Italy: Italian Lending Market Finally Opens To Nonbanking Lenders

Last Updated: 9 April 2015
Article by Alessandro E. Corno, Marco Lombardi and Francesco Squerzoni

Concluding a process started during the summer of 2014, the Italian legislature has completed a set of measures governing direct lending by nonbanking institutions. As a result, Italian/European Union ("EU") insurance companies, alternative investment funds, and securitization vehicles may now lend into Italy. Qualified lenders may lend into Italy based on the new measures introduced by Law Decree no. 91 of June 24, 2014 ("Law Decree"), as converted into law by the Italian Parliament on August 7, 2014 with only limited changes, and by Law Decree level 2 and 3 implementing measures.

This Commentary summarizes the general terms pursuant to which nonbanking qualified lenders may carry out direct lending into Italy.

Lending in Italy

Insurance companies, alternative investment funds, and securitization vehicles may carry out direct lending into Italy and also take advantage of the tax measures introduced to support direct lending into Italy by qualified lenders.

Lending License. As a rule, lending in Italy on a professional basis vis-à-vis the public is reserved to licensed banks and financial institutions.

Italian Insurance Companies. Italian insurance companies may lend to Italian businesses,1 provided that they are previously licensed by IVASS (the Italian public authority supervising insurance companies) and to the extent that: 

  • The borrower is identified by a licensed bank or a financial intermediary;
  • The licensed bank or the financial intermediary identifying the borrower retains a "significant interest" in the financing transactions for the entire life of the loan (so-called "net retention");
  • The borrower has an adequate internal control and risk management system; and
  • The borrower is adequately capitalized. 

IVASS recently issued the Law Decree implementing measures, which strengthened the net retention threshold from 5 percent to 50 percent of the total loan amount and pointed out certain risk-spreading criteria that vary depending on each borrower's qualities (e.g., creditworthiness, presence or absence of balance sheets reviewed by an auditing firm).2

Italian Securitization Vehicles. Italian securitization vehicles3 may lend to businesses4 to the extent that:

  • The borrower is identified by a licensed bank or a financial intermediary;
  • The licensed bank or the financial intermediary identifying the borrower retains a "significant interest" in the financing transaction for the entire life of the loan; and
  • The notes issued to fund the financings granted by the securitization vehicle are addressed to "qualified investors" only.5

The Law Decree grants the Bank of Italy the power to adopt implementing measures on financings granted by Italian securitization vehicles, and on March 6, 2015, the Bank of Italy issued—for consultation purposes only—a draft pertaining to these measures.

The consultation term will expire after 60 days from the publication date. Italian securitization vehicles will be able to lend into Italy once the Bank of Italy's Law Decree implementing measures enter into force.

Italian Alternative Investment Funds. Italian investment funds carrying out lending activities qualify as alternative investment funds pursuant to Directive 2011/61/EU of June 8, 2011 on alternative investment funds managers ("AIFMD") as implemented into Italy.

The Law Decree broadened the alternative investment fund notion set out by the Italian Unified Financial Act6—which is the level 1 measure implementing the AIFMD—so that alternative investment funds could lend into Italyto borrowers other than consumers and microenterprises.

Pursuant to the Law Decree level 2 and 3 implementing measures, issued respectively by the Ministry of Economics and Finance7 and by the Bank of Italy,8 alternative investment funds lending into Italy will be formed as closed-ended undertakings and may grant financings without any limit on the financing's scope.

EU Alternative Investment Funds. EU non-Italian alternative investment funds may lend into Italy, on a freedom to provide services basis or via the formation of an Italian branch, provided that they may invest into direct financings pursuant to the laws and regulations of their home country and of Italy, and that direct lending is carried out vis-à-vis entities other than consumers and microenterprises.

Since alternative investment funds lending into Italy fall within the AIFMD scope, non-Italian EU licensed alternative investment fund managers may passport their AIFMD license in Italy, on a freedom to provide services basis or via the establishment of a branch, to form, manage, and fundraise Italian alternative investment funds lending into Italy.


Broadened Scope of Substitute Tax Regime on Medium-Term and Long-Term Loans. Certain qualifying lenders may elect to subject medium-term and long-term loans to a 0.25 percent (two percent in some cases) lump-sum tax (so-called substitute tax, or imposta sostitutiva) that replaces the indirect taxes generally applicable to the loan and the loan documents. The election is available only if the loan has a maturity exceeding 18 months and is made in Italy. The imposta sostitutiva is levied on the amount made available.

If the lender elects this option, the loan and the loan documents are exempt from any registration tax, cadastral tax, mortgage tax, or stamp duty that would otherwise apply. The exemption applies not just to the loan itself but also to all deeds, documents, agreements, and formalities incident to the medium-term or long-term loan, its execution, amendment, and redemption, as well as to any guarantees of whatever nature granted by anyone at any time and their subrogation, substitution, postponement, and cancellation.

