Business and tax planning for real estate purchases in Italy
- 1 Incorporation and Tax planning for a real estate management company in Italy
- 2 Book a Free Consultation With ILF Italian Tax Advisors
- 3 Italian Simple Company as Real Estate business: why choose this one?
- 4 Italian premises tax classification related to a real estate business
- 4.1 A. Properties for commercial purposes, commercial real estate in Italy: contributes to income at cost/revenue/income
- 4.2 B. Italian Taxation of commodity properties
- 4.3 C. Taxation of heritage properties
- 5 Taxes in Italy: the Basics
- 6 Book a Free Consultation!
Incorporation and Tax planning for a real estate management company in Italy
The notion of an Italian real estate management company concerns the establishment of a company for the protection and management of real estate owned by the entrepreneur and not the management of real estate owned by third parties, in the latter case these are “real estate agencies” offering brokerage services.
An Italian real estate management company may be established in the form of a partnership (limited partnership – sas or general partnership – snc) or a corporation (commonly a limited liability company – Srl, the partner may also be sole proprietor).
An international investor needs to (before planning to incorporate a real estate company in Italy) verify whether his Country of residency has a closed Reciprocity Treaty with Italy. See the attachment to this page where all the Treaties signed by Italy with different countries are listed).
Download a free Reciprocity Treaty list
The real estate company is no different from other “operating companies,” in fact, if an entrepreneur has provided for real estate management as one of the points of the company’s object in the bylaws of their company, they may very well operate in real estate.
However, the establishment of an ad hoc real estate company has advantages to consider, such as:
- dedicated management: one can organize the company by focusing on mere real estate management (specialization helps to achieve higher levels of efficiency);
possibility of deducting interest expenses related to mortgages: see the section on taxation of heritage properties;
contribution savings: partners in a real estate company, if they do not carry out a commercial activity (provision of services as in vacation home management), are not required to register with INPS (Italian Pension Fund);
- asset protection: separation of real estate from any other operational activity (no real estate seizure will be possible, but in the case a movable seizure of the shares only);
- succession planning: the generational transfer of shares in an estate company simplifies compliance (only the shares are transferred, not all the real estate) and has significant tax advantages: the transfer, by gift or mortis causa, of shares to spouses and lineal descendants benefits from exemption from inheritance and gift tax. This exemption requires only that the shares received be held for a period of 5 years (for SRL shares, it is also necessary that what is transferred allows the beneficiary to acquire control of the company).
Book a Free Consultation With ILF Italian Tax Advisors
Incorporating a real estate management company in Italy as a foreign investor can be a tricky process, especially when many factors are involved, such as Italian tax laws, corporate requirements, residency matters and many others. We have all the experience and knowledge needed about the Italian tax system and taxes in Italy, so that you can focus on your investment and leave the bureaucracy to us.
ILF corporate and legal advisors have a broad experience in guiding International investors, both individuals and companies, providing them with their valuable expertise in terms of local regulation and the current real estate market.
In addition to tax and legal expertise, ILF advisors, all fluent in English, are also able to provide foreign buyers with an accurate insight of the Italian Real Estate market which is currently extremely fluid and varies greatly from region to region.
ILF Real Estate Attorneys will also be able to build a bridge between the foreign investor and the Local Italian Authorities. When dealing with complex real estate projects (such as the development of a specific area, new buildings, renovating important historical Italian properties), the relationship with the local authorities play a crucial role in being able to complete the project and the speed at which it is completed.
Italian Simple Company as Real Estate business: why choose this one?
Why would a foreign investor decide to manage his business in Italy with a real estate management company established as an SAS or SNC or SRL? Before going deep into this topic, let’s see some aspects of the Società Semplice (a real estate business as a simple company) highlighted below.
