Opening a real estate investment company in Italy
- 1 Italian Real Estate opportunities
- 2 How to start a property business in Italy?
- 3 Establishing an Italian Property Management Company
- 4 What Benefits of Establishing a Property Management Company in Italy?
- 5 Example Of Valuation Of Real Estate Investment Italian Company
- 6 Italian Property Taxation Scenarios
- 7 Conclusions Of the Evaluation Of Suitability For The Establishment Of An Italian Real Estate Management Company
- 8 Why appoint an Italian corporate attorney to establish your company here?
- 9 Start investing now in the Italian Real Estate Market
Italian Real Estate opportunities
Italy attracts people from around the world with its varied and scenic landscapes, delectable cuisine, and rich heritage. It is not surprising that it is one of the most desired countries that foreigners not only choose to visit but to invest in and call their home. The Italian real estate business is one of Italy’s leading industries both for short-rentals and long-term investments. Foreign entrepreneurs considering investing in Italian properties will benefit from learning about the many legal and commercial perks of the market.
How to start a property business in Italy?
The most common way to establish a real estate company in Italy is in the form of a limited liability company, or specifically, either as a società per azioni (S.p.A.), or as a società a responsabilità limitata (S.r.l.), as these are regulated under Italian law. These types of commercial organizations are characterized by the company shareholders’ liability being limited only to their participation in the company. Hence, they are not held liable with their personal assets for debts of the company, exceeding the limits of their participation (to be determined by their percentage in the company capital). Several key steps are involved in establishing such a company:
- The drafting of the company Articles of Association;
- Collecting the required capital in a provisional bank account;
- Legalizing the Articles of Association by a notary and signing the company Constitutive Act; and
- Registering the company at the Italian Register of Companies.
Italian real estate opportunities are many, but it all depends on the final destination you choose. For types of properties such as those classified as hotels, bed and breakfasts, or farm holiday accommodations, specific certifications and permits may be required. At the conclusion of this process, the company can start its operations.
An Italian property management company is a company (either a partnership or a corporation) used as a vehicle for the management of income from real estate. A property management company is created for asset protection needs and to convey and manage for investment purposes the proceeds from the income (through leasing) of real estate.
Establishing an Italian Property Management Company
Holding real estate (residential or commercial) on a personal basis may not be an optimal choice. Real estate investment, like all investments, is subject to certain risks, but the person investing may also find himself or herself at risk of losing his or her invested assets (perhaps in case of insolvency in the presence of land mortgages, personal creditors, etc.). For the need to protect the assets from personal aggression by third parties and to convey the income from putting real estate to income, the option of establishing a property management company may be considered.
This is an opportunity that must be carefully considered by each investor to weigh the advantages associated with the establishment of this corporate form with the aspects related to management costs. The real estate management company, depending on the case, can be established in the form of a partnership (in the case, the most commonly used form is the simple real estate company) or a corporation (in this case, the most commonly used form is the SRL).
Property management company in Italy: when and why open it?
1/ The Assessments to be made when Setting up a Real Estate Investment Company in Italy
In order to identify whether it would be worthwhile to set up a corporation for taxation purposes, rather than as an individual, an assessment must be made. Basically, one must prepare a simulation of the taxation needed in both scenarios: that of the individual and that of the corporation. These are two different types of taxation, with different rules and considerations to be made. The aspect that may be important to point out are the variables involved that may shift the convenience of one choice over the other. Specifically, these are as follows:
- Analysis with regard to the possibility of property disposal with a view to the future, including thinking about a future generational transition;
- Assessment inherent in the person’s personal income without considering rental income;
- Analysis concerning the indirect costs associated with the transfer of real estate to companies;
- Assessment regarding the income obtainable from leasing, also in light of the regulations on shell companies.
2/ Analysis of Investment in Real Estate in Italian market
The evaluations that must be carried out always involve a long-term view. The foreign investor is required to identify whether the Italian real estate investment he or she intends to make is a long-term investment or whether it is mere speculation, with resale of the property in the short term.
A long-term investment usually involves assessments to be made in terms of generational transition as well. In fact, if one intends to invest in the short term in a property, investing as an individual (non-entrepreneur) is certainly the most convenient solution. In this way, a special tax regime can be taken advantage of that provides for capital gain exemption in the case of the transfer of property held for more than five years. This same discipline applies to simple companies, but does not apply to other partnerships and corporations. In the case of companies, any capital gains determined by the difference between the value contributed and the sale consideration will be subject to taxation in the hands of the company.
