Dividends taxed at 26% or 1.2% through an SRL? How it really works

You bought some shares, the company pays a dividend and the amount you receive is taxed at 26%. Then someone tells you: “If you had bought the shares through an Italian limited liability company (SRL), you would have paid only 1.2%.” It sounds almost like a tax trick: instead of losing more than a quarter of the dividend to tax, you simply create a company and pay an almost negligible amount. The 1.2% is real, but a comparison framed this way places two different situations on the same footing.

Understanding the mechanism requires separating at least three stages: the dividend received directly by an individual, the dividend retained within an SRL and the subsequent distribution from the SRL to its shareholder. Only then does it become clear that 1.2% is not necessarily the final tax burden on money reaching a personal bank account. Moreover, during 2026, the rules were first amended and then restored: the thresholds of 5% of share capital or a tax value of 500,000 euros, often cited in explanations published early in the year, are no longer the current rule.

Where the 26% tax on dividends comes from

Let us start with the most common case. An individual resident in Italy holds shares outside a business activity and receives a dividend. Article 27 of Presidential Decree (DPR) 600/1973 normally provides for a final withholding tax of 26% on profits paid to resident individuals in relation to qualifying and non-qualifying holdings unrelated to a business. In simplified terms, saying the withholding is “final” means it settles the Italian tax due on that investment income, subject to particular issues arising especially with foreign dividends and withholding taxes applied in the country of the company whose shares are held.

Imagine a gross dividend of 10,000 euros. The withholding is 2,600 euros and the individual retains a net amount of 7,400 euros. The calculation is straightforward: 10,000 × 26% = 2,600 euros. It is precisely the comparison between these 7,400 euros and the treatment of dividends received by a company subject to IRES that gives rise to the famous discussion of 1.2%.

Why people talk about 1.2% for an SRL

An SRL is normally subject to IRES, Italian corporate income tax, at the standard rate of 24%. This does not mean, however, that the entire dividend received by the company is taxed at 24%. Article 89 of the Italian Income Tax Code (TUIR) generally provides that 95% of profits distributed by companies and commercial entities is excluded from the recipient company's taxable income. Only the remaining 5% therefore enters the IRES tax base.

On a dividend of 10,000 euros, the taxable portion is 500 euros. Applying IRES at 24% gives tax of 120 euros. Dividing 120 euros by the original 10,000 euros gives 1.2%. Technically, therefore, there is no 1.2% IRES rate on dividends: the result comes from applying the standard 24% rate to a tax base limited to 5% of the dividend.

The distinction is not merely terminological. It explains why 1.2% describes the effective IRES burden on that flow, but cannot by itself establish how much tax will be paid overall before the money becomes available to the individual shareholder.

What actually happened in 2026

The 2026 Budget Law had made the 95% exclusion conditional on holding a direct stake of at least 5% of share capital or with a tax value of at least 500,000 euros, also introducing specific rules for indirect holdings within groups. If that amendment had remained in force, a small SRL with 50,000 euros invested in listed shares might not have qualified for the ordinary 95% treatment.

The rules changed again a few months later, however. Article 11 of Decree-Law no. 38 of 27 March 2026, converted with amendments by Law no. 88 of 22 May 2026, repealed the new thresholds and restored the previous regime with effect from 1 January 2026. Under the current wording of Article 89 TUIR, the 95% exclusion is therefore not generally conditional on reaching 5% of share capital or a tax value of 500,000 euros.

This matters because many analyses prepared at the beginning of 2026 quickly became outdated. It is incorrect today to say that an SRL with a small Apple holding cannot benefit from the exclusion solely because it does not meet those two thresholds. The other statutory conditions must naturally still be assessed, particularly for foreign holdings, special instruments or companies located in preferential-tax jurisdictions.

The initial comparison between an individual and an SRL

Restricting the example to a 10,000-euro Italian-source dividend in an ordinary situation, the comparison after the first level of taxation looks very favourable to the SRL. The individual has 7,400 euros available, while the company retains 9,880 euros. The difference is 2,480 euros, which the SRL can retain and reinvest.

This table tells only part of the story, however. The 9,880 euros do not belong personally to the shareholder: they are the SRL's resources. The company may use them under the rules governing its assets, but they cannot be treated as if they were already the owner's private money.

