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Overview of Italian Real Estate tax

Rental income and capital gains of Italian real estate

Taxpayer

Basis of tax

Tax levied

Tax rates (2020)

Resident individual

 

 

Non-resident

individual

 

 

Resident company

 

 

Non-Resident

company

 

Rental income

Capital gains

 

Rental income

Capital gains

 

Rental income

Capital gains

 

Rental income

Capital gains

Individual income tax

Individual income tax

 

Individual income tax

Individual income tax

 

Corporate income tax

Corporate income tax

 

Corporate income tax

Corporate income tax

Up to 43%

Not applicable if > 5 years

 

Up to 43%

Not applicable if > 5 years

 

Up to 24%

As business income

 

Up to 24%

As business income

Rental Income 

Individuals

Introduction

Rental income is taxed as either ordinary private income or under favourable substitute tax regime. 

Liability to tax 

Rental income earned by individuals forms part of the tax base on which personal taxation is calculated, together with any other taxable income earned by the taxpayer.

Basis to tax

Italian resident individuals are subject to Imposta sul Reddito delle Persone Fisiche IRPEF (and local surcharges) on their worldwide income. IRPEF is calculated through gradual rates by brackets of income, which currently range from 23% up to 43%. The highest rate applies where the amount of the aggregate taxable income exceeds €75,000. In addition to IRPEF, a regional surcharge, with a rate ranging from 1.23% to 3.33%, and a municipal surcharge, with a rate of up to 0.8%, must be paid. 

Resident individuals are subject to income tax on income (not collected in the context of a business activity carried out) deriving from worldwide real estate (some exclusions may apply).

With regard to real estate properties not leased to third parties, local property tax (imposta municipale propria, IMU – see below) replaces IRPEF and local surcharges with regard to the income deriving from such properties (with some exceptions). Therefore, in this case, only IMU falls due.

Where a real estate property is leased out to a third part, the taxable income corresponds to highest amount between: (i) the cadastral income of the property increased by 5% and further adjusted according to the ownership period; and (ii) the 95% of the rental accrued in the relevant tax period according to the lease agreement.

For the lease of buildings for housing purposes, an alternative (and more favourable) tax regime is available. Such tax regime, so-called cedolare secca and applicable upon option of the lessor, provides for the application of a substitute tax, which replaces income taxes (IRPEF and local surcharges), registration tax and stamp duty on the lease agreement. The substitute tax applies at the rate of 21% (10% in particular circumstances) on the gross annual rental (no cost deduction is allowed). Various conditions should be met in order to opt for the cedolare secca regime, and in particular:

  • The lease agreement should not be concluded within the framework of a business, art or profession by both the lessor and the lessee, if any;
  • The real estate should be classified as housing residence in the Cadastral Registry and should be effectively used in this way (appurtenances also can benefit from this regime).

Companies

Introduction

Rental income is taxed as business income. 

Liability to tax 

All the income for the lease of buildings related to the company contribute to form business income (through the allocation of costs and revenues in the financial statements) and are not independently taxed as a category of land income. Real estate income takes part in the formation of business income according to different rules, which depend on the type of property.

Basis to tax

Resident corporate companies (i.e. companies which have legal seat, place of effective management, or main business object in Italy for the most part of the tax period) are subject to corporate income tax, imposta sul reddito delle società (IRES), levied at the rate of 24% (from 2017).

Pursuant to the ‘worldwide principle’ on which the Italian tax system is based, as for resident individuals, the taxable income of resident corporate entities includes their worldwide income, i.e. the income also sourced outside the Italian territory (tax credit in Italy for income taxes paid abroad is provided). 

Income from lands and ‘instrumental’ buildings (i.e. buildings directly used solely to perform the business activity and buildings whose destination cannot be changed without a complete transformation – i.e. commercial or industrial buildings, offices, etc – even if not directly used or leased to third parties) are generally determined according to the tax rules applicable to business income.

The income deriving from ‘non-instrumental’ buildings (i.e. residential buildings not directly used solely for the purpose of the business activity carried out and not representing available stock) forms part of the taxable business income as follows: 

  • For not leased building, the cadastral income, revaluated by 5% and adjusted in consideration of the owning period incurred in the tax period, increased by one-third; 
  • For leased buildings, the highest amount between: (i) the cadastral income, adjusted by 5% and further adjusted according to the ownership period; and (ii) the rentals referring to the relevant tax period according to the lease agreements, reduced by a maximum 15% amount of the rentals for certain maintenance expenses actually incurred (expenses exceeding 15% of rentals are not deductible from income tax). 