On the contrary, if a non-Italian investor assumes to make a long-term real estate investment (beyond ten years), considering the fact that a generational handover hypothesis could also take place, the contribution of real estate to a company can facilitate this. In fact, the contribution of real estate to a company allows a simpler procedure for the generational handover of assets. If the succession concerns not real estate but rather corporate holdings (partnerships or corporations), it is possible to avoid paying the mortgage and cadastral taxes that burden real estate succession.
3/ Evaluation of Perceivable Rental Income
Another aspect to evaluate concerning the possibility of establishing a property management company concerns the amount of rental income that can be obtained from the investment. It is, in essence, a matter of assessing whether the profitability offered by real estate allows a company to operate.
A partnership or corporation has operating costs that impact the ultimate profitability of the investment. On the one hand, it is necessary to assess the income that the individual receives outside of the leases, and therefore the marginal rate at which this person would go to tax this income. In addition, it is a matter of going to identify for which leases it is possible to apply for something called the dry coupon. This IRPEF-substituted mode of taxing residential rental income (between individuals) is (usually) the most convenient taxation regime for individuals, with rates at 10 percent or 21 percent on the total rent (without the possibility of deducting costs). However, to be eligible to apply for the dry coupon, leases must be for civil residential properties (cadastral categories A1 to A11, except A10). In addition, the dry coupon is not applicable in the case of a simple property management company, nor the case of a property management SRL.
4. Evaluation of the Cost for conferring a property into an Italian Real Estate Company
A further assessment must be made in relation to the tax cost associated with the contribution of personally owned real estate to companies. This assessment must be made considering that when a partner contributes real estate to a company (partnership or corporation), registration tax is due at 9% for residential buildings, 7% for capital buildings, 12% for land. In addition to the registration tax, mortgage and cadastral taxes due on real estate should be taken into consideration. In addition, there are notary fees and ancillary costs associated with the transfer, such as the appraisal report that must be prepared by a professional (e.g., a Real Estate Italian Attorney).
|Type of Real Estate
5. Evaluation Linked to the Italian Regulation on Shell Companies
An additional, often underestimated aspect in considering the opening of a property management company concerns the impact of the discipline on shell companies. The Internal Revenue Service aims to discourage Italian and non-Italian entrepreneurs from holding personal assets within shell companies. In fact, shell companies are companies that hold assets for the sole purpose of managing them, without performing any economic management of them. In practice, the tax authorities assume that for each property held, a certain amount of income must be earned by the company.
If the company does not reach the receipt of this income limit, the company is considered to be “shell company.” In practice, it is as if the company was established for the sole purpose of managing real estate on behalf of the partners, for their personal purposes, and not to generate income in the company.
What Benefits of Establishing a Property Management Company in Italy?
An evaluation related to the possibility of establishing a property management company is certainly complex and varies from subject to subject in relation to the many variables involved. In the variables we have just seen, the corporate management of real estate presents quite a few problems to overcome. However, before an investor makes a first decision, it’s important to clearly analyze what are the main advantages of corporate management of real estate.
These advantages relate to two facts:
With corporate management there is definitely greater protection of the investor’s assets. Protection resulting from the separation from the real estate whose ownership becomes mediated by participation in the company. For example, it will not be possible to suffer a real estate foreclosure but a movable foreclosure of the shares in the LLC or a real estate partnership. The benefit in terms of asset protection is not particularly significant, and better results could be achieved by establishing an estate trust or a trust.
Possibility of transferring part of the real estate through the notional share in the LLC with reduced tax costs compared to the individual transfer of real estate. Possibility to avoid gift or inheritance tax for lineal descendants or spouse even for assets exceeding one million euros in compliance with legal conditions. Control of the company-with a shareholding of more than 50 percent-for a period of at least 5 years by the donee or heir and continuation of the business activity in corporate form.
If, on the other hand, an International investor decides to invest in Italian property in a personal capacity, again there are advantages in the case of leasing real estate. These are advantages in terms of:
Operating with a corporation, all profits will be subject to taxation on a tax return. On average, the taxation of a corporation is much higher than that of an individual. This is both because the individual can avoid taxation of capital gains from the sale of property held for at least five years. In addition, the natural person for rental income from residential property can operate for taxation by dry coupon. Which a corporation cannot apply.
