Italy
Saudi Arabia
An Italian owner usually asks one question first: will Italy treat a Saudi company as a low tax vehicle? For an ordinary Saudi company taxed at 20%, the text of the Italian rules says no.
Three other things decide the Italian bill: where the company is managed from, which Saudi tax regime it uses, and whether the shares sit in an Italian company or in your own name.
One warning on references. The Italian income tax code quoted in most guides is repealed from 1 January 2027, and every article number below changes on that date.
What Saudi Arabia asks of an Italian founder
Saudi Arabia allows 100% foreign ownership in most service and industrial activities. The conditions are in 100% foreign ownership for non-residents, and this page does not repeat them.
One Saudi rule shapes everything on the Italian side: who is allowed to file. The Ministry of Investment registers companies, and individuals who hold Premium Residency.
| Who applies | What the Saudi side expects |
|---|---|
| An Italian S.r.l. or S.p.A. | Its commercial register extract and last fiscal year's financial statements, certified by the Saudi Embassy |
| An Italian individual with Premium Residency | Exempt from the company documents |
| An Italian individual without a company | The entrepreneur track only, with a support letter from a Saudi university or an accredited incubator |
- Embassy or apostille is unsettled. The ministry's guide names the embassy, as explained in how to register a company in Saudi Arabia.
- The manager is expected to live in the Kingdom. That practical rule matters for Italian tax, as shown below.
The Italy and Saudi Arabia tax treaty, read on the text
The convention was signed in Riyadh on 13 January 2007, ratified by Law 159 of 23 October 2009, and has been in force since 1 December 2009. A treaty sets a ceiling, so the lower of the treaty rate and the Saudi domestic rate applies.
| Payment from Saudi Arabia | Treaty ceiling | Saudi domestic rate | What applies |
|---|---|---|---|
| Dividend to a company holding 25% for 12 months | 5% | 5% | 5% |
| Dividend in all other cases | 10% | 5% | 5% |
| Income from debt claims (interest) | 5% | 5% | 5% |
| Royalties | 10% | 15% | 10% |
- The treaty improves one line only. Royalties fall from 15% to 10%. Dividends and interest are already at 5% under Saudi law.
- Italy relieves double taxation by credit (Article 24), capped at the Italian tax on the same income.
- The matching credit has expired. Article 24 treated Saudi tax waived under an investment incentive as paid, for ten years from entry into force. That window closed on 1 December 2019.
Six months: the threshold for Italian contractors
Many Italian firms reach the Kingdom through a contract before they consider a company. Article 5 of the convention decides when that contract becomes a taxable presence, and it uses months, not days.
- A building site, an assembly or installation project, and the supervision connected to it, becomes a permanent establishment after more than six months.
- Services, consulting included, do the same when staff work in the Kingdom for more than six months in any twelve, on one project or connected projects.
- Below the threshold, business profits are taxable in Italy only, and the Saudi payer needs the treaty file to stop withholding.
Esterovestizione: where the Saudi company is resident
Italy taxes a foreign company as a resident when it is really run from Italy. Legislative Decree 209/2023 rewrote the test in Article 73 of the TUIR, from the tax period after the one in progress when it took effect: 2024 for a calendar year company.
A company is resident if, for most of the tax period, any one of three things is in Italy.
| Criterion | Definition in the text |
|---|---|
| Registered office (sede legale) | The formal seat |
| Place of effective management (sede di direzione effettiva) | The continuous and coordinated taking of strategic decisions for the company as a whole |
| Main ordinary management (gestione ordinaria in via principale) | The continuous and coordinated carrying out of day to day management acts for the company as a whole |
The old criteria, the seat of administration and the main business purpose, are gone. Guides that still quote them describe the law before 2024.
- A Saudi LLC run from Milan fails this test. If you take the strategic decisions and sign the daily acts from Italy, the company can be taxed there on its worldwide profit.
- The Saudi resident manager helps, if the role is real. A manager in Riyadh who actually runs daily operations places ordinary management in the Kingdom.
- The treaty tie-breaker was not read for this page. Confirm Article 4 of the convention with your adviser.
Italian CFC rules: does a Saudi subsidiary at 20% pass
Article 167 of the TUIR applies to Italian companies and to individuals who control a foreign entity, directly or indirectly, or hold more than 50% of its profits. Two conditions must both be met before the foreign profit is taxed in Italy.
- 1Do you control the Saudi entity?Control under Article 2359 of the Civil Code, or more than 50% of its profits. If not, the regime stops here.
- 2Is its effective taxation below 15%?Current and deferred taxes in the accounts, divided by profit before tax. The accounts must be audited and the audit used by the parent's auditor.
- 3Unaudited, or below 15%: the second testIs effective taxation below half of what the entity would bear if resident in Italy?
- 4Is more than one third of its income passive?Interest, royalties, dividends, financial leasing, and low value sales or services with group companies.
- 5Both met: profit is attributed to ItalyUnless you show a real economic activity with staff, equipment, assets and premises.
