fund. However, such anti-abuse rules will not be applicable if the investor qualifies as an “institutional investor” (eg, banks, insurance companies and investment funds).

Non-resident investors are subject to 26% final Italian withholding tax (or the lower tax rate on outbound interest payments according to the provisions of any applicable double taxation treaties).

Foreign “institutional investors” without a permanent establishment for tax purposes in Italy are exempt from the 26% withholding tax, provided that they are established in a White List Country. The definition of “institutional investors” for the purposes of the exemption at hand (which differs from the one applicable in respect of non-real estate investment funds) includes:

• foreign pension funds and foreign investment funds;
• international bodies established on the basis of international treaties that are valid in Italy; and
• central banks or entities that manage the state’s official reserves.

According to the interpretation of the Italian tax authorities, foreign investment funds are entitled to the exemption when the following requirements are fulfilled:

• the foreign investment funds can be compared, regardless of their legal form and their liability to tax, to Italian regulated AIFs from a substantial standpoint having the same purposes; and
• the foreign investment funds (or their management companies/advisers) are subject to regulatory supervision.

Capital gains realised upon the sale of real estate fund units by Italian resident investors holding fund units as private assets and by non-resident investors are subject to 26% substitutive tax. If the units are held in the context of a business activity, the relevant capital gain is included in the taxable base, and ordinarily subject to IRES/personal income tax.

The 26% substitutive tax on capital gains does not apply to the following non-resident investors:

• investors who are the beneficial owners of the income and are resident for tax purposes in White List Countries;
• “institutional investors” established in White List Countries – the same definition applies as for the exemption from withholding tax on proceeds from Italian non-real estate investment funds described above under “Tax Regime of Investors Into AIFs (Other Than Real Estate Funds)”;
• entities or international bodies set up in compliance with international treaties that are in force in Italy; or
• central banks or organisations that also manage official state reserves.

The exclusion of Italy’s right to taxation in respect of capital gains realised by a non-resident taxpayer upon the sale of a participation in an Italian real estate fund can also be granted under any applicable double taxation treaties.

Carried Interest Schemes

Italian tax law provides that, if certain requirements are met, proceeds realised by Italian tax-resident individuals under carried interest schemes will be treated as income from capital and therefore subject to substitutive taxation, to be applied at a rate of 26%.

The applicable legal provision does not introduce a special regime but rather clarifies the circumstances under which the carried interest proceeds have a financial nature, regardless of the existence of an employment relationship between the unitholder and the fund (or its manager/adviser).

The tax regime applies to directors and/or employees of entities who have a direct or indirect control, management or advisory relationship with the fund (or its manager/adviser). The conditions required to “secure” the qualification as income from capital are as follows:

• carry holders must commit themselves to actually invest an amount equal to at least 1% of the total investment of the fund;
• proceeds from the units will be payable only if all investors have received full repayment of the invested capital and a certain return (“hurdle”) provided under the relevant by-laws/rules of the fund; and
• a five-year minimum holding period is observed, or, in a change-of-control scenario, the units are held until that date.

In determining the 1% threshold, relevance will also be attributed to:

• ordinary units in the funds, held by the carry holders (ie, co-investments); and
• the value of the (ordinary or carry) units attributed to the carry holders as a benefit in kind and taxed as employment income.

If the above requirements are not met, analysis will be carried out on a case-by-case basis to assess whether there is any risk that the carry proceeds may be qualified as employment income, subject to:

• personal income tax at progressive tax rates (eg, equal to 43% on taxable income exceeding EUR50,000);
• a 10% surcharge applicable on employment income received by managers of entities operating in the financial sector (eg, banks and AIFMs) when the variable compensation (eg, bonuses and stock options) of the manager exceeds one time their annual fixed salary; and
• related local (eg, municipal and/or regional) surcharges (if applicable).

Other Taxes

No stamp duty, registration duty or other duties, taxes or fees are required to be paid upon the subscription of the fund units. No capital duty is levied on the subscription of the fund units or the drawdown payments to be made by the investors into the funds.

As a general rule, the execution of the documentation connected with the investment into the fund units is not subject to Italian registration tax. Where the execution of the documentation is carried out through either a notarial deed or a notarised agreement, registration tax will be due, at a fixed amount equal to EUR200. Non-notarised agreements are subject to registration tax, at a fixed amount equal to EUR200, only in the case of use.