In addition to what is discussed in detail in a specific article on the characteristics, requirements, obligations and advantages of a simple company, it is specified that this corporate entity can be a tool for the management of real estate assets, differing from commercial companies (SAS, SNC, SRL) for the following reasons:
- it can only be carried out by a simple company (società semplice) the activity of mere enjoyment, being a noncommercial entity [advantage in that it can also hold real estate not producing income without falling under the discipline of shell companies];
- it must lease the real estate without providing additional services, as it cannot carry out commercial activities (e.g., vacation rentals) [disadvantage];
- the sale of real estate held for more than 5 years does not generate taxable capital gains either in the hands of the company or the shareholders [advantage, same discipline to which individuals are subject];
- the inability to deduct from income any capital losses [disadvantage];
- can take advantage of any IRPEF deductions related to building renovation or energy upgrading bonuses [advantage];
- cannot deduct costs, interest and depreciation from income [disadvantage].
From a tax point of view, properties owned by Italian enterprises can be divided into 3 categories:
- Properties for commercial purposes
- Commodity properties
- Heritage properties
A. Properties for commercial purposes, commercial real estate in Italy: contributes to income at cost/revenue/income
A1. Properties for commercial purposes by nature
The regulations consider real estate related to the enterprise as instrumental by nature, which, due to its characteristics, is not susceptible to different use without radical transformation, even if it is leased or loaned.
They include the entire groups B, C, D, E (examples: hotel, industrial shed, store, craft workshop) and category A/10 (the only case in which the use as an office or private office is provided for in the building permit or concession, even in amnesty).
Real estate for commercial use by nature, by virtue of their structural characteristics, are to be considered instruments of the business activity even when they are not used in the production cycle of the enterprise, as they are not used or not used directly, since they are leased or loaned to third parties.
A2. Property for commercial purposes by destination
The regulations consider property used exclusively for the exercise of the profession or business by the owner (for example, residential property, not classified A/10, used as an office) as instrumental by destination.
If the capital property by destination is leased or used on a mixed basis, it is not considered capital property and, therefore, is not depreciable for tax purposes.
Depreciation of capital property in Italy
Capital real estate goes under “land and buildings” on the assets side of the balance sheet and must be depreciated according to its remaining usability.
The portion of the capital property that is non-deductible for depreciation is:
- 30% of the total acquisition cost of an industrial building;
- 20% of the total acquisition cost of any other capital property.
- The tax rules provide that the 70 or 80% share of the total cost of a capital property is depreciable at a rate of 3%.
Business income for capital properties
Any income (e.g. leases and capital gains) should be recognized as revenue in the income statement.
Income from capital properties is the difference between revenues and income pertaining to the properties and the related costs.
In determining business income, therefore, the following are relevant:
- capital gains/losses;
- income from leases;
- compensation and indemnities related to real estate;
- depreciation allowances and lease payments;
- expenses for maintenance, repair, transformation.
- With regard to capital real estate, a portion equal to 60% of the IMU paid during the tax period is allowed as a deduction;
- commodity real estate: to whose production or exchange the business activity is directed;
- heritage real estate: neither instrumental nor commodity, but can be considered an investment;
- Taxation of capital properties
- Capital real estate by nature
The regulations consider as instrumental by nature those properties related to the enterprise which, due to their characteristics, are not susceptible to different use without radical transformation, even if they are leased or loaned.
They include the entire groups B, C, D, E (examples: hotel, industrial shed, store, craft workshop) and category A/10 (in the only case in which the use as an office or private office is provided for in the building permit or concession, even in amnesty).
Properties instrumental by nature, by virtue of their structural characteristics, are to be considered instruments of the business activity even when they are not used in the production cycle of the enterprise, as they are not used or not used directly, since they are leased or loaned to third parties.
B. Italian Taxation of commodity properties
Commodity real estate may constitute:
- buildings constructed or renovated for sale by real estate construction and renovation companies;
- real estate (land and buildings) purchased for resale by real estate buying and selling companies.
In the company’s financial statements, commodity real estate constitutes:
- rental income (for the period when the company considers it appropriate to suspend the sale);
- revenue from sale;
- change in inventories: as long as the construction work is not completed and the property is sold, it contributes to business income as a change in closing inventories (valued on the basis of the specific costs recorded in the balance sheet);
- for the purchase of the commodity property (costs for raw materials, ancillary materials, consumables and goods);
- of construction, if the property is constructed by the enterprise.
