Executive summary

On 30 December 2025, the Italian Parliament approved the 2026 Budget Law (Law No. 199/2025 — published on the Official Gazette on the same date), referred to in this Alert as "2026 BL."

The 2026 BL features several tax measures, some specifically designed for banks, other financial intermediaries and insurance companies, and others designed instead for a larger set of taxpayers.

Changes reflected in the 2026 BL that differ from the draft 2026 Budget Law include:

• New financial transaction tax (FTT) rate increases, not present in the draft 2026 Budget Law
• Refined participation thresholds relevant for the 95% corporate income tax (IRES) exemption regimes on dividends and capital gains; the former 10% participation threshold relevant for the dividends exemption regime is now replaced with a two-folded threshold (i.e., 5% participation or participation with tax value not lower than €500k) relevant for both dividends and capital gains exemption regimes
• Extension of the 95% IRAP exemption regime to dividends sourced from a "white-listed" European Economic Area) Member State
• An allowance of up to €90k granted for fiscal years 2027 and 2028 to partially absorb the impact of the IRAP rate increases for banks, selected financial intermediaries and insurance companies
• New provisions clarifying that cooperative credit institutions and reserves constituted by them with profits allocated to mandatory reserves under specific banking regulations are not affected by the legal presumption of distributions being drawn from windfall tax reserves, relevant for the 2023 windfall tax recapture rule
• New Insurance Premium Tax (IPT) provisions, not present in the draft 2026 Budget Law
• Other miscellaneous provisions affecting, among other things (a) the tax amortization of selected intangible assets, (b) the suspension of deferred tax asset (DTA)-related tax deductions and limitation in use of tax losses and excess Notional Interest Deductions

(For more on the draft law, see EY Global Tax Alert, Italian Government approves draft 2026 Budget Law with tax measures affecting banks, other financial intermediaries and insurance companies, dated 22 October 2025.)

The key tax measures affecting, among IRES and IRAP taxpayers, banks, other financial intermediaries and insurance companies are the following:

1. For transactions settled from 1 January 2026, the FTT rates are revised as follows.
   The FTT rate applicable to transfers of legal ownership of shares and equity-like instruments issued by Italian-resident companies are increased:
   
   • From 0.2% to 0.4% for OTC transactions; and
   • From 0.1% to 0.2% for regulated markets/MTFs transactions.
   The IFTT rate applicable to high frequency trading (HFT) transactions would increase from 0.02% to 0.04%.
2. A 95% exemption from the Italian regional tax on productive activities (IRAP) is provided for banks and other financial intermediaries (other than fund management companies and investment companies) and insurance companies with respect to dividends sourced from a EU/EEA Member State included in the white-list provided that such dividends (a) qualify for the tax-exemption regime under the Italian rules implementing the Parent-Subsidiary Directive (PSD) and (b) are nondeductible at the level of the distributing entity. Currently these dividends are included in the IRAP tax base for 50% of the relevant amount. The new IRAP exemption regime applies starting from fiscal year 2025; however, before the expiry of the 48-months statute of limitations term, banks, other financial intermediaries (other than fund management companies and investment companies) and insurance companies may request a refund of any IRAP paid in past fiscal years that exceeds the 95% exemption threshold. Upon specific request, banks may offset the refundable IRAP amounts (without any limit) against the extraordinary contribution due to unlock non-distributable reserves booked under the Italian 2023 windfall tax regime (see point 6, below) — the rules applicable to the IRAP reclaim and offsetting procedure will be supplemented via a tax measure to be issued by the director of the Italian Tax Authorities.
3. The existing exemption from corporate income tax (IRES) for up to 95% of dividends, which generally applies to banks, other financial intermediaries and insurance companies, as well as other IRES taxpayers, becomes conditional upon the parent entity's holding a minimum 5% participation in the capital of the distributing entity. Participations owned through other group affiliates are also considered, taking into account any de-multiplication produced by the investment chain, or situations in which the tax value of the participation is not lower than €500k. The new IRES exemption regime applies to dividends with distribution resolutions occurring from 1 January 2026.
4. The same thresholds provided under the 95% IRES dividends exemption regime also apply to (i) dividends sourced from Italy by an entity subject to tax in a European Union (EU)/EEA Member State included in the "white-list," and (ii) the participation exemption regime on capital gains.
5. An interpretative rule for IPT provides that, until 31 December 2025, insurance for "other risks related to the vehicle or boat" does not include drivers' injury protection (2.5%) and roadside assistance (10%) provided that the relevant policy premiums for these two types of coverages are shown separately and distinctly from the mandatory Motor Vehicle Third Party Liability (MTPL) (12.5%). However, from 1 January 2026 onward, the IPT law changes so that drivers' injury protection and roadside assistance will be subject to the 12.5% IPT rate, whether or not these risks are shown separately within the relevant policy.
6. The IRAP rates for banks, selected financial intermediaries and insurance companies are increased by two percentage points for three subsequent fiscal years. Brokerage and investment companies, fund management companies and non-financial holding companies are not affected by the IRAP rate increase described above. An allowance of up to €90k, which can be offset against the incremental IRAP due, is granted for fiscal years 2027 and 2028 to partially absorb the impact of the IRAP rates increase.
7. Under a legal presumption, any profits that banks distribute starting from fiscal year 2029 are deemed to be drawn from the non-distributable reserves (N-DR) that were booked under the 2023 windfall tax regime. To counteract this legal presumption, banks have an option to pay an extraordinary contribution, thus unlocking said N-DR, which applies (i) at a 27.5% rate for N-DR existing as of 31 December 2025 and (ii) at a 33% rate for N-DR existing as of 31 December 2026. Following the amendments made during the parliamentary discussion on the 2026 BL, the abovementioned legal presumption should not apply to cooperative credit institutions.
8. The compulsory carryforward mechanism that suspends the tax deduction of selected items of income giving rise to DTAs, already introduced by the Italian 2025 Budget Law, is renewed by the 2026 BL.
9. New temporary rules apply for the timing of the tax deduction of debt provision for expected losses.
10. The introduction for banks and other financial intermediaries of a limited deduction of interest expenses at differentiated rates from 96% to 99% for fiscal years 2026 to 2029. The same rule applies also for IRAP purposes. This law change does not affect the computation of the IRES and IRAP advance payments due for fiscal years 2027—2030.
11. Limitations are added to the tax deduction of write-downs on bonds booked as fixed financial assets.
12. For International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) adopters, the tax amortization quotas — ordinarily split over an 18-fiscal-year period — of costs incurred for trademarks, goodwill and selected intangible assets is allowed only if, and to the extent that, such costs are recognized in the profit and loss accounts; this rule is derogated for costs incurred for trademarks, goodwill and selected intangible assets deriving from transactions falling in scope of the Italian entry tax regime.