The 1.2% is not necessarily the shareholder's final tax burden

Imagine that an individual owns 100% of the SRL and that, after receiving the 10,000-euro dividend and paying 120 euros in IRES, the company distributes all the remaining 9,880 euros to that shareholder. The distribution from the SRL to the individual is normally subject to a further withholding of 26%. The second tax charge is therefore 2,568.80 euros, leaving the shareholder with 7,311.20 euros.

The total tax on the original 10,000 euros is 2,688.80 euros: 120 euros paid by the SRL and 2,568.80 euros withheld on the subsequent distribution. The overall burden is therefore 26.888%, or 26.89% when rounded. In this simplified example, routing the dividend through an SRL and immediately distributing it to the shareholder produces a slightly lower net amount than direct receipt by the individual.

Saying “with an SRL I pay 1.2% instead of 26%” is therefore misleading if the aim is to bring the money immediately into personal wealth. The 1.2% captures the first corporate level; the 26% may come into play later, when the profit is distributed to the shareholder.

The real advantage is the ability to reinvest more capital

The corporate structure becomes more interesting when the money does not need to be withdrawn immediately. After 26% tax, the individual can reinvest 7,400 euros. After the effective IRES burden of 1.2%, the SRL instead has 9,880 euros. The 2,480-euro difference is not permanently exempt: it mainly represents deferred personal taxation, which may arise when the company distributes its resources to the shareholder.

Meanwhile, however, the SRL can reinvest a larger base. This effect can become significant when a holding company owns stakes, receives dividends and uses the resources to buy further stakes, finance group companies or support new business projects. The advantage does not simply consist of “paying less tax”, but of retaining more capital within the corporate structure and deferring the second level of taxation. If every dividend is immediately distributed to the shareholder, the financial benefit falls sharply and must be compared with the company's costs and obligations.

Why the 95% exclusion exists

The mechanism becomes easier to understand by considering a structure comprising several companies. An operating company earns profits and pays tax on its income. When it distributes part of those profits to a corporate shareholder, taxing the entire dividend again as ordinary income of the recipient would create a second corporate layer of taxation on the same economic flow. If the corporate shareholder then distributed it to the ultimate shareholder, an additional tax charge would arise.

The 95% exclusion is intended to limit this cascading economic taxation between companies. It does not eliminate every tax charge, because 5% remains taxable, nor does it remove the tax that may arise when value finally leaves the corporate sphere and reaches an individual.

Is it worth setting up an SRL solely to invest?

This cannot be answered by mechanically comparing 26% with 1.2%. You must consider the amount of wealth, the instruments purchased, whether dividends are Italian or foreign in origin, any foreign withholding taxes, capital-gains rules, how long profits will remain in the company and how they will subsequently be transferred to the shareholder. Formation and running costs must also be included: bookkeeping, financial statements, tax returns, Chamber of Commerce fees, advice and other compliance requirements do not disappear simply because the company is used as an investment vehicle.

An SRL or holding company can be a very useful tool where there are substantial assets, a genuine reinvestment rationale and a coherent business structure. It may be much less advantageous when formed solely to receive a few dividends and immediately transfer them to the owner. In that case, it risks adding costs and complexity without delivering the imagined tax advantage.

The conclusion

The famous 1.2% is no myth: it results from the 95% exclusion provided by Article 89 TUIR and the application of 24% IRES to the remaining 5%. Thresholds of 5% of share capital or 500,000 euros of tax value were introduced in 2026, but Decree-Law (D.L.) 38/2026 subsequently repealed them with effect from 1 January, restoring the general regime.

The decisive point is different: after the first tax charge, the money still belongs to the SRL. If it stays within the company and is reinvested, the structure allows more capital to be put to work and personal taxation to be deferred. If it is distributed to the shareholder, 26% is normally added, and the overall burden in the example rises to approximately 26.89%.

The right question is therefore not simply “26% or 1.2%?”, but who needs to use the money, where it needs to remain and for how long it will actually be reinvested. The answer helps establish whether a corporate structure makes sense or merely adds costs and compliance obligations in pursuit of a tax rate taken out of context.

Note: this article is for information and educational purposes only and does not constitute tax, corporate or financial advice. The examples are simplified and do not consider every possible variable, including foreign withholding taxes, double-taxation treaties, special regimes and the specific characteristics of the holdings.