Italy has enacted a significant expansion of its tax reporting obligations for foreign entities with economic activity in the country. The changes took effect on January 1, 2025, introducing new disclosure requirements under Italy's tax legislation. Foreign companies that previously had limited reporting contact with Italian authorities may now be drawn firmly within scope.
Italy's updated tax reporting rules require foreign entities generating Italian-source income. including through digital services, permanent establishments. Alternatively. Cross-border group transactions. to file enhanced disclosures with the Agenzia delle Entrate (Italian Revenue Agency) by the applicable annual deadline. Entities meeting the revised threshold criteria must register, report, and in certain cases remit withholding tax on Italian-source payments. Non-compliance triggers automatic penalties under Italy's tax legislation.
This alert explains which business categories are affected, the specific thresholds that bring a foreign entity into scope, the compliance deadline, and the immediate steps international companies should take now.
What changed and when it applies
Italy's tax legislation was amended to align domestic reporting rules with OECD guidance on base erosion and profit shifting. The core change is a broadened definition of reporting obligations for non-resident entities. The revision covers three distinct areas.
First, the rules on permanent establishment identification have been tightened. A foreign company with personnel habitually concluding contracts in Italy – even remotely – may now be treated as having a taxable presence. The stabile organizzazione (permanent establishment in Italian tax law) concept is interpreted more broadly than before.
Second, enhanced corporate income tax disclosure obligations now apply to foreign entities holding Italian real estate assets or financial instruments issued by Italian-resident issuers. These entities must disclose the nature, value, and income generated by those assets annually.
Third, strengthened withholding tax reporting rules require Italian-resident payers – and, in certain cross-border structures, the foreign recipient – to provide detailed transactional records when payments are made to non-resident group entities. Reliance on a tax treaty to reduce or eliminate withholding tax no longer exempts a foreign entity from the underlying reporting obligation. The treaty benefit may still apply; the reporting obligation does not disappear with it.
The effective date is January 1, 2025. The first annual filing covering the 2025 tax year is due in the second half of 2026, consistent with Italy's standard corporate filing calendar. However, registration obligations for newly in-scope entities must be fulfilled within 30 days of the activity that brings the entity within scope. meaning some foreign companies are already in breach if they have not registered.
Which foreign entities are affected
The new rules apply primarily to four categories of foreign entity. Understanding which category applies determines both the reporting form and the deadline.
Category 1 – Foreign companies with a permanent establishment in Italy. Any entity that meets the revised stabile organizzazione criteria is required to file a full Italian corporate income tax return. This applies regardless of whether the entity has previously filed or has an existing tax identification number (codice fiscale).
Category 2 – Foreign entities receiving Italian-source passive income. Non-resident companies receiving dividends, interest. Alternatively. Royalties from Italian-resident payers must now file a disclosure report when the aggregate annual value of such payments exceeds the applicable threshold. That threshold is calibrated at a level that captures mid-sized cross-border group arrangements. Smaller incidental payments remain outside scope, but a pattern of recurring receipts will typically cross the threshold.
Category 3 – Non-resident digital service providers. Foreign entities providing digital services to Italian users – where the services are not covered by a pre-existing VAT registration – are subject to additional income characterisation rules. Italian tax legislation now expressly brings certain digital business models within the definition of Italian-source income, regardless of where the provider is incorporated or where its servers are located.
Category 4 – Foreign entities in intra-group financing structures. Entities that lend to or receive loans from Italian affiliates must disclose the terms of those arrangements and demonstrate arm's-length pricing. The revised rules require contemporaneous documentation, not merely retrospective reconstruction.
Tax residency is central to the analysis. A foreign entity that has been incorrectly treated as non-resident – because its effective management is in Italy – may face reclassification. Italy's tax legislation applies a substance-over-form test for tax residency that courts have consistently applied to management and control exercised from Italian territory.
For detailed guidance on how these rules interact with Italian corporate law obligations, see our overview of corporate law in Italy.
To receive an expert assessment of your entity's reporting exposure in Italy, contact us at info@ferrazwhitmore.com.
Immediate actions for international companies
The following steps should be addressed without delay. Each carries a different urgency depending on the category of entity involved.
- Conduct a permanent establishment review. Map all employees, agents, and contractors operating in Italy. Identify whether any habitually conclude contracts or habitually play the principal role leading to conclusion of contracts on behalf of the foreign company. If yes, registration as a stabile organizzazione may already be required.
- Audit intra-group payment flows. Review all payments made to or received from Italian affiliates in 2024 and 2025. Confirm whether withholding tax was correctly applied and whether the applicable tax treaty was invoked with the required documentation in place.
- Verify tax residency classification. If senior management regularly conducts meetings or makes strategic decisions from Italy, obtain a formal tax residency opinion before the filing season opens. Reclassification is one of the most common – and costly – outcomes of an Agenzia delle Entrate audit.
- Prepare contemporaneous transfer pricing documentation. For intra-group financing and service arrangements, documentation must exist at the time the return is filed. Assembling it after an inquiry has begun reduces its evidential weight significantly.
- Register if not already registered. Foreign entities newly in scope must register with the Italian Revenue Agency within 30 days of the triggering activity. Failure to register before the annual filing deadline compounds the penalty exposure.
Companies with existing Italian operations should also cross-reference their position against our dedicated guidance on tax law in Italy, which covers the broader tax compliance environment for international businesses.
Comparable reporting changes have been introduced in neighbouring jurisdictions. Foreign entities operating across the Iberian Peninsula can review the parallel developments covered in our alert on the 2025 tax reporting changes in Portugal.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our tax law practice supports foreign entities managing corporate income tax exposure, withholding tax compliance, and permanent establishment risk across European markets, including Italy. We combine Portuguese civil law expertise with English common law tradition to deliver cross-border tax structuring and compliance strategies for international entrepreneurs, institutional investors, and in-house legal teams. As a law firm in Italy and across Europe, we help international companies assess their tax residency position, document intra-group arrangements, and respond to inquiries from the Agenzia delle Entrate. Our attorneys have advised on tax treaty application and transfer pricing matters across both civil law and common law systems. Engaging a lawyer in Italy with cross-border experience is particularly important when permanent establishment exposure is in question. To discuss your situation, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.