Other relevant tax measures, targeting a larger set of taxpayers (e.g., natural persons and entities other than banks, other financial intermediaries and insurance companies) include:

• The flat substitute tax due from high-net-worth individuals (HNWIs) who elect the Italian favorable tax regime is increased from €200k to €300k; also, the flat substitute tax for the HNWI's relatives increases from €25k to €50k.
• Capital gains derived from euro-denominated stablecoin tokens by a person who is not engaged in business activities will be subject to substitute tax at a 26% rate, rather than the 33% rate generally applicable to crypto assets, effective from 1 January 2026.
• An optional 8% substitute tax regime (10.5% for companies that were dormant in two out of three reference fiscal years) is provided for the assignment of nonbusiness assets to shareholders. The taxable basis is equal to the positive difference between the fair market value and the recognized tax cost of the nonbusiness assets. Tax incentives are intended to be granted for assignments of real estate, also for Italian indirect tax purposes.
• The step-up-in-value regime for reserves under the tax-suspension regime, introduced by Article 14 of the Legislative Decree dated 13 December 2024, No. 192, is renewed.
• Capital gains deriving from the disposal of certain assets (unless representing a going concern) are no longer suitable for taxation in up to five annual installments. The new provision applies to disposals of assets occurring in the financial year after the one ongoing on 31 December 2025 (i.e., for calendar year companies, it applies to disposals occurring from 1 January 2026).

Detailed discussion

New rules concerning the Italian Financial Transaction Regime (Art. 1, Paragraphs 42-43)

For transactions settled from 1 January 2026, the FTT rates are revised as follows:

• The FTT rate applicable to transfers of legal ownership of shares and equity-like instruments issued by Italian-resident companies are increased:
  
  • From 0.2% to 0.4% for OTC transactions
  • From 0.1% to 0.2% for regulated markets /MTFs transactions
• The IFTT rate applicable to high frequency trading ("HFT") transactions would increase from 0.02% to 0.04%.

Dividends taxation for IRES and IRAP purposes (Art. 1, Paragraphs 46-55)

On 1 August 2025, the European Union Court of Justice (EUCJ) ruled that the IRAP currently applicable to 50% of dividends received by an Italian tax resident bank from its EU subsidiaries conflicts with Article 4 of the PSD, as the residual taxation on 5% of the dividends is already covered by IRES. (For background, see EY Global Tax Alert, Italy | EUCJ rules regional taxation of dividends infringes on EU law, dated 4 August 2025.) Other financial intermediaries and insurance companies also face the same issue.