Read against the Saudi regimes, the answer depends on which one the company uses.
| Saudi company | Saudi tax on profit | Reading under Article 167 |
|---|---|---|
| Ordinary LLC, wholly Italian owned | 20% | Above 15%, the regime does not apply |
| Company in a special economic zone, qualifying activity | 5% for 20 years in three zones | Below 15%, the passive income test decides |
| Regional headquarters | 0% on eligible income | Below 15%, and its income is services to group companies |
| Company with a Saudi or Gulf partner | 20% on the foreign share, zakat on the rest | Ratio computed on the whole entity, to be modelled |
- The 15% test needs an audit. A small Saudi company may qualify for the auditor exemption described in annual compliance for a Saudi company. Without audited accounts, the second test applies.
- A regional headquarters is the exposed case. Low value services to related companies count as passive income, so both conditions can be met.
- Substance is the answer. The exemption requires real activity, and an advance ruling from the Italian tax agency is available.
Whether zakat counts as tax in the effective taxation ratio was not verified. If you plan a Saudi partner, have the ratio computed before signing.
Dividends to an Italian company: the 95% exclusion
Article 89 of the TUIR excludes 95% of a dividend from the income of the receiving company. The remaining 5% is taxed at the 24% corporate rate, which is 1.2% of the dividend.
The exclusion is refused when the paying company sits in a privileged tax regime. For a controlled company, that is the same effective taxation test as Article 167.
| Source of the dividend | Taxable in the Italian parent |
|---|---|
| Ordinary Saudi LLC at 20% | 5% of the dividend |
| Privileged regime, with proof that income was not located there to save tax | 5% |
| Privileged regime, with proof of real economic activity only | 50%, with a credit for the tax the subsidiary paid |
| Privileged regime, no proof | 100% |
A 2026 condition that came and went
Guides written in early 2026 mention a minimum holding for the 95% exclusion. The texts explain why.
- The 2026 Budget Law added a holding condition to Article 89, for distributions resolved from 1 January 2026.
- Article 11 of Decree-Law 38 of 27 March 2026 repealed it, under the heading of restoring the dividend exclusion.
- Italian commentary describes the repeal as retroactive. This page did not verify how a distribution resolved in the first quarter of 2026 is treated.
What reaches Italy: company or individual
The Saudi side is the same for both owners: 20% income tax in the company, then 5% withheld on the dividend, a combined 24%. The Italian layer is where they part.
| Italian company | Italian individual | |
|---|---|---|
| Italian tax on the dividend | 24% on 5% of it | 26% substitute tax |
| Credit for the Saudi 5% | In proportion to the taxable 5% | Not on the substitute tax, to confirm |
| Dividend from a privileged regime | 50% or 100% taxable | Fully taxable at progressive rates |
- The company route assumes the profit stays in the company. Paying it on to you adds 26% at that stage.
- The base of the 26% varies. Italian commentary reports the net amount when an Italian intermediary collects the dividend, and the gross amount otherwise.
Quadro RW and IVAFE for an individual shareholder
An individual who holds the Saudi shares, or who is the beneficial owner behind a structure, has two yearly obligations in the Italian return. A company shareholder is outside both.
| Rule | Source | |
|---|---|---|
| Reporting (quadro RW) | Foreign investments and financial assets declared each year, by the direct holder and by the beneficial owner | Decree-Law 167/1990, Article 4 |
| Penalty | 3% to 15% of the undeclared amount, EUR 258 if filed within 90 days | Article 5 |
| IVAFE | 2 per mille a year of the value of financial products held abroad | Decree-Law 201/2011, Article 19 |
| Higher rate | 4 per mille since 2024 for states on the 4 May 1999 list | Same article |
- Saudi Arabia is not on that list as published in 1999. The United Arab Emirates, Bahrain and Oman are, which matters if a Gulf holding is proposed to you.
- Value follows market value, and failing that nominal or redemption value. Confirm how a quota in a Saudi LLC is valued.
The article numbers change on 1 January 2027
Legislative Decree 117 of 19 June 2026 approved a new consolidated income tax act. Its Article 377 applies it from 1 January 2027, and Article 376 repeals Articles 1 to 191 of the 1986 code from that date.
The rules on this page are carried over with the same wording. The numbers are not.
| Rule | TUIR of 1986, for 2026 | Consolidated act, from 2027 |
|---|---|---|
| Company residence | Article 73 | Article 82 |
| Dividend exclusion | Article 89 | Article 98 |
| Privileged tax regimes | Article 47-bis | Article 162 |
| Foreign tax credit | Article 165 | Article 185 |
| Controlled foreign companies | Article 167 | Article 186 |
Sequencing an Italian entry
- Check the activity against the Saudi table, since trading at full foreign ownership needs SAR 30,000,000 of capital.
- Choose the shareholder: an existing Italian company with a year of accounts, or yourself with the constraints above.
- Decide who manages in the Kingdom, and write down which decisions are taken where.
