This week we are hosting an article written by Riccardo Garegnani, Chartered Accountant, about the new Italian branch exemption legislation.

The new Italian branch exemption legislation leads the way to new important investment opportunities in the Republic of Ireland.

As is well known, corporate tax rate in Ireland is 12.5%, compared to the Italian one which is 24% plus a local tax of 4.82% which is calculated on a wider tax base.

Until recently, foreign Italian investments in Ireland were penalized in two different ways.

On the one hand, investing through an Irish branch of an Italian company could lead to the same high Italian tax burden because of the tax credit system.

The Irish branch would have been subject to tax in Italy and then it could deduct from Italian taxes those taxes paid in Ireland. Therefore, the higher tax rate between Ireland and Italy would apply.

On the other hand, the risk of operating through an Irish company could be that the Italian tax authorities might assess the Italian fiscal residence of the Irish company.

The new Italian branch exemption legislation has solved the problem and investing in Ireland, for Italian companies, has never been so convenient.

Under this new Italian legislation, Italian companies can opt for the branch exemption so that their foreign branches pay taxes only where they are located, for example in Ireland.

According to the Cadbury Schweppes Judgment of the EU Court of Justice, an entrepreneur of a member State is allowed to do business in any EU country, also to benefit from a more favorable tax regime.

Therefore, an investment in an Irish branch, in participation exemption tax regime, of an Italian company would be subject only to the Irish taxation and would be an investment of an Italian resident legal entity.

There is branch profit tax in Ireland and no withholding tax would apply to Irish profits distributed in Italy.

But investing in Ireland is convenient for many other reasons because Ireland is:

  • An EU member State;
  • An English speaking country;
  • Euro is the official currency;
  • It is a common law country where legislation and judgments are definitely reliable.

Riccardo Garegnani, Chartered Accountant


Riccardo Garegnani graduated in Economics at the Bocconi University of Milan in 1983. He is a chartered accountant, expert in international taxation for multinational companies.