Property Management
How to buy in italy

Important Information

The present document provides an overview of several italian tax and legal principles. Please note that case-law with regard to italian real estate is very extensive and complex. Each case should be examined individually, as the illustrations in this presentation may not be applicable under certain circumstances. Additional Income, Inheritances, Wealth or other taxes may be due in the country of the residence of the investor.

What can we do for you?

“Our goal is to help you, your family, friends or guests to fully appreciate your Lake property purchase”.

  • Guide you through the buying process.
  • Support in financing of the property.
  • Opening of a bank account and administering the local utilities.
  • Provide a fully comprehensive property management service.
  • Property renovation.
  • Assistance in furnishing the property.
  • Trouble free weekly rentals with an optimal “Return on Investment”
Purchasing Steps
  • Interest: In-depth research of location, the property and local conditions.
  • Offer block-content bbd-2: The buyer makes an offer with conditions to the selling party accompanied by a cheque for approx. 10.000 Euros or upto 10% of the total price. ONLY if the selling party accepts the offer, will the cheque be cashed by the owner directly and the purchase document signed.
  • Compromesso: This contract defines more clearly the actual transaction.
  • Both parties sign and normally a second deposit payment is paid.
  • This step can be skipped if the property is ready for occupation & the time between offer/acceptance and the Notarial act is normally less than 2 months.
  • The notary: Buyer decides on which Notary to use and pays the Notary.
  • The Notary is responsible to all parties and is legally liable for all documents being checked.
  • On the day of signing at the Notary’s office, all papers are signed by both parties and the buyer becomes the legal owner.
Definition of ‘’Cadastral Value’’
  • The ‘‘Cadastral Value” is that value which is held in the local Land Registry office.
  • Normally this Cadastral value is 4 to 5 times lower than the purchase price.
  • The “Cadastral Value” is only important if a property is purchased from a private owner, not a builder.
  • This value is calculated by the Land Registry office & nobody can influence this calculation.

Example: A property is purchased for 400.000 Euro. Normally the “Cadastral Value” of the property would be approximately 100.000 Euro. If buying from a private owner, the tax is calculated on the 100.000 Euro = the lower value (not the 400,000 euro).

Buying as a Non Resident

TAXES & EXPENSES
From a Builder

  • You pay 10 % of VAT on the total amount.
  • 3% + VAT agency fees on the total amount.
  • 3.500 Euro for the Notary
  • 250 Euro contract registration fees.

From a Private Owner

  • 9% of the cadastral value as tax to transfer the property.
  • 3% + VAT agency fees on the total amount.
  • 3.500 Euro for the Notary
  • 250 Euro contract registration fees.

In case of a mortgage:

  • You pay 2% of tax on the total mortgage amount.
  • 2.000 Euro in addition for the Notary
  • 800 Euro mortgage registration fee

In case you buy as a resident the VAT/TAX reduces from 10% to 4% and the tax on the mortgage amount reduces from 2% to 0.25%, all the rest remains the same.