In light of the EUCJ decision, the Italian Government proposes to amend the dividends taxation regime as follows.

For IRAP purposes, a 95% exemption is introduced for dividends sourced from an EU/EEA Member State included in the white-list received by banks, other financial intermediaries (other than fund management companies and investment companies) and insurance companies — provided that such dividends (a) fall within the scope of the PSD and (b) are nondeductible in the hands of distributing subsidiary. As a result, the tax treatment of these dividends would be aligned for IRAP purposes with the ordinary 95% exemption already applicable for IRES purposes.

Although the new IRAP exemption regime applies starting from fiscal year 2025, banks, other financial intermediaries (other than fund management companies and investment companies) and insurance companies may - before the expiry of the 48-months statute of limitations - request a refund of the IRAP paid in prior fiscal years to the extent it exceeds the 95% exemption threshold. This refund claim must be submitted to the Italian Tax Authorities.

Under the revised IRAP exemption regime, the double-taxation phenomenon highlighted by the EUCJ (in contrast with Article 4 of the PSD), would be significantly reduced although not completely eliminated. Based on the current wording of the 2026 BL, intra-EU and EEA dividends would still be subject not only to IRES (as under the current rules) but also to IRAP up to 5% of their amount.

Banks filing refund claims may elect to offset the refundable IRAP amounts against the substitute tax due to unlock the non-distributable reserves under the Italian 2023 windfall-tax regime; in such a case, the ordinary limitations on offsetting would not apply. The option should ordinarily become available starting from the tenth day of the month following the one in which the refund claim is submitted to the Italian Tax Authorities.

The rules applicable to the IRAP reclaim and offsetting procedure will be supplemented via a tax measure to be issued by the director of the Italian Tax Authorities.

For IRES purposes, the existing 95% exemption regime on dividends continues to apply to banks, other financial intermediaries and insurance companies, as well as other IRES taxpayers. However, it becomes conditional upon the Italian parent entity's holding a qualifying participation in the distributing entity. Specifically, the exemption applies if the parent company holds a minimum 5% participation in the capital of the distributing entity; participations owned through other group affiliates are also considered, taking into account any de-multiplication produced by the investment chain, or where the tax value of the owned participation is not lower than €500k.

The revised IRES exemption regime applies to dividends for which the distribution resolution occurs starting from 1 January 2026; it also affects the computation of IRES 2026 advance payments.

The revised IRES exemption regime also affects the taxation of dividends paid by an Italian subsidiary to its EU/EEA parent company that is subject to tax in the foreign State of establishment. Under the amended Article 27(3-ter) of the Italian Presidential Decree dated 29 September 1973, No. 600, these dividends are subject to withholding tax in Italy at 1.20%; following the law change, the application of the 1.20% becomes conditional upon the verification of the thresholds described above.

The same thresholds also become relevant for the granting of the participation exemption regime on capital gains (pursuant to Article 87 of the Italian Presidential Decree 22 December 1986, No. 917) stemming from the disposal of participations purchased starting from 1 January 2026. To assess whether the disposed participations were purchased before or after 1 January 2026, a first-in-first-out mechanism should be followed.

Starting from 2026, dividends and capital gains realized by an Italian parent company that do not qualify for the 95% exemption would, in principle, be entirely subject to IRES in its hands. However, the double taxation of the same profits in the hands of either the subsidiary or the parent company is prohibited under Article 163 of the Italian Presidential Decree dated 22 December 1986, No. 917.

Insurance Premium Tax (Art. 1, Paragraphs 59-64)

In 2024, the Italian Tax Authorities (ITA) commenced a tax audit campaign focusing on fiscal year 2014 onward and assessing IPT applicable to drivers' injury protection (2.5%) and roadside assistance (10%) that the ITA asserted was all eligible for the 12.5% IPT rate applicable to MTPL because such risks would have been strictly connected with the circulation of the vehicle.

In a nutshell, the 2026 BL provided an interpretative rule applying IPT retrospectively through 31 December 2025 and under which insurance for "other risks related to the vehicle or boat" does not include drivers' injury protection (2.5%) and roadside assistance (10%) provided that the relevant policy premiums for these two types of coverages are shown separately and distinctly from the mandatory MTPL (12.5%).

However, from 1 January 2026 onward, the IPT law changes such that drivers' injury protection and roadside assistance will be subject to the 12.5% IPT rate, regardless of whether these risks are shown separately within the relevant policy.