A corporation has operating costs as well as incorporation costs. So for an LLC, there are costs for an accountant, if there are partners there will be the board of directors, there are different items that you will have to govern and pay and these costs will erode the profit you make from operations. You have to consider these parameters because if you are a business owner you definitely have to control the outgoing costs. A sole proprietorship has very low outgoing costs compared to an LLC, but higher than direct management.
Example Of Valuation Of Real Estate Investment Italian Company
To get to the heart of the matter, let us start with a concrete case about an International investor who asked us for a legal consultancy. The starting situation is as follows:
“ I personally hold real estate in Italy (two apartments) that generates an annual gross income of 32,000 euros. This investment has enabled me to proceed with the purchase of two additional properties (through the taking out of a land loan) that I estimate will generate another 45,000 euros in gross income. In this situation, I would like to understand whether it may be worthwhile to continue to hold the properties personally as a private individual, or to establish a property management company”.
This is, in essence, a rather common situation to encounter
Italian Property Management Company Valuation Calculations
In order to understand the convenience (or otherwise) of setting up a property management company, it is necessary to make calculations that lead to a comparative evaluation of different possible scenarios. Specifically, the scenarios we are going to simulate are:
- The collection of proceeds through a natural person, holder of all real estate;
- The use and establishment of a property management company in the form of a simple partnership;
- The use and establishment of a property management company in the form of an LLC.
Italian Property Taxation Scenarios
1) Renting Italian property as an individual owner
|Gross Rental Income
|Flat Tax (21%)
Note: The Flat Tax of 21% is applied to the gross rental income for individual landlords. The Net Income is calculated by deducting the Flat Tax from the Gross Rental Income.
2) Establishment Of Real Estate Management Company In The Form Of Personal Company
The first cost to be incurred is related to the establishment of the personal Italian real estate management company, which must have at least two partners. These will go in and contribute their own real estate properties, which will discount registration tax at 9% (on the market value of the properties, to be determined by appraisal), and will subsequently purchase other properties directly.
Assuming that in the example the person contributes the two owned properties estimating a total value of 300,000 euros, the initial charge to be incurred is 27,000 euros. We omit for simplicity the charges related to mortgage and cadastral taxes.
On the other hand, with regard to the taxation of rents, the calculations to be made are as follows:
|Partner A Share
|Partner B Share
Note: The taxable income is calculated by deducting the expenses related to the rental income from the gross rental income. The Partner A and Partner B shares are calculated based on their ownership percentages. The Total IRPEF is calculated based on the applicable tax rates for the taxable income amount. The Net Income is calculated by deducting the Total IRPEF from the Partner A and Partner B shares.
3) Establishment Of Real Estate Management Company In The Form Of Italian Limited Liability Company Ltd.
The cost of registration tax at 9% on the market value of real estate must always be calculated for the transfer of real estate into an LLC as well. Therefore, the same considerations made for item 2) apply.
|13,713 euros (26%)
Note: The amounts for IRES, IRAP, Dividend, and Withholding Tax are based on the given gross income and tax rates. The net income amounts are calculated by deducting the corresponding tax amounts from the gross income and dividend amounts.
Conclusions Of the Evaluation Of Suitability For The Establishment Of An Italian Real Estate Management Company
Scenario 1) i.e. holding the real estate as a natural person is the one that may seem the most convenient at first glance. However, this simulation can be simplistic. If the person holds the real estate, he/she must choose IRPEF taxation as he/she must take advantage of the so-called “home bonus” related to the renovation or energy upgrading of buildings. In addition, with this scenario the real estate remains directly in the owner’s disposal with greater risks in relation to the protection of their personal assets from third party aggression.
Scenario 2) related to the establishment of a simple property management company appears more costly in terms of taxation than scenario 1). However, it is sufficient for the partners to make investments in real estate through “home bonuses” to reverse the situation and make this choice worthwhile. In addition, the cost associated with the contribution of real estate in terms of registration tax must be taken into account. This means that the simple real estate management company is all the more convenient when there are no properties to be contributed but the company directly purchases properties from third parties. Therefore, it is important to plan to choose this type of company before starting to make investments in real estate. In addition, real estate held through simple companies has the advantage of being segregated from the personal situation of the partner. In addition, it should be pointed out that, the real estate simple partnership can also hold real estate that is not income-producing, as a company that by definition is noncommercial. This aspect, in an LLC, could be problematic in the long run concerning the discipline of shell companies.