Main Differences in Selling Process
  • Citizens of almost every country in the world are allowed to own a home in Italy. There is no difference whatsoever made between foreigners & Italians.
  • Opening a bank account is very simple.
  • The whole process is very simple, personal and secure.
  • In newly built properties, kitchens are not supplied.
  • The down payment and the final balance are paid to the seller directly.
  • The Italian law enforces that the Builder guarantees the newly built property (and takes out an insurance to cover this guarantee) for 10 years for major construction defects, 2 years for all gas, electricity and water systems and 1 year on small defects of the building.
Notary
  • The buying and selling parties do not have lawyers as the Notary is responsible and liable for all documents.
  • On “Notary Day”, all parties involved are present in one room, the process lasts for about 1 to 2 hours.
  • A translator is normally involved in this process for the entire document or for the “Power of Attorney”.
  • Being present at the Notary Act is recommended, alternatively you can apply for a power of attorney at the closest Italian consulate to your hometown.
Mortgage Information
  • Current interest rate are 1.65% for fix rate mortgages LTV 60% 15 years.
  • The Interest rates on variable rate mortgages is currently around 1.50%
  • There is a “rise” on the base-rate which is generally calculated as being 2,7% (approx.)
  • It is not impossible to have interest only mortgages but it is very unusual in Italy.
  • There are no penalties whatsoever on partially or fully paying off a mortgage.
  • Obtaining a mortgage of 50%-60% of the total value is relatively easy. Etc.
Income Tax
  • Italian non-residents need to declare Italian-source income only.
  • Net income generated by real estate (i.e. rental payments) is subject to Italian individual income tax. In the case of property rented out, the taxable basis is the highest between the imputed cadastral income and the actual income, net of directly attributable expenses up to 5% of the gross income (i.e. the actual net income cannot be lower than 95% of the gross income)
  • The marginal individual income tax rate for income above EUR 75’000 is 43%. This rate is increased by a regional surcharge ranging from 1.23% to 3.33%. The rate may also be increased by municipal and provincial surcharges, determined by each municipality and province at an aggregate rate between 2% and 3%
  • Alternatively the individual may opt to be taxed at a flat substitute tax of 21% (cedolare secca) which includes income tax, register tax, stamp duty, municipal and provincial surcharges. A reduced rate of 10% applies for residential properties located in special areas with a shortage of housing or which are densely populated
Real Estate Gains Tax
  • Gains on sale of property are tax-free if the sale takes place after 5 years holding period.
  • If the sale takes place within 5 years of acquisition, the gains will be subject to individual income tax (see above). However, the seller may opt for the application of the 21% substitute flat tax instead (see income tax above). In this case, the gains tax must be paid to the notary on the day of the sale.
Real Estate Tax (”IUC”)

Real estate tax (Imposta Unica comunale) composed of three different taxes has been introduced and is levied annually at municipal levels:

1.) Imposta Municipale Propria (IMU)

  • The taxable base is the imputed income as entered in the immovable property registry (catasto) plus a 5% additional imputed income multiplied by a coefficient ranging from 55 to 160, depending on the classification of the property (apartment, villa, castle, etc.)
  • The basic rate of IMU is 0.76% (an increase/decrease tax up to 0.3% is possible depending on the municipality). It is applied on the cadastral value of the immovable property
  • IMU is paid by the owner

2.) Servizio di gestion dei rifiuti (TARI)

  • TARI is an environmental and waste services tax paid by the tenant
  • The taxable base is either the size of the property or the quantity of waste

3.) Servizi indivisibile dei comuni (TASI)

  • TASI is a general services tax paid by the owner, unless the real estate property is rented out, the tax is due by the tenant up to 30%
  • The taxable base is either the imputed income as entered in the immovable property registry or the size of the property
Ownership via an italian corporation

Corporate Income Tax

  • Net income generated by real estate (i.e. rental payments) is subject to Italian corporate income tax of 27.5% at the national level (IRES) and generally 3.9% at the regional level (IRAP) for resident corporate taxpayers, i.e. effective rate of 31.4%.
  • The taxable basis is equal to the highest of cadastral rental value or actual income (e.g. rents) reduced of the actual income by all relevant expenses in relation of the management property
Real Estate Gains Tax

Company

  • If the real estate is sold directly by the italian company, any capital gains are subject to corporate income tax (see above)

Foreign shareholder holding shares in a non-business capacity

  • Capital gains of individual shareholders holding a substantial participation (qualified participation i.e. in a 12-month period) in a non-business capacity are exempt from tax for 50.28%. The remaining (49.72%) being taxed on income tax. The marginal individual income tax rate for income above EUR 75,000 is 43%. The rate could be reduced under any existing double tax treaty between Italy and the country of residence of the foreign shareholder.
  • Capital gains of individual shareholders holding a non-sbustantial participation in a non-business capacity are exempt, unless the shareholder is a resident of a country which does not allow the exchange of information. In this case, capital gains are subject to a substitute tax at a rate of 26% (article 5 of ID 461/97).

