What is the Spain-Italy double taxation treaty
The Spain-Italy double taxation treaty is an international agreement that allocates the right to tax each type of income between the source state and the residence state. Its aim is simple: to ensure the same profit is not taxed twice.
For an SME with an SRL in Italy, the treaty is the key tool when distributing dividends, collecting interest or royalties, or selling shares. Without it, the withholding tax at source would be added to the personal income tax or corporate tax of your country of residence.
The treaty applies to tax residents of one or both states, and the method it uses to eliminate double taxation is the credit method: the country of residence deducts the tax already paid in the other.
Dividends from your Italian SRL: maximum withholding of 15%
When your SRL distributes profits, Italy applies a withholding tax at source on dividends. The Spain-Italy double taxation treaty generally limits it to 15%.
If the recipient of the dividends is a legal entity holding at least 25% of the SRL's capital, the maximum rate drops to 10%. For individual partners, the applicable rate is 15%.
That tax withheld in Italy is then deducted in your Spanish tax return, so that the total cost is not higher than what you would pay if taxed in only one country.
Interest and royalties: maximum withholding rates
The treaty also limits the withholding tax on interest, with a maximum rate of 12%, and on royalties, with rates ranging from 4% to 8% depending on the asset concerned (copyright, patents, trademarks or industrial equipment).
Key points
- Dividends: 15% general / 10% with a holding of 25% or more
- Interest: 12% maximum
- Royalties: between 4% and 8% depending on the asset
- Capital gains: taxed in the country of residence, except for real estate
Capital gains: where the sale of your shares is taxed
If you sell your stake in the Italian SRL, the capital gain is taxed in your country of residence, unless the company owns real estate located in Italy, in which case Italy retains the right to tax it.
This means that, as a resident of Spain, you will declare the gain from the sale of an operating SRL in Spain, applying the rules of personal income tax or corporate tax.
Certificate of residence: the procedure that activates the treaty
For Italy to apply the reduced treaty rate instead of its domestic withholding tax, you need to prove your residence in Spain with a certificate issued by the AEAT.
The certificate is requested online and must be submitted to the Italian Agenzia delle Entrate, together with the form requesting application of the treaty. Without this document, the payer will apply the higher Italian domestic rate.
The form is filed by the company with the Italian administration together with the residence certificate. At Filnet we prepare it as part of your SRL tax maintenance, so the treaty applies from the first distribution of dividends.
How the treaty applies to your SRL in practice
It works simply: the SRL pays IRES at 24% on its profits in Italy; when distributing dividends, it withholds 15% (or 10%) under the treaty; and you declare those dividends in Spain, offsetting the Italian withholding tax.
The result is that you do not pay twice on the same profit. The key is to keep the certificate of residence up to date and to have advisers who coordinate the obligations in both countries.