IMU (Italian Property Tx) exemption of commodity properties
Exempt from the Unified Municipal Tax (IMU) are buildings constructed and intended by the construction company for sale and also buildings that have been purchased and on which incisive rehabilitation work has been carried out (restoration, conservative rehabilitation, building renovation). Crucially, these are buildings put up for sale by the company that built them, as long as this destination remains and they are not rented out in any case.
In order to take advantage of the benefits, the IMU declaration must be submitted.
C. Taxation of heritage properties
The tax rules for non-rented heritage properties (e.g., residential properties falling under cadastral category A, other than A/10) stipulate that these contribute to business income in accordance with the criteria of land income, and the cadastral annuity becomes relevant, which constitutes an increase in the statutory result to be made when determining business income, at the time of preparing the tax return. In counting, the cadastral rent must be increased by one-third (calculated on the cadastral rent revalued by 5 percent).
The income of rented heritage property is determined by taking the greater of:
- the cadastral rent (revalued by 5%) and
- the rent reduced by ordinary maintenance expenses incurred within the limit of 15% of the rent.
Also for taxpayers in simplified accounting, it is provided that positive components arising from capital properties are to be charged on an accrual basis and not on a cash basis.
The 15% ceiling for maintenance expenses of heritage properties
For heritage properties, only ordinary maintenance expenses can be carried as a reduction of the rent up to a maximum of 15 percent of the rent.
Considering that routine maintenance expenses are usually borne by the tenant, the leasing company will not benefit from any deduction from taxable income.
- expenses for extraordinary maintenance, restoration, nonconservative rehabilitation, and building renovation are not deductible from the rent;
- ordinary maintenance expenses, such as:
- full or partial replacement of floors and related finishing and preservation works;
- repair of facilities for ancillary services (plumbing, black and white water disposal system);
- coating and painting of exterior elevations without modification of the pre-existing objects, ornaments, materials and colors;
redoing interior plastering and painting;
- resurfacing of exterior pavements and roofing membranes without changes in materials;
- replacement of tiles and other deteriorated accessory parts for water disposal; renewal of waterproofing;
- balcony and terrace repairs and related paving;
- repair of fences;
- replacement of elements of technological installations;
- replacement of exterior fixtures and window frames or shutters with shutters, without changing the type of fixture.
- The other non-deductible and deductible costs of heritage properties
- In addition to extraordinary maintenance costs, the regulations stipulate that the following are nondeductible
Taxes in Italy: the Basics
When investing in commercial real estate in Italy, it’s essential to understand the country’s tax system. Some of the key taxes that investors need to consider are as follows:
|Tax Name||Description||Applicable Properties||Rate|
|IMU Property Tax Italy||Annual property tax on both residential and commercial properties||Residential and Commercial Properties||Varies depending on location and type of property|
|VAT Tax Italy||Tax on purchase of commercial real estate||Commercial Real Estate||Standard rate of 22%, reduced rate of 10% may apply to specific transactions|
|Italy Corporation Tax||Corporate income tax on worldwide income||Companies||24%|
|Business Tax in Italy||Regional tax on productive activities||Businesses operating in Italy||Varies between 3.9% and 4.82%, depending on the region|
Entrepreneur Visa Italy: A Gateway for Investors
To facilitate foreign investment, Italy offers an entrepreneur visa program for non-EU nationals looking to establish or invest in a business. This visa provides a pathway for investors to live and work in Italy while managing their commercial real estate investments.
Given the complexity of the Italian tax system, it’s crucial to consult with an Italian tax advisor to ensure compliance and maximize tax benefits.
To see why it is really helpful to have an Italian real estate attorney, let’s take a look at a table regarding Transaction Costs (Source: Eures. 2011 – Percentage of Property Value)
|Transaction Costs||Values||Paid by|
|Notary fees||1%-2.5% (+20/21% VAT)||Buyer|
|Agency fees||2%-3% (+20/21% VAT)||Buyer/Seller|
|Costs paid by buyer||7.6%-18.5%|
|Costs paid by seller||2.4%-3.6%|
|Property Type||Taxation System||Multiplier||Notary Fees Reduction|
|Residential properties and related buildings||“Price-value” system based on the agreed sale price||N/A||30%|
|Other real estate properties (offices, shops, warehouses)||Taxation based on the property value, usually the sale price||1.06||N/A|
|Transfer of partial rights (e.g., bare ownership, usufruct)||“Price-value” system applicable to residential properties||N/A||30%|
Note: To calculate the cadastral value of a property, the cadastral income is multiplied by a coefficient (multiplier) that varies based on the type of property. The coefficients are as follows:
- 110 for the main residence
- 120 for secondary residences
- 60 for private offices or studios
- 40.8 for shops
- 140 for Group B properties
- 120 for Group C properties
- 60 for Group D properties
- 40 for Group E properties
Financing Your Commercial Real Estate Investment in Italy
To fund commercial real estate purchases in Italy, investors often turn to commercial lenders for real estate. These lenders provide financing options tailored to the specific needs of the investment, such as loans and mortgages for acquisition, development, or refinancing.
