If you are interested in the world of P2P Lending, surely, you will have wondered how much the tax component affects or can affect your investment choices.
In this article, you will find out what taxes you have to pay on these investments if there are differences between the various platforms, and how to pay taxes on P2P lending.
If you don’t have a clear idea of what social lending is, you can read the regularly updated P2P lending guide.
I must say that for a long time there has been some uncertainty about the taxes to be paid on P2P lending.
As with all the news, it was not clear how to tax this investment.
The legislator intervened.
For Italian platforms or investments in Italy, there is now clear legislation and the investor has no doubts.
For foreign platforms, the current legislation is not defined, but my interpretation, supported by a recent opinion of the Revenue Agency, is quite defined and penalizing especially for those with high incomes.
Because the state is known to be (quite) expensive.
But let’s go into detail and see how taxes on P2P Lending work, distinguishing between investments in Italy and abroad.
In this article
- What are the taxes applicable to Italian P2P lending platforms?
- What are the taxes to be applied to foreign P2P lending platforms?
- Revenue Agency opinion
- How much are the taxes according to the marginal IRPEF rate?
- What are the effects of taxes on P2P Lending on investment choices?
- Conclusions
What are the taxes applicable to Italian P2P lending platforms?
From 1 January 2018, investments in P2P lending, promoted by Italian subjects, are taxed with a tax at a source equal to 26% to be applied on the interest accrued.
The legislation says that:
income from loans disbursed through loan platforms for non-professional lenders (Peer to Peer Lending platforms) is taxed at 26%. This is provided that these platforms are managed by companies authorized by the Bank of Italy as financial companies according to art. 106 of the Consolidated Law on Banking and/or payment institutions falling within the scope of application of Article 114 of the same consolidated act as per legislative decree no. 385 of 1993 ″
You will therefore not have to do anything and you will receive the interest already net of the deductions provided that they are platforms authorized by the Bank of Italy.
In some cases, even for some foreign platforms (eg October), a withholding tax of 26% is made on Italian projects.
What are the taxes to be applied to foreign P2P lending platforms?
I must say that on this issue in the forums, on the Telegram groups, and Youtube channels, I have found various interpretations, sometimes made with tax experts and the like.
The interpretation of some is that it is right to pay 26% in this case as well, in the tax return.
The reasoning would not seem wrong; in fact, it is not clear why there should be a difference in treatment between investments on foreign and Italian platforms.
However, the legislation does not provide for this at all, because the rate of 26% is currently only applied to platforms managed by companies registered in the register of payment institutions under Articles 106 and 114 of the TUB.
It follows that, for the remaining situations, the income deriving from peer-to-peer lending must be taxed according to the marginal IRPEF rate and declared in the annual income tax return.
After all, this was also the situation on Italian platforms, before 2018.
Finally, I remind you that taxes must be paid annually and not only when the money is withdrawn from the platform.
Revenue Agency opinion
For those who are not convinced there is also the opinion of the Agenzia dell’Entrate expressed in a recent ruling in which it states that:
Concerning the investments made on P2P Lending platforms managed by foreign companies not included among the subjects referred to in the aforementioned letter d-bis), the provisions contained in Article 44, paragraph 1, letter a), of the TUIR are considered applicable, according to which capital gains are “interest and other income deriving from mortgages, deposits, and current accounts” since the exercise of the financing activity through the P2P Lending platforms is generally attributable to the loan agreement as well as defined by article 1813 of the civil code.
It follows, therefore, that it is required to indicate in the annual income tax return the proceeds deriving from the P2P Lending investments made on the indicated Platform (Mintos) to make them contribute to the formation of the total income to be subjected to personal income tax. physical (IRPEF) “
This question also responds to the need or not to pay IVAFE (tax on the value of foreign financial assets) by responding positively.
SAFE is a property tax equal to 2 per thousand on investments held abroad.
For the calculation, reference is made to the value of the financial products.
It consists of the market value, measured at the end of each calendar year in the place where they are held.
If as of 31 December the assets are no longer held, reference is made to the market value recorded at the end of the holding period.
The interpellations do not have an absolute value but are valid only for those who have asked the interpellation itself.
However, the interpretation given by the Agency is acceptable, given the current legislation.
How much are the taxes according to the marginal IRPEF rate?
Income taxation in Italy works in progressive brackets.
This makes it possible to achieve a certain redistributive and progressive effect of the withdrawal.
In our specific case, it allows those with very low incomes and less than 15,000 to pay a tax of 23% on the proceeds of P2P lending.
For those like me who have an income, at least in 2019, exceeding 75,000 euros, this leads to a taxation of 43%.
Taxable income Rate Income tax payable
up to 15,000 euros 23% 23% of the income
from 15.001 up to 28.000 euros 27% 27% on the part exceeding € 15,000.00
from 28.001 up to 55.000 euros 38% 38% on the part exceeding € 28,000.00
from 55.001 up to 75.000 euros 41% 41% on the part exceeding 55,000.00 euros
over 75,000 euros 43 % 43% on the part exceeding 75,000.00 euros
I find it, in my case, extremely penalizing and I think that, for many, this interpretation is not the best possible.
But it is the only possible (at least in my opinion) at the moment.
What are the effects of taxes on P2P Lending on investment choices?
The investment fees in foreign platforms, until new changes are therefore some very high.
For others, however, they could be even lower than those applicable to other forms of investment.
In any case, they must be considered in the investment because they affect the net result.
Obviously, by investing in these instruments you are exposing yourself to very high risks.
If you earn more than 28,000 you need to ask yourself a question:
Is it worth investing in foreign P2P platforms if the gross return has to be reduced by 40%?
The answer is that you need to carefully weigh your investments.
You will need to check if the Italian platforms that give lower returns but are taxed at 26%, ultimately expose you to lower risks.
If, on the other hand, your rate is equal to 23%, foreign platforms will be more competitive also in terms of taxation.
In this case, the fiscal dynamics will not have a particular impact on your choices.
Conclusions
As usual, in Italy, the legislator takes care of making any investment improper.
They want to squeeze you like lemon and steal your savings.
At least that’s the result.
This is especially the case if you are an employee who declares up to the last cent.
However, there is no point in complaining.
Waiting for the law to change or for platforms to find some ploy to pay less, you have to comply with the legislation and adapt to it.
You will need to consider this situation when calculating your returns and understand that as profitable as foreign platforms are, they are not tax-free.
Indeed in my case, they are inconvenient in insurance tax terms.
I will take this into account more and more in future choices and I think that in the future I will return to consider the new Italian platforms with greater attention (hoping for new initiatives!).