The Italian real estate tax system configuration given its complex nature involves all levels of government, central and local. Our law firm, composed of Italian English-speaking and British lawyers, has extensive experience in assisting foreign clients and Italian citizens who are non-resident in purchase transactions, including legal advice focused on providing the best tax planning. Whether it’s income tax (from a rental property) knowledge about property tax in Italy or anything surrounding the Italian tax rates, we can help you to navigate our fiscal system without worry.
In Italy, like other European countries, the real estate tax consists of taxes on income, wealth, 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).
Types of real estate taxes
Specifically, we can distinguish 6 categories of taxes levied on real estate:
- Nature of taxable “income” whose premise is the income produced from the property or possession of the property (personal income tax, IRES);
- Nature of taxes of an “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).
|Nature of Tax
|Personal Income Tax (IRES)
|Income produced from the property or possession of the property
|Property Tax (IMU)
|Ownership or possession of the property
|Tax on Services Provided to Property Owners (TASI)
|Public services provided to property owners
|Value Added Tax (VAT), Registration Tax, Mortgage Tax, Land Tax
|Transfer of property for consideration
|Inheritance and Gift Tax
|Transfer of real estate for free
|Dry Coupon, Registration Tax, Stamp Duty on Leases
|Rental of the property
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.).
Italian property taxes due when buying from an enterprise
If the seller is a business, the general rule is that the sale is exempt from VAT. In this case, therefore, the buyer will have to pay:
- the registration tax at a proportional rate of 9 percent
- the fixed mortgage tax of 50 euros
- the fixed cadastral tax of 50 euros.
VAT on sales: when is it due?
As mentioned above, the sale of buildings for residential use by businesses is, as a general rule, exempt from VAT.
However, the tax applies:
- to transfers made by companies constructing or restoring buildings within 5 years of the completion of construction or intervention or even after 5 years, if the seller chooses to subject the transaction to VAT (the choice must be expressed in the deed of sale or preliminary contract)
- to transfers of residential buildings intended for social housing, for which the seller chooses to subject the transaction to VAT (again, the choice must be expressed in the deed of sale or preliminary contract).
In these cases, the buyer will have to pay:
- 10% VAT (for sales and deeds of incorporation of real rights to dwelling houses (including those under construction) classified or classifiable in cadastral categories other than A/1, A/8 and A/9, if they do not meet the requirements to take advantage of the “first home” benefits, or 22% VAT for sales and deeds of incorporation of real rights having as their object properties classified or classifiable in categories A/1, A/8 and A/9
- the fixed registration tax of 200 euros
- the fixed mortgage tax of 200 euros
- the fixed cadastral tax of 200 euros.
- Taxes due when buying from a private individual
Italian property taxes due when buying from a private individual
- the proportional registration tax of 9%
- the fixed mortgage tax of 50 euros
- the fixed cadastral tax of 50 euros.
- In any case (purchase from a company or purchase from a private individual), the registration, mortgage and cadastral taxes are paid by the notary when the deed is registered.
Please note: both when buying from a business exempt from VAT and when buying from a private individual, the proportional registration tax still cannot be less than 1,000 euros. However, the actual amount to be paid may be less as a result of the deduction of the proportional tax already paid on the deposit when the preliminary contract was registered.
Italian purchase taxes (no primary residency)
When a foreign buyer purchases a property in Italy without moving his/her primary residence in Italy, the taxes due at the signing of the final deed are:
COMPANY (VAT exempt)
(with a minimum € 1,000)
|Land register duty
|COMPANY (with VAT)
(22% for luxury property classified as A/1, A/8 e A/9)
|Land register duty
How to calculate property taxation in Italy?
Purchase taxes calculation when VAT must be applied
When the sale of the house is subject to VAT, the taxable base on which to calculate the value-added tax (10% or 22% as the case may be) is the sale price.
In this case, as mentioned, registration, mortgage and cadastral taxes are paid in a fixed amount (200 euros for each).
Please note: If the amount of the consideration indicated in the deed of sale (and in the relevant invoice) is different from the actual amount, the purchaser, even a private person (i.e., not subject to VAT) is jointly and severally liable with the seller for the payment of the VAT related to the difference between the actual and the indicated consideration, as well as the relevant penalty.
In this situation, the buyer, who is a private person, can regularize the violation by paying the higher tax due within 60 days of signing the deed. He or she will also have to submit a copy of the certificate of payment and the regularized invoices to the Internal Revenue Service within the same period.
Purchase taxes calculated on price-value system
For transfers of real estate for residential use (and related appurtenances), under certain conditions and specific subjective and objective requirements, the law provides a special mechanism for determining the taxable base for registration, mortgage and cadastral taxes: the “price-value” system.