- Model the Italian side before choosing a Saudi incentive, because a 0% or 5% regime changes the reading of Articles 167 and 89.
- Order the Italian residence certificate before the first dividend or royalty, since the Saudi payer files the treaty claim described in Saudi Arabia withholding tax for non-residents.
The bottom line
For an Italian owner, an ordinary Saudi company is not a tax problem at home. At 20% it clears the 15% line, and its dividend enters an Italian parent at 5% of its amount.
The exposure comes from three choices: running the company from Italy, placing it in a zero or low tax Saudi regime without substance, or holding it personally. The first two are the Saudi corporate tax regimes read from Rome.
If you want the Saudi structure settled before the Italian analysis is fixed around it, start with the Saudi Arabia company formation service.
Frequently asked questions
What withholding tax applies to dividends from Saudi Arabia to Italy?
The Saudi domestic rate of 5% applies. The treaty ceiling is 5% for a company holding at least 25% for 12 months and 10% otherwise, and the lower domestic rate is used when the ceiling is higher.
Is a Saudi subsidiary a controlled foreign company for Italy?
Only if it is controlled, taxed effectively below 15%, and earns more than one third of its income from passive sources. An ordinary Saudi company taxed at 20% does not meet the second condition.
Does a Saudi regional headquarters change the Italian position?
It can. Its eligible income is taxed at 0% in Saudi Arabia, and services to group companies of low added value count as passive income under Article 167. The defence is proof of real economic activity.
How is a Saudi dividend taxed in an Italian company?
Ninety five percent is excluded, so 5% is taxed at the 24% corporate rate. The exclusion is reduced or lost if the Saudi company is in a privileged tax regime and the required proof is not given.
Can a Saudi company be treated as resident in Italy?
Yes, if its registered office, its place of effective management or its main ordinary management is in Italy for most of the tax period. These criteria apply from the 2024 tax period for a calendar year company.
Does an Italian individual report shares in a Saudi company?
Yes, in the quadro RW of the yearly return, and IVAFE is due at 2 per mille of their value. The 4 per mille rate applies to states on the 4 May 1999 list, which does not name Saudi Arabia in its original text.
Is Article 167 of the TUIR still in force?
It applies for 2026. From 1 January 2027 the 1986 code is replaced by the consolidated act approved by Legislative Decree 117 of 2026, where the same rule is Article 186.
Sources
- Italy and Saudi Arabia double taxation convention, Official Gazette text hosted by the Italian Ministry of Economy and Finance: 5% or 10% on dividends (Article 10), 5% on income from debt claims (Article 11), 10% on royalties (Article 12), the six month thresholds (Article 5) and the credit method with a ten year matching credit (Article 24)
- Normattiva, Presidential Decree 917/1986 (TUIR), Article 167 as applicable in 2026: control, the 15% effective taxation test on audited accounts, the fallback test, the one third passive income test and the substance exemption
- Normattiva, Legislative Decree 117 of 19 June 2026, the new consolidated income tax act: Article 377 applies it from 1 January 2027, Article 376 repeals Articles 1 to 191 of the TUIR, and Articles 82, 98, 162 and 186 carry the residence, dividend, privileged regime and CFC rules
- Normattiva, Decree-Law 38 of 27 March 2026, Article 11: restores the 95% dividend exclusion by repealing the holding condition the 2026 Budget Law had added to Article 89 of the TUIR
- Normattiva, Decree-Law 201/2011, Article 19, paragraphs 18 to 22: IVAFE at 2 per mille of the value of financial products held abroad, and 4 per mille from 2024 for states on the 4 May 1999 list
Official and read on 5 October 2026. Italian side: the convention in the Italian text of the Official Gazette of 13 November 2009 (the English text was not read), the Ministry of Economy and Finance treaty list for the dates, and on Normattiva Articles 18, 47, 77, 89, 165 and 167 of the TUIR, Legislative Decree 209/2023 (Article 7), Legislative Decree 117/2026 (Articles 82, 98, 162, 186, 376 and 377), Decree-Law 38/2026 (Article 11), Decree-Law 201/2011 (Article 19), Decree-Law 167/1990 (Articles 4 and 5), Article 27 of Presidential Decree 600/1973, and the Ministerial Decree of 4 May 1999 in its original Gazette text. Saudi side: the figures are those of the guides of this series, which read the Ministry of Investment and tax authority sources. Secondary or market reading, presented as such: that the 26% applies to the net amount when an Italian intermediary collects the dividend, and that the 2026 holding condition was removed retroactively. To reconfirm before acting: how distributions resolved between 1 January and 27 March 2026 are treated, later amendments to the 1999 list, whether a quota in a Saudi LLC is valued for IVAFE at nominal value, whether zakat counts as tax in the effective taxation ratio, the residence tie-breaker in Article 4 of the convention, and Italy's status under the Apostille Convention, which was not re-read. The worked figures are illustrations. No Italian or Saudi adviser has reviewed this page. This is not legal or tax advice.