Book a Free Consultation!
As a foreign investor looking to incorporate a company in Italy, navigating the country’s complex tax laws can be a daunting task. That’s why it’s important to work with an experienced Italian tax advisor who can guide you through the process and ensure that you comply with all regulatory requirements. Here are some of the key services that an Italian tax advisor can offer to foreign investors:
- Tax planning and optimization: Italian tax laws can be complex and change frequently, making it challenging to keep up with the latest regulations. An Italian tax advisor can help you navigate the tax landscape and develop a tax strategy that optimizes your tax liability and minimizes your risk.
- Incorporation assistance: Incorporating a company in Italy can be a time-consuming process that requires a thorough understanding of the legal and regulatory requirements. An Italian tax advisor can help you navigate the incorporation process and ensure that you comply with all necessary requirements.
- Accounting and bookkeeping: Keeping accurate records of your company’s financial transactions is crucial for complying with Italian tax laws. An Italian tax advisor can help you set up an accounting and bookkeeping system that meets Italian regulatory standards and keeps you in compliance.
- VAT registration and compliance: Value-added tax (VAT) is a critical component of the Italian tax system. An Italian tax advisor can help you register for VAT and ensure that you comply with all related regulations.
Tax reporting and compliance: As a foreign investor, you may be required to file tax returns in both your home country and Italy. An Italian tax advisor can help you navigate the reporting process and ensure that you comply with all necessary regulations.
- Tax dispute resolution: If you encounter a tax-related dispute with Italian authorities, an Italian tax advisor can help you navigate the legal process and represent you in negotiations with tax authorities.
Real estate tax assistance: If you’re investing in real estate in Italy, you’ll need to navigate the country’s complex real estate tax laws. An Italian tax advisor can provide insight into the local real estate market and ensure that you comply with all necessary tax regulations.
Working with an experienced Italian tax advisor can be the key to successfully incorporating a company in Italy as a foreign investor. By providing expert guidance on tax planning, incorporation, accounting, VAT, tax reporting, dispute resolution, and real estate tax, an Italian tax advisor can help you navigate the complexities of the Italian tax system and achieve your business goals.
Book your free consultation!!!
Commercial real estate in Italy
As the above example shows, understanding the legal and fiscal requirements and bureaucratic issues involved with owning commercial property and/or using it for hospitality purposes are vital and not necessarily straightforward. Having trustworthy advisors, efficient fiscal experts, and reliable corporate legal consultants at your disposal is crucial. Our extensive and long-practiced expertise in the fields of commercial property consultancy, legal and fiscal advisory service, and property management enable us to provide proficient advice, reliable information, and trustworthy assistance to foreign companies who plan to invest in the Italian real estate market. Specifically, we can help the foreign investor by:
- drafting the relevant business and tax plan to establish the most suitable commercial entity and optimize the costs of opening a branch in Italy;
- due diligence of the property and/or business if the purchaser intends to buy a standing business;
- informing the investor of all necessary documentation needed to establish a branch in Italy and carrying on the required legalizations and translations of the documents;
- assisting in incorporating the branch proceeding by signing all the papers on the client’s behalf;
- providing legal assistance to establish an Italian hospitality business, including transfer pricing, relocation of employees from the parent company, dealing with needed visas, and advisory consulting on payroll and salaries;
- assisting in establishing the startup, including training on the use of the necessary software required for electronic invoicing, brand design and creation, website creation, and web marketing services.
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.