Significant benefits accrue to homebuyers from the application of this criterion, introduced in 2006. Its purpose, in fact, is to ensure, on the one hand, transparency in real estate purchases and sales and, on the other, fairness of the related tax levy.
In fact, price-value allows the taxation of the transfer of real estate on the basis of its cadastral value, regardless of the consideration agreed upon and indicated in the deed.
In addition, this system also implies significant protection for the buyer, as it limits the power of value assessment by the Internal Revenue Service.
Other useful information
When does price-value apply?
The price-value rule applies to sales subject to proportional registration tax (thus excluding those subject to VAT) where the buyer is a natural person (not acting in the exercise of commercial, artistic or professional activities).
Thus, this mechanism can be used not only in all purchases and sales in which both parties are “private individuals,” but also in sales made to individuals by sellers not subject to VAT (associations, foundations and the like) and in those made, again to individuals, by companies or businesses under VAT exemption.
To which type of properties does it apply?
The price-value system applies generally to sales of residential real estate and related appurtenances.
It applies, therefore, also to purchases of housing (and related appurtenances) in the absence of “primary home” benefits.
Please note: Price-value also applies to deeds transferring or constituting partial real rights and enjoyment rights (e.g., bare ownership and usufruct) and to purchases at forced expropriation or following public auction. Even in these cases, they must be residential properties and their appurtenances.
The buyer’s application
The application of price-value requires a specific request of the buyer made to the notary in the deed of purchase. The request cannot be contained in a subsequent supplementary deed.
The indication of the consideration
In any case, the parties must indicate the agreed consideration in the purchase deed.
If the consideration is concealed, even in part, the registration, mortgage and cadastral taxes will be calculated on what was actually agreed upon and no longer on the cadastral value; in addition, a penalty of 50% to 100% of the difference between the tax due and the tax already charged will be applied.
If, on the other hand, a lower cadastral value is indicated in the deed than that which results from the correct application of the coefficient established by law, the price-value rule is not disapplied. In this case, in fact, the Internal Revenue Service does not make the assessment on the market value of the property, but demands the higher tax that results from the application of the correct cadastral value.
How is Italian land register value calculated?
The cadastral value of buildings for residential use (other than the “primary home”) is determined by multiplying the cadastral rent (revalued by 5%) by the coefficient 120.
Cadastral value = Cadastral value x 1.05 x 120
Example of calculation of the registration tax
Suppose a house, which has a cadastral annuity of 900 euros, is purchased at 200,000 euros. With the application of the price-value rule, the taxable base on which to apply the registration tax of 9% is equal to: 900 x 1.05 x 120 = 113,400 euros.
Therefore, the registration tax due will be 10,206 euros (113,400 x 9%).
Without the application of the price-value rule, the tax would be calculated on the agreed value (200,000 euros) and would be 18,000 euros (200,000 x 9%).
Purchase tax in Italy calculation sum up
The price-value system applies provided that:
- the building being purchased is for residential use (thus, only dwellings, with or without “first home” requirements)
- the buyer is a private individual not acting in the exercise of commercial, artistic or professional activity (it is not allowed, for example, for the purchase of the professional’s studio)
- the buyer explicitly requests the notary, at the time of purchase and sale, the application of the price-value rule
- the parties indicate in the deed the actual amount agreed upon for the transfer.
What are the benefits for a foreign buyer to apply this form of Italian purchase taxation?
The foreign buyer who, in compliance with all the conditions required by law, chooses to apply the price-value system has important benefits.
- First of all, there is a limitation of the power of assessment of the Internal Revenue Service with regard to both registration tax and Irpef.In fact, with respect to buyers who make use of the price-value system.
- The Italian Revenue Office cannot make an assessment of value for registration tax purposes, except in cases of concealment of all or part of the agreed price.
- The rules on assessment for IRPEF purposes based on simple presumptions do not apply.
- The law provides for a 30 percent reduction in the fees payable to the notary public.
|TYPE OF PURCHASE
|VALUE ON WHICH TO CALCULATE TAXATION
|Possibility to apply the PRICE-VALUE SYSTEM
Formula: cadastral value = land register value x 1,05 x 120
Benefit of applying Italian purchase tax system “price-value”
|BENEFIT FOR NON RESIDENT BUYER
|Limitation to Italian Tax Authority investigation
|Reduction of 30% Notary fees
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 leasee / 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. To better manage your real estate in Italy, consider using our expert real estate management services.
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.
We regularly help clients who have inherited property in Italy, also selling inherited property in Italy and how to manage this. Contact us now for a first free call.
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.