A trust is an instrument having extreme flexibility and adaptability. For those reasons, it is becoming more and more common in the field of estate and succession planning as a simple and effective solution to protect an individual's assets from uncertain events. It is customarily used in generational transfers of family assets and businesses, the achievement of charitable purposes, and the protection of vulnerable individuals.

Italy does not have proper civil rules regulating trusts, but the use of trusts has been recognized in Italy through the ratification of the Hague Convention of July 1, 1985 (enforced with the Law n. 364/89 and came into force since January 1, 1992). Nonetheless, the increasing use of trusts in Italy has raised several questions about tax treatment for trusts, settlors, and beneficiaries.

In this context, the Italian tax authorities released Circular Letter No. 34/E on October 20, 2022, providing guidance on several key issues surrounding trusts. It provides many important clarifications making trusts even more attractive for individuals resident in Italy and international families having one or more beneficiaries resident in Italy or wishing to relocate to Italy. By way of example, capital distributions involving assets located outside of Italy can be totally exempt from taxation in Italy when made by an irrevocable, discretionary trust established by a settlor resident abroad.

This article examines the principal provisions of Circular Letter No. 34/E and provides a comprehensive view of the tax treatment of trusts in Italy. Several practical examples are discussed.1


The tax treatment of trusts, settlors, and beneficiaries varies depending on (i) the type of trust from an Italian tax perspective (i.e. opaque, transparent, or disregarded), (ii) the nature of the trust based on actual activity carried out (i.e. commercial or non-commercial trust), and (iii) the residence of the trust for tax purposes.

Type of Trusts

  • Disregarded Trust. To be treated as a disregarded trust, a trust must be (i) a revocable trust or (ii) a trust where the settlor or the beneficiaries have a power or de facto control or influence to manage the trust assets or dispose of either the assets held in trust or the income from such assets.
    With Circular Letter 61/E/2010, the Italian tax authority listed some cases in which a trust should be considered a disregarded entity for tax purposes:
    • Trusts where the settlor or the beneficiaries can terminate the trust at will.
    • Trusts where the settlor can, at any time appoint himself or herself as beneficiary.
    • Trusts where the trustee cannot administer the trust without the prior consent of the settlor or of the beneficiaries.
    • Trusts where the settlor has the power to revoke the trust assigning trust assets to himself or herself or to other beneficiaries.
    • Trusts where the beneficiaries have the right to receive an anticipated attribution of the trust assets during the life of the trust.
    • Trusts where the trustee must follow the directions provided by the settlor with reference to the management of the trust assets and the trust income.
    • Trusts where the settlor has the power to modify the list of beneficiaries during the life of the trust.
    • Trusts where the settlor can appoint income or assets, or provide loans, to persons appointed by the settlor.
    • Trusts where the administrative and dispositive powers of the trustee are limited, or can be affected, by the settlor or by the beneficiaries
  • Transparent Trust. To be treated as a transparent trust, a trust must be a fixed-interest trust or another trust where the beneficiaries are identified. According to the interpretation of the tax authorities, a beneficiary is identified when he is not only named as a beneficiary, but also has an enforceable right to the payment of his share of the trust's income.

Nature of Trusts

  • Commercial Trust. To be treated as a commercial trust, the exclusive or principal object of the trust must have a commercial nature, meaning that the activity performed results in the generation of business income pursuant to Art. 55 Italian Income Tax Code, ("I.T.C.").
  • Noncommercial Trust. This category is a residual category. To be treated as a noncommercial trust, a trust must not be a commercial trust.

Tax Residence of Trusts

  • Resident Trust. To be treated as a resident trust, the place of administration of the trust must be located in Italy or its principal business must be carried out in Italy.
    The Italian tax legislation provides two anti-tax avoidance presumptions for a trust to be considered fiscal resident in Italy, even if none of the listed conditions are met.
    • The first provides that a trust is presumed to be resident in Italy if (i) a trust is established in a jurisdiction not included in the white list of countries that allow exchanges of information with Italy and (ii) at least one of its settlors and one of its beneficiaries is an Italian resident person. Circular 48/E/2007 clarifies that, for the purposes of this rule, the tax residency of the settlor is tested at the time of establishment of the trust. Therefore, if at the time of formation of the trust any settlor was an Italian resident person, the anti-abuse rule applies, even though the settlor becomes nonresident at a later stage. For beneficiaries, tax residence is tested in each taxable period during the life of the trust. The taxpayer can rebut the presumption by providing evidence that the trust is considered to be nonresident in Italy according to the general rules. This means that the trust's place of effective management or place of business is located outside Italy.
    • The second addresses the addition of Italian situs real property by a resident person to a trust settled in a State that is not a white-list State. In that fact pattern, the trust is considered to be resident in Italy when, after its formation, an Italian resident person transfers to the trust full or limited ownership rights to Italian real property. Also in this case, the taxpayer can rebut the presumption by providing evidence that the trust is considered to be nonresident in Italy under general rules.
  • Nonresident Trust. To be treated as a nonresident trust, the place of administration of the trust must be located outside of Italy and its principal business must not be carried on in Italy.

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1. The examples provided are based on the interpretation of recent clarifications provided by the Italian tax authorities. Because some points remain unclarified, the examples may need to be revised in the event additional clarifications are issued by the Italian tax authorities.

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.