Therefore, expenses and other items concerning ‘non-instrumental’ buildings are not deductible with the exception of interest expenses on financing for the acquisition of the buildings.

Capital gains

Individuals

Introduction

Capital gains realised on the disposal of Italian immovable property normally are taxed as miscellaneous income.

Liability to tax 

The capital gains deriving from the sale of properties owned for more than five years are exempt from taxation.

Basis to tax

For properties owned for less than five years the tax base follows the ordinary rates. However, it is possible to opt for the 20% substitute tax on IRPEF.

Companies

Capital gains realised by companies are subject to corporate income tax as business income. 

Italian VAT & transfer taxes

Taxpayer

Basis of tax

Tax levied

Tax rates (2020)   

Resident individual

 

 

Non-resident individual        

 

 

 

Resident company

 

 

Non-Resident company

 

Rental income

Transfer of real estate services

 

Rental income

Transfer of real estate services.       

 

 

Rental income

Transfer of real estate services

 

Rental income

Transfer of real estate services

Registration Tax

Transfer Taxes

 

Registration Tax       

Transfer Taxes

 

 

Registration Tax

Transfer Taxes

 

Registration Tax

Transfer Taxes

 

1% -2%

2% - 9%

 

1% -2%

2% - 9%

 

 

1% -2%

2% - 9%

 

1% -2%

2% - 9%

 

 

Value Added Tax

Individuals 

Introduction

The transfer of a real estate property represents ‘transfer of goods’ for VAT purposes and it falls within the scope of VAT (with the exception of non-buildable lands, never subject to VAT) only if the vendor carries on a business or is a professional taxpayer and the real estate is included among the assets concerning the business or professional activity carried out. 

The Italian VAT system provides a general VAT-exemption regime in a certain instance. 

When a transaction falls in the scope of VAT, it should be determined if it is subject to proportional tax or if the general VAT-exemption regime applies. 

Transfers of agricultural land (i.e. non-buildable lands) is always outside the scope of VAT. Transfers of other kinds of land are subject to proportional VAT.

Transfers of buildings are generally VAT-exempt, with the following exceptions:

  • Transfers executed by subjects that have performed construction or restructuring works within five years from the end of such works.
  • After five years, if the builder/restructurer opts to apply VAT (to be expressed in
    the transfer deed).
  • In other cases, upon the seller’s option for the VAT application. 

Liability to tax

If an individual performs commercial or professional activities in Italy, in principle it will be subject
to VAT.

Basis to tax

For real estate transfers subject to VAT, the following rates apply:

  • 22% ordinary rate;
  • 4% and 10%, applicable in particular cases (purchase from a developer/builder, under specific terms and conditions).

When the seller opts for VAT, it is generally applied with the reverse charge regime.

Rental fees are generally VAT-exempt, and therefore subject to Registration Tax (1% or 2% rates).

Companies

The same rules for individuals apply. 

Transfer Taxes

Individuals 

Introduction

A transfer tax is a tax on the passing of real estate from one person or company to another. The rights of immovable property can qualify as real estate. 

Liability to tax

Seller and buyer are jointly and severally liable for the payment of registration tax.

Basis of tax

For residential buildings, the Registration Tax is based on the revaluated cadastral value (usually lower than the market price) if they are owned by individuals who doesn’t carry out a business. Otherwise the taxable basis is the market value.

For transfers of buildings that are VAT-exempt or out of VAT scope (such as, eg, transfers performed by non-VAT entities), registration tax falls due in proportional amount (with a minimum amount of €1,000). The rates generally applied are the following: 

  • 2% if the purchaser fulfils the requirements for the ‘first home tax benefit’ 
  • 9% in other cases.

For residential buildings subject to proportional VAT, Registration Tax applies at the fixed amount of €200. 

For instrumental buildings under VAT application, Registration Tax is due for the fixed amount of €200, regardless of whether they are subject to proportional VAT or VAT exempt. 

Cadastral and mortgage taxes

The transfer of real estate properties is subject to specific formalities accomplished by special public offices that keep and preserve public real estate registers. 

Each deed implying the transfer of real estate properties must be documented in these registers. These registrations are subject to cadastral and mortgage taxes at the following rates:

  • Mortgage tax: up to €200 for residential buildings / 3% for instrumental buildings
  • Cadastral tax:  up to €200 for residential buildings / 1% for instrumental buildings.

In particular, cadastral and mortgage taxes apply at the fixed amount of € 50 each if the transfer concerns residential buildings subject to 2% or 9% registration tax.

In addition, cadastral and mortgage taxes are due for a fixed amount of € 200 each for transfers of buildings for housing purposes subject to proportional VAT.

