Effective Tax Rate on Rental Income
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Global Property Guide research
Famous for its world-renowned cuisine, vibrant culture and gorgeous scenery, Italy is a popular choice among foreign real estate investors. Whether you’re looking for your own slice of Mediterannean life or seeking to break into the Italian commercial market, it’s important to be aware of the local costs and taxes associated with real estate purchases.
PURCHASING REAL ESTATE AS NONRESIDENT
There are no restrictions on purchasing property in Italy as a non-resident. However, there are a number of factors that will affect the costs and taxes associated with real estate investment, including residential status, the purpose of the property, property type and municipality. Non-resident individuals purchasing property as a holiday home or investment will pay higher rates than resident buyers seeking property as their main residence.
Properties intended for use as a principal residence are eligible for lower Stamp Duty and are exempt from IMU. Non-residents intending to use a property as their main residence have 18 months from the date of purchase to claim residence within the local municipality. Non-EU citizens will first need to acquire a residence permit before they can use a property as their main residence.
There are two independent value measurements associated with real estate in Italy, upon which various taxes and costs are calculated.
The Fiscal or Cadastral Value (valore catastale) refers to the official value of the property recorded in the land registry. This value is evaluated by the local municipality (comune) based on the income generated by the property and the cadastral category.
The Transaction Value of a property refers to the agreed price recorded in the purchase deed and is significantly higher than the Cadastral Value. Most taxes and costs will be calculated upon this value.
Italian property taxes and fees fall into two main categories - sales taxes and maintenance taxes. Sales fees are the one-time costs incurred upon purchase of a property, most of which are charged to the buyer. Property fees refer to the regular costs associated with owning or occupying the property. The buyer is typically liable for paying sales fees, while property fees may fall to either the owner or occupier.
- Registration Tax (imposta di registro) is the cost assigned to registering a property and will vary depending on the conditions of the sale. When purchasing a second home from a private individual, this will be 9% of the Cadastral Value, with a minimum cost of €1,000. If the buyer is a company or trust, this charge will instead be 9% of the Transaction Value. Land purchased for construction or agricultural purposes is charged at additional rates of 8% and 12% of the Cadastral Value, respectively.
No VAT is due on properties purchased from private sellers. Registration Tax is reduced to a flat charge of €200 plus 10% VAT when purchasing from a VAT-registered company, raised to 22% VAT for luxury properties (CategoriesA1, A8 and A9).
- Cadastral Tax (imposta catastale), the cost of registering with the Land Registry, is charged at a flat 1% of the Cadastral Value for non-residents.
- Stamp Duty (imposta di bollo) is paid on the notarial transfer deed at a fixed rate of €230.
- Mortgage Tax (imposta ipotecaria) is the fee imposed when taking out a mortgage to purchase a property. For non-residents, this is charged at 2% of the total mortgage loan value.
- Notary Fees refer to the costs incurred in hiring a Notary (notaio) to legally facilitate the property exchange. While paid for by the buyer, the notaio works in the interest of both parties equally. Fees will most often be 2 - 4% of the Transaction Value depending on the price of the property, with an approximate minimum cost of €1,700.
- Capital Gains Tax (plusvalenza) is paid by the seller and charged at 20% of profits made from the sale above a certain threshold, after deducting the associated costs of the transaction. The seller is exempt from paying Capital Gains if they have owned the property for more than five years or if the property served as their main residence.
Additional Transaction Fees
In addition to the basic taxes associated with purchasing property in Italy, there are a number of other fees that may be involved.
- If exchanging a property through an estate agency, both the buyer and seller will be liable to pay 1.5 - 4% of the Transaction Value in agency fees, plus 22% VAT on the fee. Both parties will pay an equal sum, with a minimum cost of €2,800 on each side.
- Though not legally required, those looking to purchase real estate are recommended to hire the services of a Geometra to survey the structural and legal state of the property. Depending on the company and the exact conditions of the survey, this can cost anywhere from €500 to €3,000.
- It is also recommended that buyers hire a lawyer (avvocato) to oversee the conveyancing or legal transfer of the property, typically charging 1 - 2% of the Transaction Value, plus 22% VAT on this fee.
- IMU (Imposta Municipale Unica) is a property tax paid by the owner on second homes and luxury estates.
IMU can be paid in one or two instalments; one lump sum between 1 May and 16 June, or in one part during this same period and another between 1 and 16 December.
IMU is based upon the cadastral income of the property, increased by 5% and multiplied by the local rate of the comune, which is typically 0.4 - 0.75%. Primary residents are exempt from paying IMU. Buildings deemed to be of historical or artistic interest may be eligible for a 50% reduction on this tax.
- TASI (Tributo per i Servizi Indivisibili) is a tax charged for ‘indivisible services’, that is to say public services offered by the municipality for the benefit of all of its residents. Examples of these services include street lighting, road maintenance and local security.
TASI is calculated in much the same way as IMU, and offers the same exemption if the property serves as the owner’s primary residence. If the property is rented out, the tenant is liable for 30% of the fee. This tax is also due between the same dates as IMU and can equally be paid in one or two instalments.
- TARI (Tassa sui Rifiuiti) is a tax paid by the occupier of a property rather than the
owner for the collection of waste produced by the estate. The property will be provided with a municipal invoice of the fee to be paid in a given time period.
TARI can be charged at one of two rates: A fixed rate based on the size of the property in square metres multiplied by the number of declared or estimated occupants, with exact rates set by the comune. A variable rate set by the comune to cover the collection, transport and disposal of waste, determined by the expected waste output of the household.
- Condominium fees are communal charges that may be invoiced to co-owners of apartment-style properties. These fees will typically cover communal amenities and services, such as maintenance of shared spaces. Typically, those who own a larger proportion of a property will be expected to pay a larger fee accordingly.
- Rental Income, whether from long-term tenants or short-term touristic lets, is charged at 21% which replaces income tax, registration tax and others (if some conditions are met). 100% of the rental revenue is taxable. Those intending to lease their properties for touristic rentals should familiarise themselves with the local tourism laws of the comune. Many municipalities require a one-time confirmation declaring the units to be let along with their specifications, such as the number of bedrooms and bathrooms available.
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||25% on band over €15,000|
|€28,001 - €55,000||35% on band over €28,000|
|€55,001 -||43% on band over €55,000|
|Source: Global Property Guide|
A regional surtax is also imposed on income, with a minimum rate of 1.23% and a maximum rate of up to 3.33%. 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.