Additionally, from 1 January 2026, the updated IPT Tariff specifies that the 12.5% rate applies to insurance for vehicle or boat-related risks, including accidental damage and similar risks, theft and robbery, fire damage and similar risks, legal expenses and glass coverage.

The 2026 BL also introduced an exceptional IPT payment arrangement for 2026 allowing insurance companies to postpone until 30 June 2026 the payment of the IPT on driver's injury protection and roadside assistance premiums collected during the first five months of 2026 (January through May).

Lastly, insurance companies must provide policyholders with a reduction equal to at least two-thirds of the higher IPT resulting from change applicable starting from 1 January 2026.

IRAP rates increase (Art. 1, Paragraphs 74-75)

For banks, other financial intermediaries and insurance companies, IRAP rates are increased by two percentage points for fiscal year 2026 and the two subsequent fiscal years. For banks based in Lombardy, the increase should lead to an IRAP tax rate of 7.57%.

The increase does not apply to brokerage and investment companies, fund management companies or non-financial holding companies. To partially absorb the incremental IRAP burden, an allowance of up to €90k is granted for fiscal years 2027 and 2028; it can be offset against the incremental IRAP the same way of a tax receivable.

Italian windfall tax reserve unlocking (Art. 1, Paragraphs 69-73)

Starting from 2029, any distributions of profits or reserves made by banks is presumed to be drawn from the non-distributable reserves (N-DR) booked in connection with the 2023 Italian windfall tax (i.e., for an amount equal to 250% of the Italian windfall tax otherwise payable). This means that such distributions will eventually trigger the application of the 2023 Italian windfall tax. (See EY Global Tax Alert, Italian Parliament passes Italian Windfall Tax for banks, dated 9 October 2023.)

Following the amendments introduced during the parliamentary review process, this presumption does not apply, in whole or in part, to the extent that the non-distributable reserve is constituted with profits allocated to the mandatory reserves provided for under Article 37 of Legislative Decree No. 385 of 1 September 1993. This provision requires cooperative banks ("banche di credito cooperativo") to allocate at least 70% of their annual net profits to a legal reserve.

In this context, banks may elect, until the fiscal year ending on 31 December 2028, to subject the N-DR to the payment of a one-off extraordinary contribution, in lieu of the application of the 2023 windfall tax. Following the amendments introduced during the parliamentary review process, the 2026 BL clarifies that this extraordinary contribution applies to the relevant reserve regardless of the nature of the items contributing to its formation or the modalities through which the reserve has been constituted.

In this context, by the end of fiscal year 2028 banks may opt to unlock their N-DR by paying a substitute tax (in lieu of the 2023 Italian windfall tax) which would apply:

• At a 27.5% rate on N-DR existing as of 31 December 2025;
• At a 33% rate on N-DR existing as of 31 December 2026.

The substitute tax must be paid by the deadline for IRES and IRAP balance tax payments and is nondeductible.

Suspension of DTA-related tax deductions and limitation in use of tax losses and excess of Notional Interest Deduction (Art. 1, Paragraphs 76-81)

This provision of the 2026 BL, which essentially replicates the provisions in Article 1(14-20) of the Italian 2025 Budget Law (Law No. 207, dated 30 December 2024), suspends certain DTA-related deductions for fiscal year 2027, deferring them to 2028 and 2029 in equal installments:

• 3.80% quota under Article 16 of Law Decree No. 83/2015 (Provisions and losses on customer loans)
• 12.36% quota under Article 1(1079) of Law No. 145/2018 (Tax amortization quotas of goodwill and other intangible assets that have resulted in the recognition of DTAs)
• 9.50% quota under Article 1(1067 — 1068) of Law No. 145/2018 (Tax amortization quotas of the income components derived from expected credit losses under IFRS 9 )

Additionally, the use of tax losses and ACE (Notional Interest Deduction) benefits for fiscal year 2026 is capped at 35% of the incremental taxable income resulting from deferred deduction carryforwards under Article 1(14-17) of the Italian 2025 Budget Law. For fiscal year 2027, the cap increases to 42%.

This limitation in the use of tax losses and ACE benefits also applies to losses resulting from the fiscal unit. As a result, the overall income of the fiscal unit for FY26 and FY27 is deemed to be primarily formed with the incremental taxable income resulting from deferred deduction carryforwards under Article 1(14-17) of the Italian 2025 Budget Law and under the deferral mechanism introduced by the 2026 BL.

Specific provisions have also been introduced for the computation of IRES and IRAP 2026, 2027 and 2028 advanced payments.

