New provisions under the revised Italy - China DTA

A new China-Italy Double Taxation Avoidance Agreement has been signed and will take effect from January 1, 2026 and introduces several more favorable amendments, especially regarding interests, dividends, and royalties paid by a company resident in one side to a company resident in the other side.

In particular, the new DTA will:

• Decrease, from 10% to 5%, the withholding tax on dividends paid to beneficial owner holding directly at least 25% of the capital of the company that is paying dividends throughout a 365-day period before the payment;

• Reduce, from 10% to 8%, the withholding tax on interests paid to financial institution on a loan with a term of at least 3 years for the financing of investment projects;

• Exempt from Italian taxation the interest deriving from securities issued by Bank of Italy, Cassa Depositi e Prestiti, SACE and Simest and paid to beneficial owners resident in China;

• Decrease, from 7% to 5%, the withholding tax on royalties for the use of, or the right to use, industrial, commercial, or scientific equipment;

• Exempt from taxation the capital gain deriving from certain equity transfers since only capital gains deriving from the transfer of participation of at least 25% at any time over the 12 months prior to the sale will be considered taxable.
  

The Announcement of MOF, SAT [2023] Doc No. 6, to further decrease the tax for small and low-profit companies (whose annual taxable income not exceeding CNY3 million only 25% of the portion of its taxable income will be included in the taxable income, and such enterprise shall be subject to the enterprise income tax (EIT) at the rate of 20%. The effect period is extended to Dec 31 2027 by The Announcement of MOF, SAT [2023] Doc No. 12.