This elective regime is very favorable if the loan is secured by mortgage because, absent the election, a two percent mortgage tax would apply on the maximum amount secured by the mortgage. Other than for very limited statutory exceptions and "scattered" court decisions, banks were basically the only lenders that could qualify for, and thus elect to apply, imposta sostitutiva. In addition, the Italian tax authorities have often taken the position that the imposta sostitutiva regime does not cover the subsequent transfers or assignments of the loan and of the related security package. These transfers and assignments were therefore subjected to the ordinary indirect taxes.

The Law Decree broadened the scope of application of the imposta sostitutiva regime in two important ways:

  • The pool of qualifying lenders now also includes (i) Italian securitization vehicles; (ii) insurance companies that are incorporated and licensed under the laws of an EU Member State; and (iii) undertakings for collective investment (e.g., investment funds) that are set up in an EU Member State or in a European Economic Area ("EEA") country allowing for an adequate exchange of information with Italy (currently, this includes only Iceland and Norway); and
  • The exemption from indirect taxes now also covers any subsequent transfer or assignment of the loan, of the receivables from it, and of any related security package.

Repeal of Interest Withholding Tax on Certain Cross-Border Loans. As a rule, if a nonresident lender grants a loan to an Italian resident borrower, interest paid on the loan is subject to a 26 percent withholding tax in Italy,9 unless the lender is eligible for the exemption under the Italian laws that implemented the EU Interest and Royalties Directive. The withholding tax may be reduced (usually to 10 percent) or, in very few cases, zeroed under the double-tax treaties entered into by Italy, where applicable.

The Law Decree repealed the interest withholding tax in cases of cross-border loans that meet certain requirements. As a result, no withholding tax is now levied on the interest if (i) the loan is a medium-term or long-term loan; (ii) the borrower is an enterprise (e.g., an Italian commercial partnership, a resident company, or the Italian permanent establishment of a nonresident enterprise); and (iii) the lender is any of the following:

  • A bank established under the laws of a EU Member State;
  • An insurance company established and licensed under the laws of a EU Member State; or
  • A foreign institutional investor established in a country allowing for an adequate exchange of information with Italy even if it is not subject to tax in its home country of establishment, and provided that it is subject to regulatory supervision in the country where it has been established.10

Because the new rules state that the borrower must be an enterprise, the withholding tax exemption should not apply when the borrower is an Italian undertaking for collective investment (e.g., an Italian investment fund). Moreover, it will have to be clarified in due course whether the withholding tax exemption is available if the borrower is an Italian static holding company.


The Law Decree introduces significant changes resulting in the opening of the Italian direct lending market to additional qualifying lenders. As a consequence, subject to the eligibility requirements set out by law, investors will be able to grant financing in Italy through securitization transactions or through the setup of alternative investment funds—without the need to apply in advance for a banking license. Moreover, the Law Decree may foster synergic relationships between banks and new qualifying lenders to the benefit of the Italian lending market. Finally, foreign investors also may be attracted to invest in Italy by the significantly favorable tax and segregation regimes introduced by the Law Decree.

It is expected that even after the enhancement of the Law Decree, Italian-based and operating banking institutions will still play a crucial role in the Italian lending market, given that they are vested with the task of identifying the potential borrower and are required to keep a significant interest in the financing transaction.


1.Lending vis-à-vis consumers and microenterprises continues to be reserved to licensed banks and financial institutions.

2.Reference is made to IVASS Regulation no. 22 of October 21, 2014, amending IVASS Regulation no. 36 of January 31, 2011, pointing out the general criteria on the investments of the technical reserves of insurance companies.

3.I.e., any vehicle formed pursuant to Law no. 130 of April 30, 1999.

4.Lending vis-à-vis consumers and microenterprises continues to be reserved to licensed banks and financial institutions.

5.The definition of "qualified investors" set forth under CONSOB Regulation no. 16190 of October 29, 2007, which implements the provisions on intermediaries under the Italian Unified Financial Act (as defined below), includes, among others, (i) Italian and foreign entities authorized and regulated to operate on financial markets (e.g., banks, investment firms, other authorized or regulated financial institutions, insurance companies, and pension funds); (ii) large enterprises (i.e., enterprises satisfying at least two of the following requirements: (a) total assets of at least €20 million, (b) net revenues of at least €40 million, and (c) own capital resources of at least €2 million); (iii) institutional investors whose principal activity is investment in financial instruments, including securitization entities; and (iv) other investors who request to be treated as professional clients, provided that certain requirements set forth by the Italian Unified Financial Act are met.

6.Legislative Decree no. 58 of February 24, 1998.

7.Reference is made to the new Bank of Italy Regulation on collective portfolio management dated January 19, 2015,enacting certain provisions of the Unified Financial Act andreplacing the previous Bank of Italy Regulation of May 8, 2012 on collective portfolio management.

8.Reference is made to the new Ministry of Economics and Finance Decree no. 30 of March 5, 2015 enacting certain provisions of the Unified Financial Act and replacing the previous Ministry of Economics and Finance Decree no. 228 of May 24, 1999. It is worth noting that the report to the new decree expressly stated that closed-ended undertakings could carry out direct lending into Italy.

9.Until June 30, 2014, the withholding tax rate was 20 percent.

10.The reference to foreign institutional investors has been amended by Law Decree no. 3 of January 24, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Alessandro E. Corno
Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions