Acquiring Italian Real Estate

DIRECT PURCHASE OF REAL ESTATE

This paragraph discusses the most important tax implications of direct purchase of real estate.

First of all, it discusses the impact for resident individuals and non-resident individuals, thereafter the impact for resident companies and non-resident companies.

RESIDENT INDIVIDUALS

Transfer taxes

If the seller is not liable to VAT (for option or obligation) the applicable rate is of 9% (2% if the buyer fulfils the requirements for the ‘first home tax benefit’).

In case of VAT application, the Registration tax is charged with the fixed amount of €200 (see page 5 for more details).

Mortgage tax and cadastral duties

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.

Generally, the tax base of these taxes is the same used for registration tax purposes. Cadastral and mortgage taxes apply at the fixed amount of €50 each if the transfer concerns a residential building subject to 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.

Value added tax

In principal, the supply of real estate is exempt from VAT (VAT applicable for option).

However, VAT must be charged in case of newly created buildings sold by its own construction company within five years, with the following VAT rates:

  • 4% or 10% for real estate real estate classified in the cadastral categories other than “luxury houses”; and
  • 22% for the “luxury houses”.

Moreover, if the newly created building is sold later than five years after being built or after refurbishing works, VAT application is optional.

When the VAT option is chosen by the seller and the purchaser is liable to VAT, it is applied with the Reverse Charge.

Deductibility of costs

The interests related to mortgage for the acquisition/renovation of the firs house  are deductible from IRPEF at 19% up to €4.000.

NON-RESIDENT INDIVIDUALS

Non-resident individuals are treated the same as the resident individuals.

RESIDENT COMPANIES

Transfer taxes

If the seller is liable to VAT (for option or obligation) the applicable rate of Registration Tax is of €200. Otherwise, if the seller is not liable to VAT the transfer taxes are levied at 9%, based on the revaluated cadastral value of the property. 

Mortgage tax and cadastral duties

In case of residential real estate, mortgage and cadastral taxes are approximately €50 each, unless the sale is led by the company that built it within five years after its construction or by other VAT taxpayers: the due taxes would amount to €200 each.

For instrumental buildings the mortgage tax is 3% and cadastral duties are 1%.

Value added tax

In principal, the sale and purchase of a real estate property between two companies VAT-subjects is exempt from VAT (proportional VAT is generally applicable only for option by the seller).

When VAT is opted, it is generally applied with the reverse charge regime.

The same rules for individuals apply.

Deductibility of costs

The amortisation for instrumental properties is deductible within ministerial limits.

For partnerships the part of interest, corresponding to the ratio between the amount of revenues and other income that contribute to the business income (or that do not compete as excluded), and the total amount of all revenues and income are deductible from taxes in case of business activities.

On the other hand, for limited companies, the interests related to loans for acquisition or building properties are deductible in each tax period up to the amount of interest incomes and similar income. The excess is deductible within the limit of 30% of the gross operating profit of the core business net of the related IRES tax changes.

In addition, the energy requalification costs, incurred directly, are deductible at 50%-65% (maximum limit of €100,000).

If the seller opts for taxability, the VAT applied on the transfer of instrumental real estate is deductible. Thereby, VAT is deductible if the sellers are constructors and renovators liable to VAT.

However, for non-instrumental real estate, the VAT is not deductible because the seller is VAT-free.

NON-RESIDENT COMPANIES

Non-resident companies are generally treated the same as resident companies. VAT obligation for the purchase could be managed by means of the VAT identification procedure (or VAT fiscal representative).

INDIRECT PURCHASE OF REAL ESTATE

This paragraph discus the most important tax implications of the indirect (shares) purchase of real estate.

First of all, it treats the impact for resident individuals and non-resident individuals. Thereafter it discusses the impact for resident companies and non-resident companies.

RESIDENT INDIVIDUALS

Transfer taxes

The purchase of a company participation entails the payment of transfer taxes and stamp duties.

For the purchase of shares of the limited companies, the registration tax amounts to €200 and the stamp duty to €16. For the purchase of shares of the partnerships, the registration tax amounts to €200 and the stamp duty to €156.

Personal income tax

Income derived from the capital gain for the sale of the shares is subject to a substitutive tax of 26%, if individuals does not qualify as a trade or business.

Dividend withholding tax

Dividends from Italian corporate companies to individuals are subject to a WHT of 26%.

NON-RESIDENT INDIVIDUALS

Non-resident individuals are treated the same as resident individuals.

RESIDENT COMPANIES

Transfer taxes

The purchase of a company participation entails the payment of transfer taxes and stamp duties.
For the purchase of shares of the limited companies, the registration tax amounts to €200 and the stamp duty to €16. For the purchase of shares of the partnerships, the registration tax amounts to €200 and the stamp duty to €156.

Corporate income tax

The profits deriving from the participation in companies are subject to the IRES tax only on 5% of the profits distributed. They do not contribute to form the income for the year in which they are received because they are excluded from the income of the company for 95% of their amount. The dividends received by the simple companies when controlled by individuals discounted the percentages of taxability of 40% for the profits produced up to 31 December 2007; 49.72% for profits produced up to 31 December 2016 and of 58.14% for profits produced up to 31 December 2019. However, for profits produced from 2020, a 26% WHT is applicable.

Losses

IRES subjects can use business losses to reduce business income and can bring the surplus limitlessly into subsequent periods, but not more than 80% of income earned.

Fiscal unity
The tax consolidation is an opportunity for taxation methods granted to the corporate groups. The consolidation allows the creation of a single tax obligation against a multitude of IRES taxable subjects linked to each other by a control relationship.

NON-RESIDENT COMPANIES

Corporate income tax

The profits received by companies residing in non-EU countries are subject to a WHT equal to 26%. Profits received by company’s resident in the European Union are subject to a tax withholding tax of 1.2%. If the requirements are met, these companies can take advantage of the facilities provided by the Directive n.90 / 435 / CE (Parent Directive). Finally, if the agreements stipulated to avoid double taxation are present, the provisions contained will be relevant.

Fiscal unity 

There is the possibility of exercising the option for the so-called ‘Consolidated World’ by the resident companies for the income earned by the non-resident subsidiaries.

How can we help you?

Contact RSM Studio Tributario e Societario by phone at

Milano: +39 02 89095151

Roma:  +39 06 5754963 

or email your questions, comments, or proposal requests.

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