Italian Real Estate Tax System

The Italian real estate tax system configuration given its complex nature involves all levels of government, central and local. Our Law Firm, composed by Italian English speaking lawyers has an extensive experience in assisting foreign clients in purchase transactions, including legal advice focused on providing the best tax planning specific. In Italy, like other European countries, the real estate tax consists of taxes on income, wealth, on the transfer deeds and leases; it differs as a function of the parties involved (companies and professionals, or those not exercising the business activities and self-employment) and the nature of real estate (houses and buildings for industrial use).

Specifically, we can distinguish five categories of taxes levied on real estate:

  • Nature of tax “income” whose premise is the income produced from the property or possession of the property (personal income tax, IRES);
  • Nature taxes “asset” whose premise is the ownership or possession of the property (IMU);
  • Tax on public services provided to property owners (TASI);
  • Tax on the transfer of property for consideration (VAT, registration, mortgage, land);
  • Tax on the transfer of real estate for free (inheritance and gift tax);
  • Tax on rental (dry coupon, registration and stamp duty on leases).

First of all, one of the fundamental requirements for entering the Italian taxation system is the tax code. The tax code is the identification code of taxpayers both in their relations with the tax authorities and with public bodies and administrations. Through the tax code the taxpayer is identified by the tax registry, therefore taxpayers must indicate it in all acts and documents that have relevance for tax purposes (for example the annual tax return, a deed of sale of a property, etc.).

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Owing a property in Italy: The levy on income

In Italy real estate property is subject to income taxes (personal income tax, IRES and IRAP) or value (IMU from 2012). The income generated by the properties contributes to the formation of the tax base which is applied to the personal income tax (PIT-IRES) levied on individuals and society. If the property is given in lease / rental, it is subject to taxation, the “rent” paid periodically by the lessee / tenant; if the property is not rented / leased, it is used for calculating the tax base the cadastral income (the average income achieved by ordinary units).

The property owner who decides to rent it /own it can choose between two different tax systems: the income tax or ‘flat rate’; if a person opts for the ordinary income tax system, he or she is eligible for deductions from income that is greater when it enters an “agreed-fee lease.”

Renting a property in Italy: The levy on leases

It often happens that a non-Italian resident purchases a property for renting purposes. For rented dwellings, the income is subject to a personal progressive tax or, from 2011, on the lessor’s option, to the “flat rate tax scheme (cedolare secca)”. In the ordinary system, leases are recognized in the income tax deductions from owner income to varying degrees, depending on the type of contract (free or agreed fee). The “flat rate,” introduced by Legislative Decree n. 23 of 2011 and reserved exclusively for private, is a proportional tax on the rental income housing. The rate stood at 19% for a rental fee agreed and 21% for those with free line rental. The “flat rate” replaces the personal income tax, registration tax and stamp on the lease and related resolutions and extensions. The decision to apply the “flat rate” implies the renunciation to the landlord of a property in Italy to increase the rent for the entire life of the option. In the ordinary system as that of the “flat rate” for low-income tenant, there is a deduction of tax variable (from 150 to about 1,000 Euros entities).

All leases and rentals of immovable Italian property (including those related to rustic funds and those stipulated by passive VAT) subjects must be registered, whatever their amount and if lasting more than 30 days a year. Thus, taxpayers who do not choose the flat rate tax system must pay the registration tax. This is due, according to the lease or rental, in the following manner:

  • for residential buildings: 2% of the annual rent multiplied for each year;
  • buildings used by nature: 1% of the annual rent if the lease is carried out by VAT taxpayers and

2% of the fee in other cases;

  • rustic funds: 0.50% of the annual fee multiplied for each year;
  • Other buildings: 2% of the annual fee multiplied for each year.

The substitute tax on leases has been introduced with the aim of easing the tax burden on leases and combating widespread tax evasion. The 2014 Italian Stability Law, in fact, ensures the fight against tax evasion in the field of housing leases, assigned to the municipalities of monitoring tasks in relation to the leases, even using the condominium registry. It also provides that the payments on rents of residential units, except those of public residential buildings, must be compulsorily paid, whatever its amount, excluding the use of cash and ensuring the traceability also for the affidavit of contractual agreements related to the obtaining of benefits and tax deductions by the landlord and the tenant.

Managing a property in Italy: The levy on capital and the indivisible services: IMU and TASI

In Italy, the council tax is a charge due on properties held as property or other real rights (usufruct, use, housing, lease, surface).

 In summary, the Stability Law for 2014 introduced from 1 January 2014 a review of the Italian property taxation aimed at strengthening the link between the tax burden and the amount received in the form of local service, strengthening for the municipalities full possibility of varying tax rates, exemptions and facilities as well as to reducing the procurement until it is reset. It abolished the IMU on primary residences and some similar cases, as well as the component of TARES concerning indivisible services. Simultaneously, it established the new tribute IUC (Single Municipal Tax) levied on those who own or hold any security or hold title to any local or uncovered areas engaged in any use, subdivided into two components: the IMU, to assets payable by the owner of buildings excluding primary residences; a component on services, which in turn is divided into Tribute for indivisible services (TASI) and the tax on waste (TARI) to finance the costs of collection and disposal of waste.

The premise of the tax TASI is the possession or possession of any kind of buildings, including the main house, whatever its use.

The tax base is expected to be the only Italian municipalities applying the tax (IMU). The basic rate of TASI is 1 per thousand. The City Council, by resolution of the council, may determine the rate (or reset) respecting in any case the constraint under which the sum of the rates of the TASI and IMU for each type of property does not exceed the maximum rate permitted by state law for the IMU to 31 December 2013, fixed at 10.6 per thousand and other minor tax rates, in relation to different types of property. For 2014, the maximum rate would not exceed 2.5 per thousand. For rural buildings for business use the maximum rate of TASI could not exceed the limit of 1 per thousand.

In the event that the housing unit is occupied by a person other than the owner of the property, the TASI is shared between the latter and the tenant, at a rate that the municipality sets for the owner of the real estate. The occupant pays the TASI to the extent determined by the municipality in a percentage between 10 and 30 percent of the total amount. The remainder is paid by the property owner. If Council does not act, the division between landlord and tenant, the latter must pay 10% tax.

Buying a property in Italy: The levy on the transfer of property for consideration

The real estate transfers are subject to registration taxes (registry, mortgage and land), on the cadastral or real value, or value added tax, except for a few areas of overlap between the two forms of taxation. The levy varies greatly depending on whether houses or buildings are used and the exchange involving private individuals or businesses.

Article 26 of Italian Decree Law n. 104 of 2013 has amended, with effect from 1 January 2014, registration fees, mortgage and land, in relation to real estate transfers of properties located in Italy. The purchase of an Italian home is subject to a registration tax of 9%; it has confirmed the exemption from stamp duty, land registry by special charges and the mortgage fees. The aforementioned acts are subject to the mortgage and cadastral taxes in fixed amount of 50 Euros.

If the seller is a company, as appropriate, the assignment is:

  • exempt from VAT, with the registration tax of 9% and mortgage and cadastral taxes in the amount of EUR 50 each;
  • subject to VAT, at the rate of 10% (or 22% for luxury homes); in this case, registration fees, mortgage and land, amounting to 200 euro for both.

If the acquisition concerns the “first house,” the supplies are subject to lower tax rates, namely:

  • in the case of purchase by private (or enterprise, but sold without VAT), to the registration tax of 2%, and mortgage and land taxes in a fixed amount, equal to 50 euro;
  • in the case of purchase by company, with sales subject to VAT, to VAT at 4% and a mortgage tax, cadastral and registry as a fixed amount of 200 euro.

The foreign buyer who intends to benefit the “first house” tax reduction must take up his residency in the property within 18 months from the signing of the purchase deed.

For completeness, we must add that the registration tax be proportional and in no case be less than 1,000 euro.

If the transfer has as its object farmland and related appurtenances in favor of persons other than the direct and by professional farmers, the tax applies to the extent of 12 percent.

Inheriting a property in Italy: The levy on the transfer of real estate free of charge

 In Italy, the estate tax may be imposed on the axis hereditary (total value of net assets) or quota share of the inheritance received by individual heirs. In the first case, the objective of policy makers is the equality of the starting points; in the second case, the goal is meritocracy, i.e., the obtaining of a benefit in consequence of an effort.

In Italy, the taxation of transfers by inheritance and donation was reintroduced by Conversion Law of the Decree Law 262/2006, with very similar procedures to the previous regulations, abolished by Law 383/2001. In fact, the legislature evokes the new law, and ever since, the rules are in the Consolidated Law of 1990 (Legislative Decree 346/1990), which had been repealed by Law 383/2001.

The D.L. 262 (with the amendments introduced in the conversion of the emergency order Law) requires that any property inherited or received as a donation is subject to taxation (except for individual exceptions, described further below). In the event that it is inherited property, the heirs are obliged to pay the mortgage and land taxes (rates of 2 and 1 percent respectively). In addition, if the property inherited falls under “principal residence,” the mortgage and cadastral taxes are fixed at 200 euro.

The contents of this page should not be taken as an authoritative statement of Italian law and practice. Neither the author nor the publisher are responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.