Quick overview of Italian Real Estate Tax

Rental income and capital gains of Italian real estate

Taxpayer	Basis of tax	Tax levied	Tax rates (2023)
Resident individual	Rental income Capital gains	Individual income tax Individual income tax	Up to 43% Not applicable if > 5 years
Non-resident individual	Rental income Capital gains	Individual income tax Individual income tax	Up to 43% Not applicable if > 5 years
Resident company	Rental income Capital gains	Corporate income tax Corporate income tax	Up to 24% As business income
Non-Resident company	Rental income Capital gains	Corporate income tax Corporate income tax	Up to 24% As business income

Rental Income 

Individuals

Introduction

Rental income is taxed as either ordinary private income or under favourable substitute tax regime. 

 

Liability to tax 

Rental income earned by individuals forms part of the tax base on which personal income is calculated.

Basis to tax

Italian resident individuals are subject to imposta sul reddito delle persone fisiche IRPEF (and local surcharges) on their worldwide income. IRPEF is calculated through gradual rates by brackets of income, which currently range from 23% up to 43%. The highest rate applies where the amount of the aggregate taxable income exceeds €50.000. In addition to IRPEF, a regional surcharge, with a rate ranging from 1.23% to 3.33%, and a municipal surcharge, with a rate up to 0.8%, have to be paid. 

Resident individuals are subject to income tax on income (not collected in the context of a business activity carried out) deriving from worldwide real estate (some exclusions may apply).

With regard to real estate properties not leased to third parties, local property tax (imposta municipale propria, IMU – see below) replaces IRPEF and local surcharges with regard to the income deriving from such properties (with some exceptions). Therefore, in this case, only IMU falls due.

Where the real estate properties are leased out to third parties, the taxable income for income tax generally corresponds to the highest amount between: (i) the cadastral income adjusted by 5% and further adjusted according to the ownership period; and (ii) the rentals accrued in the relevant tax period according to the lease agreements reduced by 5%. 

However, in case of rental fees derived from the real estate, only the highest amount between the rental income previously reduced by 5% and the average cadastral increased by the 5% is liable to IRPEF. The amount of rental fees is further reduced by 35% if the properties are classified as buildings of historical interest.

For the lease of buildings for housing purposes, an alternative (and more favourable) tax regime is available. Such tax regime, so-called cedolare secca and applicable upon option of the lessor, provides for the application of a substitute tax, which replaces income taxes (IRPEF and local surcharges), registration tax and stamp duty on the lease agreement. The substitute tax applies at the rate of 21% (10% in particular circumstances) on the gross annual rental (no cost deduction is allowed). Various conditions should be met in order to opt for the cedolare secca regime, and in particular:

• The lease agreement should not be concluded within the framework of a business, art or profession by both the lessor and the lessee, if any.
• The real estate should be classified as housing residence in the Cadastral Registry and should be effectively used in this way (appurtenances also can benefit from this regime).

Income arising from properties held abroad by resident individuals is subject to taxation for IRPEF purposes in Italy, in accordance with the worldwide taxation principle, considering, alternatively, the net amount determined by the foreign State (cadastral value) and the rental fee reduced by 15%. In order to reduce the impact of the double taxation of foreign income, there will be a tax credit for income produced abroad in case taxation was carried out in the other state. 

 

Business income 

When the possession of the real estate is connected with the production of business income, such income is determined according to the same rules of the resident companies, except for the special provisions established.

 

Regional tax (IRAP)

If resident individuals produce business income, they are not subject to IRAP anymore starting from 2022. 

 

Companies

Introduction

Rental income is taxed as business income.

 

Liability to tax 

All the income from the lease of buildings related to the company contribute to form business income (through the allocation of costs and revenues in the financial statements) and are not independently taxed as category of land income. Real estate income takes part in the formation of business income according to different rules, which depend on the type of property.

 

Basis to tax

Resident corporate companies (ie, companies which have legal seat, place of effective management, or main business object in Italy for the most part of the tax period) are subject to corporate income tax, imposta sul reddito delle società (IRES), levied at the rate of 24%. 

Pursuant to the ‘worldwide principle’ on which the Italian tax system is based, as for resident individuals, the taxable income of resident corporate entities includes their worldwide income, ie, the income also sourced outside the Italian territory (tax credit in Italy for income taxes paid abroad is provided). 

Income from lands and ‘instrumental’ buildings (ie, buildings directly used solely to perform the business activity and buildings whose destination cannot be changed without a complete transformation – ie, commercial or industrial buildings, offices, etc – even if not directly used or leased to third parties) are generally determined according to the tax rules applicable to business income.

The income deriving from ‘non-instrumental’ buildings (ie, residential buildings not directly used solely for the purpose of the business activity carried out and not representing available stock) forms part of the taxable business income as follows: 

• For not leased building, the cadastral income, revaluated by 5% and adjusted in consideration of the owning period incurred in the tax period, increased by one-third.
• For leased buildings, the highest amount between: (i) the cadastral income, adjusted by 5% and further adjusted according to the ownership period; and (ii) the rentals referring to the relevant tax period according to the lease agreements, reduced by a maximum 15% amount of the rentals for certain maintenance expenses actually incurred (expenses exceeding 15% of rentals are not deductible from income tax). 

The buildings held for the purposes of their sale or the buildings purchased or built and held for the sale (called ‘immobili merce’) will contribute to form business income.