New temporary tax deduction rules for credit impairment losses (Art. 1, Paragraphs 56-58)

From fiscal year 2026 to 2029, for credits classified as Stage 1 and Stage 2 under the IFRS 9 expected-loss model, write-downs are deductible in equal installments over the year in which they are recognized in the financial statements and the following four years. This change, which also affects the computation of IRES 2026 advance payments, will lead to the recognition of DTAs on the deferred deduction. These DTAs, however, are not eligible for the conversion into tax credits regime introduced by Articles 55-56-ter of Law Decree No. 225/2010. As a consequence, the relevant amount should not be computed within the Common Equity Tier 1 (CET1).

Interest expenses deduction limitation (Art. 1, Paragraphs 133-136)

Under the current rules, interest expenses incurred by banks and other financial intermediaries other than fund management companies and investment companies are fully deductible, as the limitations set forth by Article 96 of the Italian Presidential Decree dated 22 December 1986, No. 917 do not apply.

Under Article 1(133-136) of the 2026 BL the deductibility of said interest expenses would be capped at 96% of the relevant amount for fiscal year 2026. For fiscal years 2027, 2028 and 2029 such cap will increase 1% each year. Starting from fiscal year 2030 interest expenses will become fully deductible again. The same rules apply also for IRAP purposes.

This law change does not affect the computation of the IRES advance payments due for fiscal years 2027 through 2030.

New rules for the deduction of write-offs of bonds and similar securities that are deemed to represent fixed financial assets (Art. 1, Paragraph 130)

According to the current tax provisions, banks and other financial intermediaries adopting International Financial Reporting Standards (IFRS) can claim depreciation deductions for bonds and similar securities representing fixed financial assets up to the amount that has been entered into profits and losses account based on the proper application of IFRS.

Based on the new rules, these depreciations will be deductible for an amount not exceeding (i) for listed securities, the arithmetic average of prices recorded in the last six months, (ii) for other securities, the difference between their recognized tax value and the value determined based on the overall performance of the electronic Italian bond market over the past six months.

Under the restated Article 101 of the Italian Presidential Decree 22 December 1986, No. 917, capital losses incurred by IAS/IFRS adopters are recognized for tax purposes if, and to the extent, they are booked in the profit and loss accounts.

New rules for deduction of tax amortization quotas of trademarks, goodwill and selected intangible assets (Art. 1, Paragraph 131)

For IAS/IFRS adopters, the tax amortization quotas — ordinarily split over an 18-fiscal-year period — of costs incurred for trademarks, goodwill and selected intangible assets is allowed only if, and to the extent that, such costs are recognized in the profit and loss accounts; this rule is derogated for costs incurred for trademarks, goodwill and selected intangible assets deriving from transactions falling in scope of the Italian entry tax regime.

Other tax measures

The 2026 BL also features other tax measures aimed at reaching a larger set of taxpayers (e.g., natural persons and entities other than banks, other financial intermediaries and insurance companies). These tax measures are summarized below.

The flat substitute tax due from HNWIs who elect the Italian favorable tax regime increases from €200k to €300k; also, the flat substitute tax for the HNWI's relatives increases from €25k to €50k.

Capital gains derived from euro-denominated stablecoin tokens by a person who is not engaged in business activities will be subject to substitute tax at a 26% rate, rather than the 33% rate generally applicable to crypto assets effective from 1 January 2026. A new permanent monitoring committee on crypto-assets and innovative finance is also being established.

An optional 8% substitute tax regime (10.5% rate for companies that were dormant in two out of three reference fiscal years) is provided for the assignment of nonbusiness assets to shareholders. The taxable basis is equal to the positive difference between the fair market value and the recognized tax cost of the nonbusiness assets. Tax incentives are intended to be granted for the assignment of real estate, also for Italian indirect tax purposes.

The step-up-in-value regime for reserves under tax-suspension regime formerly introduced by Article 14 of the Legislative Decree dated 13 December 2024, No. 192 is renewed. In particular, taxpayers may achieve tax recognition of the accounting value of reserves under the tax-suspension regime existing as of 31 December 2024 and 2025 upon the payment of a 10% substitute tax, payable in four annual installments.

Capital gains deriving from the disposal of certain assets (unless representing a going concern) are no longer suitable for taxation in up to 5 annual installments. The new provision applies to disposals of assets occurring in the financial year after the one ongoing on 31 December 2025 (i.e., for calendar year companies, it applies to disposals occurring from 1 January 2026).

Implications

Entities in the financial sector should prepare to comply with the changes, particularly regarding the new participation thresholds and implications of the temporary extraordinary contribution.