Scenario 3) related to the establishment of a real estate management company in the form of a limited liability company is related to situations where the contributed real estate is capable of generating high rental income (perhaps because you are investing in capital properties). Indeed, in this case, the proportional taxation of the SRL is able to lower the tax burden compared to the simple real estate company solution. In addition, it should be taken into account that high rental income is also necessary to overcome the problems associated with the shell company rules. The considerations made for the simple real estate management company in relation to the cost of contributing real estate owned by the partners also apply here. In addition, it may be worth pointing out that the real estate management SRL can also be single-member (unlike the simple company, which must always provide for the presence of at least two partners). Ultimately, therefore, the real estate SRL is advantageous at the time when one intends to use it, not so much to personally receive the profits from it but, rather, to reinvest them in further investment projects (real estate and otherwise).ù
Why appoint an Italian corporate attorney to establish your company here?
Incorporating an Italian real estate management company can be a complex process, especially for non-Italian speakers or those unfamiliar with Italian law. That’s why it’s essential to work with a corporate attorney who can help you navigate the legal landscape and ensure that your company is set up correctly.
Here are some of the ways ILF Italian Real Estate Attorneys can help:
- Provide legal advice – ILF attorneys can provide legal advice on the best legal structure for your business, tax implications, and other legal issues related to incorporating a company in Italy.
- Handle paperwork and filings – Incorporating a company requires several legal documents and filings, such as the articles of association, deed of incorporation, and more. ILF corporate attorneys can handle these tasks on your behalf, ensuring that everything is filed correctly and on time.
- Assist with due diligence – ILF attorneys can assist with due diligence, such as verifying the legal and financial status of the properties you want to manage, and ensure compliance with relevant regulations.
- Provide ongoing legal support – Once your company is set up, ILF Italian legal advisors can provide ongoing legal support, such as drafting contracts, resolving disputes, and representing your company in legal proceedings.
In conclusion, incorporating an Italian real estate management company can provide significant benefits for your business, but it’s essential to work with a corporate attorney who can help you navigate the legal process. With our expertise and guidance, you can set up your company correctly and ensure compliance with all legal and regulatory requirements.
Start investing now in the Italian Real Estate Market
Why Italian real estate?
If you want to start a business in Italy or open a real estate management company, our country provides an exciting market. For British and Americans looking to start a business in Italy, the country offers appealing prospects, especially in tourism and property. Some business ideas in Italy for foreigners include buying, renovating, and reselling Renaissance buildings, launching an agriturismo, opening a bed and breakfast inside a vineyard or at the foot of a volcano, or simply investing in commercial property.
For your first investment property in Italy, consider some alternative real estate investments like buying an olive grove, or farm and converting historical buildings into contemporary loft apartments. Many non-EU citizens opt to buy property in Italy through setting up a company to facilitate legal transactions. Projected to be popular areas for company formation in 2024-2025 are Rome, Milan, Tuscany and Liguria as some of the best cities to invest in real estate in Italy are Rome, Milan, Florence, Venice, Naples and Turin. Rome offers a mix of commercial and residential properties with good rental potential. Milan features a vibrant, investment-oriented real estate market. Florence and Venice attract strong tourism, a major driver of Italy’s economy, so properties here can yield robust returns, especially if used for short-term rentals.
For non-EU citizens, local knowledge is key to overcoming bureaucratic hurdles, but the rewards of owning real estate in Italy can be life-changing. With proper due diligence, Italy deserves consideration among the world’s best markets for real estate investing.
An efficient team of judicious accountants, astute real estate agents and resourceful attorneys specialized in commercial, real estate, and tax law will lead prospective investors through the process of creating a company in Italy; and, subsequently, we will assist with the purchase of real estate assets in Italy and provide support in the management of the business.
We are continuously committed to our clients’ success and facilitate all dealings and transactions with perfection. We provide:
- drafting of Power of Attorney acts to allow us to represent our clients where and when needed for the establishment of the company;
- comprehensive advice and assistance during the process of registering a trademark in the Italian Patent and Trademark office;
- consultancy and compilation of the documents needed to apply for the innovative SME and startup programmes offered by the Italian Ministry of Financial Development;
- efficient and accurate accounting and book-keeping services;
- specific advisory and consultancy services in the purchase of property and continued technical assistance and legal reviews related to future property management.
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.