The tax base of these taxes is the same used for registration tax purposes.

Companies

The same rules for individuals apply. 

Italian local taxes

Taxpayer

Basis of tax

Tax levied

Tax rates

Resident individual

 

Non-resident individual      

 

Resident company

 

Non-Resident company

 

rev. cadastral value      

 

rev. cadastral value 

 

rev. cadastral value

 

rev. cadastral value

 

Municipal Tax       

 

Municipal Tax

 

Municipal Tax

 

Municipal Tax

 

Approximately 1% - see below      

 

Approximately 1% - see below 

 

Approximately 1% - see below 

 

Approximately 1% - see below 

 

Introduction

Every municipality levies an annual municipal tax on Italian real estate. 

Liability to tax

Every owner or user of residential or commercial buildings in Italy is liable to local municipal tax.

Basis of tax

Municipal Property Tax (IMU)

Real estate properties (i.e. buildings, building lands) are generally subject to Municipal Property Tax (IMU) which is levied on the owner of the property right or on the holder of other real estate rights, in proportion to the months of effective possession. IMU is computed in different ways, depending on the characteristics and location of the properties. 

The IMU tax rates are determined by the competent municipality, within the limits stated by the law, and may vary on the characteristics of the properties and on the status of the owner. The standard IMU rate is 0.76% for properties (excluding residential properties held by individuals as their main home). However, municipalities can increase or reduce the standard rate by 0.3%. 

IMU generally is not deductible for the purpose of income tax for individuals (IRPEF) and corporate income tax (IRES) for companies. However, in case of instrumental buildings 50% of the IMU paid is deductible for IRES/IRPEF purpose only.

Municipal Tax for Indivisible Services (TASI)

The municipal tax for indivisible services is payable by the owner (with the partial exception referred below), but if the property is leased the tenant could be asked by Municipality law to pay a part of the tax due. 

The TASI ordinary rate is 0.1%. This rate can be varied by the competent Municipality. However, the aggregate rate of IMU and TASI cannot exceed the maximum IMU rate stated by law, which is 1.06%. 

Municipal Waste Tax (TARI)

T ARI is calculated based on the tariffs established by the Municipality (derived from the floor area and the characteristics of the owners). Generally, the computation is made directly by the Municipality and provided to the taxpayer for relevant payment.

TARI is owed by the user of the property (owner or, where there is a lease contract, the tenant). 

Italian net wealth/worth taxes

Individuals

A wealth tax is not generally present in Italy.

A wealth tax on real estate properties (lmposta sul valore degli immobile situati all'estero or IVIE) situated outside of Italy has been introduced for individual resident in Italy.

The IVIE applies to the value of the real estate (i.e. the cost of the property or the market value in force where the property is situated).

Vehicles for Italian real estate

Commonly used vehicles for Italian real estate

Real Estate property 

An alternative to the direct acquisition of real estate properties may be the purchase of interest in ordinary corporate companies (limited liability companies, such as the S.p.a. or S.r.l.) owning such properties. From the investors’ perspective, this route has specific features, different from those associated with direct investment in real estate. 

However, in case the real estate investment is done through a partnership the income tax still is applied directly on the investor, the vehicle being considered tax transparent.

In general, the investment through a real estate corporate company generates income having a financial nature: dividends from net profit distributions and capital gains from shareholding disposals.

For personal income tax (IRPEF) purposes, the tax for both dividends and capital gains earned by individuals is applied with a 26% rate, separately from the ordinary tax base.

For corporate income tax (IRES) purposes, as far as dividends earned by corporate companies are concerned, the dividend exemption regime applies (only an amount equal to 5% of the dividend is taxable).

Specific real estate vehicles for Italian real estate

Real estate investment funds (REIF)

The Real Estate lnvestment Fund is a collective investment vehicle (closed-end regulated fund) without legal personality, established and managed by a management company known as an SGR (Società di Gestione del Risparmio). The REIF invests, exclusively or prevalently, in real estate properties, real estate rights and shareholdings in real estate companies.

The REIF is set up as a closed-end fund.

The Italian REIF is not subject to income taxes (Corporate Income Tax - IRES – and Regional Tax on Production - IRAP). 

For income generally subject to withholding taxes (WHT), for REIFs WHT is levied as definitive taxation, apart from cases in which the law expressly excludes REIFs from WHT (for example, where interest and income derived from capital investments in foreign funds).

 

How can we help you?

Contact RSM Studio Palea Lauri Gerla by phone at

Milano: +39 02 89095151

Torino: +39 011 561 32 82 

Roma:  +39 06 5754963 

or email your questions, comments, or proposal requests.

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