After years of stagnation, if not recession, the Italian economy is now recovering. Indeed, Italy’s GDP advanced 0.4% in the three months to June 2017, unrevised from the preliminary estimate and following an increase of 0.4% in the previous period. The expansion was driven by firm consumer spending, a rebound in fixed investment and inventory accumulation and supported by external and domestic demand, but fading tailwinds and lower medium-term growth prospects were expected to moderate growth toward the end of 2017. Non-energy industrial goods and services prices are set to drive higher headline inflation, while wage pressures remain limited. The general government headline deficit is predicted to slightly decline over the forecast period while the debt-to-GDP ratio is not expected to fall below 130%.

On the production side, industry and services activity expanded, while agriculture contracted. Year-on-year, the economy grew 1.5%, the most since the second quarter of 2011.

Review of 2017

Looking back to Islamic finance-related events that occurred in the last 12 months, the most relevant one, on the legal framework side, was the law proposal brought by the chairman of the Financial Committee of the Chamber of Deputies, Maurizio Bernardo, aimed at regulating the tax treatment of certain Islamic financial operations executed in Italy, therefore realizing a level-playing field for the industry when compared to conventional finance, in particular by removing the double taxation which may affect those contractual structures, like Murabahah and Ijarah, that are based on the purchase and subsequent resale by the lender of a specific asset.

The law proposal is divided in three main parts. The first part regulates the tax treatment of three specific Islamic contracts: Murabahah, Ijarah and Istisnah. It provides that the spread paid by the client entering into these three contracts will be considered capital income and, consequently, deducted in compliance and within the limit of the Italian Income Tax Code, but it is also exempt from value-added tax (VAT). Furthermore, as like medium to long-term conventional financing, parties entering into the aforementioned Islamic contracts could also take advantage of paying a lower substituting tax, instead of stamp and cadastral duty and other administration taxes.

With reference to the second part, the law proposal aims at introducing Sukuk in the Italian jurisdiction by regulating the public offering of such securities. From a tax perspective, if not differently provided, transactions where an originator transfers to an SPV assets which are then leased back by the latter to such originator so that the SPV may issue for the benefit of the investors certificates in the form of Sukuk, are treated as a single financing transaction and subject to the same rules and tax treatment of receivables securitization transactions, and therefore, for instance, not subject to VAT.

Finally, the third part is entirely dedicated to the anti-money laundering and anti-terrorism provisions in compliance with the European Anti-Money Laundering and Countering the Financing of Terrorism legislation.

The second most relevant 2017 event was the structuring and certification respectively by Italian law firm Nctm and Shariah Review Bureau (SRB), an international company leader in the field of Islamic finance consulting, of the first Italian Islamic bond.

Both firms teamed up to work on instruments provided by the Italian legal framework in order to structure a debt instrument with a participating return compliant with Shariah principles. Such a result, and the related certification, has been achieved by using a scheme that links an association in a participation agreement with a zero coupon bond.

Preview of 2018

Looking ahead to the upcoming year, it is unlikely, unfortunately, that the aforementioned law proposal will be passed in the near future. In fact, at the beginning of 2018 general elections will be held and until then, the present parliament will deal only with the most relevant draft bills, in particular the 2018 budget law. It is difficult to foresee now how the new elected Italian parliament will approach Islamic finance and the law proposal in particular.

It is instead hoped that the new Italian Islamic bond may soon find its market, helping Italian SMEs in accessing the Islamic finance debt capital markets.


Looking at the initiatives carried out by other European countries, including the announcement in early September of a new UK sovereign Sukuk issuance, it is clear that Islamic finance is not developing in Italy at the same pace. It remains to be seen whether and how the legislative and ruling bodies that will be elected and appointed in 2018 will take a view on this alternative ethical way of financing. What is clear, in fact, is that if they will not consider it a viable tool to accelerate the growth of the Italian economy. In this country, it will most likely remain only a matter of interest to those who have a passion for it.

This article was first published in Islamic Finance news.

ctm Studio Legale – Stefano Padovani

Copyright reserved 2018 –


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