Tax on property income in Italy
Taxation Researcher | July 25, 2020
Effective Tax Rate on Rental Income
|Click here to see a worked example|
Global Property Guide research
Nonresidents are taxed only on their income from Italian sources. Married couples may be taxed separately depending on the conditions in the marriage contract. Nonresidents are only allowed to avail of some of the deductions and credits that are available to residents.
INCOME TAX (Imposta sul Reddito delle Persone Fisiche [IRPEF])
Taxable income is generally an aggregate of all forms of income, less the expenses related to acquiring and maintaining income and allowed deductions.
|TAXABLE INCOME, €||TAX RATE|
|Up to €15,000||23%|
|€15,001 - €28,000||27% on band over €15,000|
|€28,001 - €55,000||38% on band over €28,000|
|€55,001 - €75,000||41% on band over €55,000|
|Over €75,000||43% on all income over €75,000|
|Source: Global Property Guide|
A regional surtax is also imposed on income, with a minimum rate of 1.20% and a maximum rate of up to 2.03%. A municipal surtax and a provincial surtax may also be imposed on income, at an aggregate up to 0.80%. The municipal surtax is determined by each municipality and the provincial surtax is determined by each province.
Nonresidents may avail of deductions for medical and surgical expenses, mortgage interest payments and gifts to charitable institutions up to 19% of the taxable income.
Nonresidents renting out property in Italy are liable to pay taxes on their rental income. Taxable rental income is generally computed as rental income less a lump-sum deduction of 30% for repair and maintenance expenses. Taxable rental income cannot be less than 70% of the gross income. The normal income tax rates are then applied to the computed taxable rental income.
Gains from the sale of real property held for more than five years are not taxable. Gains from the sale of property held for less than five years are taxed as income. Capital gains are computed as selling price less acquisition costs and related expenses.
Local Property Tax (imposta municipal unica, IMU)
Local property tax is levied on Italian properties and are payable by the property owners. The tax is levied on the estimated or cadastral value of a property, which is increased by 5%. The resulting value is then multiplied by a number of coefficients based on the property type. The coefficient for apartments and residential buildings is 106. Then the local property tax rate is levied on the tax base, and the applicable tax rate ranges from 0.40% to 0.76%, depending on the property location. The tax rate in Florence is 0.40%.
Corporate income and capital gains are taxable in Italy at the corporate income tax rate of 24%. Operating costs and income-generating expenses are deductible when computing the taxable income.