01 June 2016

Direct investments in credits by european alternative investment funds in italy

On February 16, 2016 the Italian Government enacted a new law decree converted into Law no. 49 dated 8 April 2016 (the New Law) that introduced provisions aimed to stimulate the Italian economy and increase the availability of non-banks debt financing to Italian companies.

This article will provide a brief outline of the provisions of the New Law which authorises European Alternative Investment Funds (the EU AIFs) to invest in credits in Italy (also through the direct lending). As a result of the New Law there is no requirement for EU AIFs to have a specific establishment In Italy for investing in credits, and, EU AIFs benefit from significant tax improvements previously reserved to banks and Italian in Italy Alternative Investment Funds (the Italian AIFs) only.


The lending activity in Italy has been traditionally reserved to banks and those financial institutions, lodged with a specific register held by the Bank of Italy, which are subject to regulatory and prudential provisions substantially mirroring those applicable to the banks set forth in the legislative decree no. 385 dated 10 September 1993 (the Italian Banking Law).

On March 4, 2014 the Italian Government enacted the legislative decree no. 44 (the AIFM Law) that implemented the AIFM Directive and laid the foundations for the lending deregulation process in Italy.

In fact, the AIFM Law introduced significant change to the legislative decree no. 58 dated February 24, 1998 (regulating, inter alia, the collective investment undertakings, the TUF), in particular amending the definition of collective investment undertakings (organismi di investimento collettivo del risparmio - OICR) and authorising Italian AIFs to invest in credits also granting facilities using their own asset[1].

The following steps were taken: (i) the Bank of Italy, on January 19, 2015, released the regulation on the investment management services, that provides terms and conditions under which Italian AIFs may invest in credits, granted out of their assets, and (ii) the Italia Ministry of Economy and Finance, on March 5, 2015, adopted the decree no. 30, concerning the main features of Italian AIFs, that introduced the investment in credits activity among those that the funds are entitled to exercise.

However, under the amendment to the laws and regulations outlined above, the relaxation of the lending restrictions applied only to Italian AIFs.


The New Law amends the TUF introducing a new section dedicated to debt funds composed of three new articles: 46-bis, 46-ter and 46-quater.

Article 46-bis TUF, confirms the previous reform implemented under the AIFM Law providing, inter alia, that Italian AIFs may invest in credits, granted out of their assets, pursuant to the provisions set forth in the TUF and in the relevant implementing regulations.

Article 46-ter TUF2 represents the most important innovation authorising also EU AIFs (i.e., not AIFs which are Italian AIFs and not established in Italy) to invest in credits, granting facilities using their own assets (or, for example, purchasing receivables) in Italy provided that:

  1. the relevant EU AIF is authorised by the competent authority in its country of origin to invest in credits;
  2. the relevant EU AIF is established as a close-ended fund and its regulation, in particular with reference to the rules of participation to the fund, is similar to that applicable to the Italian AIFs investing in credits; and
  3. the law and regulations applicable in the country of origin of the relevant EU AIF concerning risk mitigation (including those concerning financial leverage) are equivalent to those applicable to the Italian AIFs investing in credits. This equivalence may be verified also taking into account exclusively the provisions of the regulation or the by-laws of the fund, provided that the relevant compliance is ensured by the competent authority of the country of origin of the EU AIF

Moreover, pursuant to the above mentioned provision, the manager of the EU AIF intending to invest in credits in Italy must inform the Bank of Italy: the lending activity may be commenced after a period of 60 days starting from the date of the above communication during which the Italian banking authority may forbid the investment in credits by that entity.

Article 46-quater TUF[2] confirms that the provisions of the Italian Banking Law concerning the transparency of the contractual terms and conditions, the relationship with clients and the administrative sanctions shall be applicable to both Italian AIFs and EU AIFs.

As a result of the innovations set out above, EU AIFs have been granted the ability to lend directly in Italy (as well as the ability to purchase receivables). Debt funds have also benefitted from recent significant tax reforms. In summary EU AIFs benefit from:

  1. the application of the “sostitutiva” tax regime, which is considered a key requirement for real estate finance transactions. Medium and long term loans granted by EU AIFs may benefit, from an umbrella tax regime of 0.25% on the advanced amount of the loan which replaces ordinary and higher taxes such as stamp duties, cadastral and mortgage taxes (the latter usually exceeding 3% of the secured obligations); the same regime is applicable in the event that EU AIFs purchase the relevant receivables); and
  2. ii. disapplication of the withholding tax applicable by Italian borrowers on facilities interests on loans paid to foreign creditors equal to 26%[3].

Accordingly, cross-border financing (as well as purchasing of receivables, including portfolios of credits, securitisation transactions, acquisition on the secondary market and syndication activities) has been made easier and more cost effective at the same time, fostering competitiveness of the Italian market and making negotiations of loan agreements significantly easier (e.g., no need to agree on gross-up basket).

  1. Ref. Article 1, paragraph 1, lett. k), TUF.
  2. Please note that pursuant to the last paragraph of this article 46-ter the special regime applicable to the lending activity of EU AIFs will be specified by the implementing regulations to be issued by the Bank of Italy.
  3. Or such other percentage as determined by any applicable bilateral treaty – if any – entered into by and between Italy and the relevant Country or European Directive.

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