Both Italian resident investors and non-Italian resident investors who fall within the definition of “clients” for regulatory purposes are subject to Italian stamp duty on periodical communications related to fund units. The stamp duty at hand is applied on a yearly basis by the management company at a rate of 0.2%, on a taxable base equal to the fair market value of the fund units and, in the absence thereof, to their nominal or reimbursement value as periodically communicated by the management company. The stamp duty due from “clients” other than individuals is capped at EUR14,000.

The transfer of fund units is not subject to the Italian financial transaction tax, ordinarily applied at a rate of 0.2%.

Tax Incentives

Under Italian tax law, there are several special tax regimes providing incentives for investing into Italian investment funds. In general, such incentives are granted as exemptions from tax on proceeds arising from the investment and differ according to the nature of the investor and/or the investment fund.

Italian pension funds

Mandatory Italian pension funds (such as enti di previdenza obbligatoria and casse di previdenza) and other non-mandatory Italian pension funds making long-term investments (with a holding period of at least five years) into, inter alia, Italian/EU alternative funds may benefit from an exemption from tax on the proceeds arising therefrom.

The investment funds qualifying for the above exemption must invest most (more than 51%) of their capital into shares issued by companies that are tax-resident in Italy, or that are based in EU/EEA countries but have a permanent establishment for tax purposes in Italy.

Assets whose proceeds benefit from the exemption are capped at 10% of the total assets of the pension funds.

“Ordinary” long-term individual investment plan (PIR ordinari)

A PIR is defined as the pool of qualified financial instruments and cash that is entitled to a special tax regime if certain requirements are met. This special tax regime is available to Italian tax-resident individuals only, and entails the following:

• an exemption from personal income tax (or substitutive taxation) on the proceeds arising from the financial assets underlying the PIR; and
• an exemption from inheritance taxation on the financial instruments included in the PIR, in the case of the death of the holder of the PIR.

The financial instruments included in the PIR must be held for at least five years, and the annual incentivised investment is limited to EUR40,000. The overall investment into the PIR may not exceed EUR200,000. The latter thresholds were set at EUR30,000 and EUR150,000, respectively, for PIRs established up until the end of 2021.

For PIRs set up from 2020 onwards, the amount invested into the PIR will be allocated during each year and for at least two-thirds of the year as follows.

• 70% into financial instruments (eg, equity, bonds, non-speculative derivatives), even if not listed on a stock exchange, that are issued by Italian tax-resident enterprises or enterprises that are tax-resident in the EU or EEA and have a permanent establishment for tax purposes in Italy, with the following qualifications:
1. 25% out of the 70% (ie, 17.5% of the overall amount invested into the PIR) into financial instruments issued by Italian tax-resident companies that are not listed on the FTSE MIB index of the Italian Stock Exchange or other major foreign indexes; and
2. 5% out of the 70% (ie, 3.5% of the overall amount invested into the PIR) into financial instruments issued by Italian tax-resident companies that are not listed on the FTSE MIB and FTSE Mid Cap index of the Italian Stock Exchange or equivalent.
• The remaining part (the free quota) will not be subject to such limitations and may be invested into other financial instruments or cash equivalents (ie, time deposits, bank accounts), if compliant with the other requirements (eg, concentration).
• A concentration limit of 10% applies.

Mandatory Italian pension funds and other non-mandatory Italian pension funds may also set up more than one PIR benefitting from the exemption from taxation on proceeds.

Italian/EU investment funds may serve as qualified underlying investments of a PIR, if their investment policy is compliant with the requirements above (so-called PIR-compliant funds). A PIR may also be set up by subscribing for units of an Italian investment fund.

As the target of the PIR incentive is mostly non-professional investors, retail funds units are usually preferred to alternative investment ones (which are more often used as indirect investments of a PIR scheme).

“Alternative” long-term individual investment plan (PIR alternativi)

The “alternative” PIR was introduced in 2020 as a new type of PIR. The tax benefits are the same as apply to the “ordinary” PIR: exemption from taxation on proceeds and from inheritance tax. The main differences are as follows:

• the annual incentivised investment is increased to EUR300,000, and the overall investment into the “alternative” PIR may not exceed EUR1.5 million;
• at least 70% is invested into financial instruments issued by Italian tax-resident companies that are not listed on the FTSE MIB and FTSE Mid Cap index of the Italian Stock Exchange or equivalent, or into financings or credits towards the same companies; and
• concentration limits are increased to 20%.

As of 2022, a taxpayer can benefit from the incentives of more than one “alternative” PIR in addition to only one “ordinary” PIR but subject to an overall maximum invested cap of EUR300,000 per year and EUR1.5 million in total.