Foreign shareholder holding shares in a business capacity

  • If the foreign shareholder is qualified as a contractor in Italy and subject to VAT in Italy, he falls under the business capacity category
  • Capital gains of individual shareholders holding a participation subject to business income are exempt from tax for 50.28%. The remaining (49,72%) being taxed on income tax. The marginal individual income tax rate for income above EUR 75’000 is 43%. The rate could be reduced under any existing double tax treaty between Italy and the country of residence of the foreign shareholder
Ownership via an Italian Co held by a Luxembourg or Cyprus Co

Corporate Income Tax

  • Net income generated by real estate (i.e. rental payments) is subject to Italian corporate income tax of 27.5% at the national level (IRES) and generally 3.9% at the regional level (IRAP) for resident corporate taxpayers, i.e. effective rate of 31.4%.
  • The taxable basis is equal to the highest of cadastral rental value or actual income (e.g. rents) reduced of the actual income by all relevant expenses in relation of the management property

Real Estate Gains Tax

  • If the real estate is sold directly by the Italian Company, any capital gains are subject to corporate income tax rates, i.e. marginal rate of 31.4% (IRES + IRAP)
  • Capital gains tax optimisation may be possible by having a foreign company sell the shares of the Italian company holding the real estate, rather than the real estate directly. Under the double tax treaty concluded with Luxembourg the sale of the shares of the Italian company by a Luxembourg company should be taxed only in Luxembourg. In Luxembourg capital gains are tax-exempt if the participation exemption conditions are fulfilled (see below under “Dividend Distributions”)
  • Similar provisions apply under the treaty between Cyprus and Italy

Dividend Distributions

  • Dividends distributed by an Italian subsidiary to its Luxembourg or Cyprus parent company should be subject to 1.375% withholding tax in Italy (under the Italian Participation Exemption rules), if the beneficial owner of the dividends is a company resident and subject to corporate income tax in another EU country that allows an adequate exchange of information with the Italian tax authorities. Under the EU Parent-Subsidiary Directive the withholding tax would be reduced to 0%
  • If the parent company is controlled by a non-UE shareholder, a withholding tax of 26% could be applicable in Italy to distributions of dividends by the Italian company, unless he can prove that the parent company was not established for the only purpose of benefiting from the special regime for EU dividends (as described above). Such proof must be given either to the payer, who may apply the immediate exemption under its own responsibility, or to the tax authorities at the time the recipient applies for a refund of the withholding tax. In this case the 26% withholding tax would not be applicable
  • Dividends received by a Luxembourg parent company from an Italian company are exempt from taxes in Luxembourg, if the parent company holds at least 10% of the share capital (or of an acquisition price of at least EUR 1.2 million) of the Italian company for an uninterrupted period of at least 1 year
  • Dividends distributed by a Luxembourg company to a foreign shareholder are in principle subject to 15% withholding tax in Luxembourg (reduced to 10% under income/capital DTT).However, liquidation proceeds are not subject to withholding tax in Luxembourg, which presents an interesting planning route.
  • Dividends distributed by a Cyprus company to a foreign shareholder are not subject to withholding taxes in Cyprus.
Summary of Ownership Structures

Direct Ownership

  • Advantages: simple, cost effective and exemption of capital gains after 5 years of holding
  • Disadvantages: high income tax rate (eventually suggested the “cedolare secca” if applicable)

Real Estate Gains Tax

  • Advantages: lower income tax than direct ownership
  • Disadvantages: neither inheritance tax mitigation nor exemption of capital gains. If the foreign shareholder uses the property without paying a rent to the Italian company, as a pure holding company, there is a risk of this being deemed as a benefit in kind (società di comodo). Therefore there is a risk of a double taxation both in the hands of the Italian company and the foreign shareholder

Ownership via an Italian Co held by a Luxembourg or a Cyprus Co.

  • Advantages: lower income tax than direct ownership
  • Disadvantages: capital gains tax can be optimised by selling the shares of the Italian company rather than the real estate directly. Inheritance tax could be mitigated.If the foreign shareholder uses the property without paying a rent to the Italian company, as a pure holding company, there is a risk of this being deemed as a benefit in kind (società di comodo). Therefore there is a risk of a double taxation both in the hands of the Italian company and the foreign shareholder

Contact Us

HPS Holiday Property Solutions Immobiliare S.r.l.

Via IV Novembre, 35-39

22017 Menaggio (CO) - Italy

Phone: +39 0344 31723

Fax: +39 0344 31723

e-mail: enquiries@lakecomohps.com

WHY BOOK WITH US?

For lots of reason!

• We managed the properties

• We contract the owners

• We have offices on the lake

 

• 24 hour local callout

• Secure payment systems

• Multi-lingual team