Italy: Overview

RENTAL YIELDS

Yields are low at 4.5% in Italy

Italian gross rental yields are low, averaging at around 4.5%. Apartments in the historical centre of Rome yield 3.7% - 5.3%, while similar apartments in cosmopolitan Milan yield 4% - 5.2%. Apartments in Venice fetch 3.8% - 4.8%, while similar apartments in Florence yield a higher return, ranging from 4.8% - 5.8%.

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TAXES AND COSTS

Rental income tax is high in Italy

Rental Income: Non-resident landlords are taxable on rental income earned in Italy. The rates range from 23% to 43%. Personal allowances for spouse and family are not available to non-residents, but certain deductions are granted.

Capital Gains: Capital gains are not taxed if the property was held for more than five years. Otherwise capital gains are taxed as income.

Inheritance: Inheritance taxes are levied at 4% to 8%, depending on the relationship between the deceased and the beneficiary, with non-taxable threshold amounts.

Residents: Residents are taxed on their worldwide income.

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BUYING GUIDE

Transaction costs are moderate to high in Italy

Total round-trip transaction costs in Italy range from 10% - 22% of the property value. Registration tax is 3% for main homes and 7% for second homes. Non-resident buyers pay a fixed registration tax of 7%. The real estate agent’s commission is between 4% and 6% plus, 20% VAT; typically split between buyer and seller.

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LANDLORD AND TENANT

Italian law is strongly pro-tenant

Because of strongly pro-tenant landlord & tenant laws, the rental market is shrinking.

Rents: Rents can initially be freely negotiated, but increases are restricted. Landlords can only increase the rent after the initial 4-year contract.

Tenant Security: Tenants have the right to controlled rents, and effectively eight years or more of security of tenure. A landlord may only serve a disdetta - a registered letter of notice which must be sent at least six months before contract expiry - to coincide with the end of the standard 4 years. Failure to do so automatically renews the contract for another 4 years.

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ECONOMIC GROWTH

Italy’s modest economic growth

Located in Southern Europe, Italy has a population of 59.34 million and GDP per capita of US$31,051. It was one of the six countries which signed the 1951 Paris Treaty that set Europe on the path to integration.

The economy performed modestly in 2007 with 1.7% GDP growth rate, still higher than the average rate of 0.9% from 2001 to 2006. A slower year-on-year inflation rate was recorded at 1.9% in 2007 from 2.2% in 2006. Moreover, unemployment rate also declined from 7.1% in 2006 to 6.8% in 2007. Real wages rose by 2.6%, after an average of 2.2% annual wage increase from 2001 to 2006.

As the left-of-centre government of Prime Minister Romano Prodi lacks a majority in the upper house, the passage of key reform measures is facing difficulties. The government is seeking to change the pension system and to increase labor market flexibility.