Mandatory Italian pension funds and other non-mandatory Italian pension funds may also set up more than one “alternative” PIR and they are not subject to the above-mentioned maximum investment thresholds.

The law introducing the “alternative” PIR repealed the tax incentive applicable to ELTIFs that was introduced in 2020 but that never came into effect, pending the authorisation of the EU Commission.

In the exercise of its management activity, the retail fund may – up to a maximum of 10% of the total net value of the fund – take out loans to cover temporary mismatches in treasury management, in relation to the investment or disinvestment needs of the fund’s assets.

The duration of the loans taken out must be related to the purpose of the debt and in any case may not exceed six months. In the case of short-term borrowing, its use must be characterised by a high degree of elasticity. Within the above limits, loans in a foreign currency with a deposit with the lender of a corresponding amount of domestic currency (so-called back-to-back loans) are not counted.

Please see 2.5 Fund Finance.

Please see 2.6 Tax Regime.

AIFMD2

Directive (EU) 2024/927 (“AIFMD2”) brings a range of amendments to the regulatory framework for alternative investment funds (AIFs), which merit close attention from fund managers and market participants. Notably, it introduces provisions targeting loan-originating AIFs, aiming to harmonise practices across Member States while permitting tailored national implementations.

Key amendments include the following.

• A definition of “loan origination” that extends beyond direct lending to include indirect arrangements through third parties or special purpose vehicles. This applies where the AIF or its manager is involved in structuring the loan, defining its terms, or agreeing its preliminary characteristics prior to assuming exposure.
• Introduction of “loan-originating AIFs”, defined as:
1. AIFs whose primary investment strategy is to grant loans; or
2. AIFs where granted loans represent at least 50% of the fund’s net asset value.
• Concentration limits, restricting loan-originating AIFs from lending more than 20% of their assets to a single borrower, if it is an AIF, a UCITS or a financial undertaking.
• Leverage restrictions, which impose the following limits:
1. 175% for open-ended AIFs; and
2. 300% for closed-ended AIFs.

A specific exemption applies for shareholder loans, defined as loans made to companies in which the AIF holds at least 5% of the capital or voting rights. Such loans cannot be transferred to third parties;

• Structuring flexibility, allowing loan-originating AIFs to be established as either open-ended or closed-ended funds, subject to criteria to be defined by ESMA. These criteria will assist national regulators in determining whether open-ended structures are suitable.
• Risk retention requirements, obliging loan-originating AIFs to retain 5% of the nominal value of loans transferred to third parties. Retention periods are defined as follows:
1. until maturity, for loans with a term of up to eight years, or for loans to consumers; and
2. for at least eight years for other loans.
• Enhanced credit risk management requirements, obliging AIFMs to establish and maintain robust policies, procedures, and processes for assessing credit risk and managing loan portfolios. These must be reviewed and updated at least annually.
• Flexibility for Member States, which may:
1. implement stricter rules for specific categories of AIFs; or
2. prohibit AIFs from granting loans to consumers for reasons of public interest.

AIFMD2 also provides transitional measures for certain requirements applicable to AIFs established prior to its adoption.

Implementation Timeline

The AIFMD2 must be transposed into national law by 16 April 2026, with certain reporting obligations on delegation agreements taking effect from 16 April 2027. In Italy, the implementation will require alignment with existing national legislation, including the Consolidated Law on Finance (TUF) and the Bank of Italy’s Regulations on Collective Asset Management.

Supporting the Italian venture capital ecosystem

With the aim of increasing financial resources dedicated to the Italian start-ups and venture capital market, Article 33 of Law No 193 of 16 December 2024 (Annual Market and Competition Law), inter alia, introduced new rules that make the recognition of the aforementioned tax exemption regimes for mandatory Italian pension funds and other non-mandatory Italian pension funds on returns from, inter alia, certain investment funds (see “Tax Incentives” section of 2.6 Tax Regime) subject to the condition that they invest in “Venture Capital” AIFs an amount equal to at least 5% of the basket of “qualified investments” (a maximum of 10% of their assets) resulting from the previous year’s statements. This restricted portion in favour of investments in “Venture Capital” AIFs will increase to 10% of the basket of “qualified investments” from the year 2026.

Additionally, Law No 162 of 28 October 2024 introduced a key amendment concerning the SIS (see the “Fund Structures” section of 2.1 Fund Formation) as part of a broader reform aimed at introducing tax incentives and investment benefits for start-ups and small and medium-sized enterprises (SMEs). In this context, the maximum net asset threshold for SIS was raised from EUR25 million to EUR50 million, thereby expanding their investment capacity.