The ‘instrumental properties’ are classified as instrumental assets according to their own nature (properties belonging to the cadastral categories A/10, B, C, D and E even when not leased or at free disposal of the taxpayer) or according to their own aim (assets used directly and solely to the enterprise activity, independently of their belonging to cadastral categories).

Related revenues, costs and depreciations (whose annual average is equal to 3%) have to be considered on their accrual basis value as reported in the account books. Maintenance costs are deductible by 5% of their amount per tax year: surplus amount may be deducted in the following 
5 years.

Interest costs are deductible up to the amount of the interest receivable. Surplus amount may be deducted within the amount of the Gross Operating Profit net of the related IRES tax changes. 

Therefore, expenses and other items concerning ‘non-instrumental’ buildings are generally not deductible with the exception of interest expenses on financing for the acquisition of the buildings.

A remarkable anti-avoidance rule, which may affect corporations investing in Real Estate, has been introduced in the Italian tax system, i.e. ‘Società di comodo’ fiscal regime. Such rule concerns a company set up just for tax purposes to avoid personal income tax. Fiscal authorities may subject to an additional penalty on taxation upon business income of the year if not capable to reach an established minimum amount.

 

Regional tax (IRAP)

Companies are subject also to IRAP regional tax, in the amount of 3.9 % (ordinary rate may be increased in measure of 0.92% by regions) whenever existing the requirement of the ‘autonomous organisation’ established by the Decree n. 446 /1997. IRAP basis of tax is formed upon the value of the ‘produzione netta’ determined by the gross margin as reported in the financial statement, except the ones related to the employees engaged with open – ended contracts, and all the ones of financial nature.

Moreover, Italian partnerships are as well subject to IRAP, but taxable basis may in some circumstances differ according to special rules established by tax law.

 

Non-resident companies

Income from a real estate property situated in Italy are taxed in Italy, even in case of existence of a Double Taxation Convention.

When the non-resident company does not fulfill the requirements for a permanent establishment in Italy, the rental fees are taxed separately as real estate income with the same rules for individuals (generally taxed on 95% of the rental fees).

Non-resident entities and companies are subject to IRES and IRAP taxation upon the business income arising from a permanent establishment in the Italian jurisdiction pursuant to the provisions of art. 162 Tuir and are treated in the same manner discussed above for resident companies.

Real estate solely held as an investment asset will not qualify as a permanent establishment.

 

INDIRECT (SHARES) HOLDING OF REAL ESTATE

This paragraph discusses the most important tax implications of the indirect (shares) holding of real estate. 

First of all is discussed the impact for resident individuals and non-resident individuals. Thereafter is discussed the impact for resident companies and non-resident companies. 

 

Resident individuals

Personal income tax (IRPEF)

Dividends distributed by Italian entities are subject to a WHT tax of 26%. 

 

Deductibility of costs, interest payments and depreciation

Interest costs are generally deductible solely if related to the production of the business income.

Dividend WHT at 26%, cannot be offset against the amount of the tax amount due for the year.

 

Losses

The loss arising from a shareholding in a transparent entity can be offset in the tax basis against the same business income. Surplus may be carried forward without temporal limits in the following years up of 80% of the income amount. 

 

Non-resident individuals

The dividends distributed to non-resident individuals, are subject to a substitute tax at 26%, independently of the qualification of the shareholder, if not differently established by the provisions of OECD treaties to avoid double taxation.

 

Resident companies

Corporate income tax (IRES)

Income derived from shareholding is always qualified as business income for companies and subject to IRES at a fixed rate equal to 24%. In the case when the income is related to a participation in a partnership shall be considered integrally on accrual basis.  

 

Deductibility of costs, interest payments and depreciation

Interest costs related to loans in order to buy a share in another company are deductible in accordance with the general provisions. Depreciation, as a decrease in value of the asset, deriving from the detention of shares cannot be deducted.

 

Distribution of income and gains

Dividends distributed by another company subject to the corporate tax are excluded from the tax basis for the amount of 95 %. Moreover, dividends derived from the participation in companies which are resident in a jurisdiction with privileged tax regimes, shall be considered integrally to the formation of the tax basis.

 

Anti-tax avoidance directive. 

The anti-tax avoidance directive (ATAD) as transposed into the Italian law jurisdiction has amended partially some of the general rules concerning the interest deductibility starting from 2019. Such new provisions may in some circumstances potentially decrease the amount of the deductibility of the interest costs.

 

Non-resident companies

Dividends paid from an Italian company to another foreign company are subject to a substitute tax at 26%, or the lower percentage established by OECD treaties to avoid double taxation.

However, if a foreign company derives income in the Italian jurisdiction through a permanent establishment will be treated in the same manner as resident companies as described above. Otherwise, if the provisions of EU Directive 2011/96 are met, dividends will be taxed only in the country of the parent company.

Real estate solely held as an investment asset will not qualify as a permanent establishment.

 

Italian vat & transfer taxes

Taxpayer	Basis of tax	Tax levied	Tax rates (2023)
Resident individual	Rental income Transfer of real estate services	Registration Tax Transfer Taxes	1% -2% 2% - 9%
Non-resident individual	Rental income Transfer of real estate services	Registration Tax Transfer Taxes	1% -2% 2% - 9%
Resident company	Rental income Transfer of real estate services	Registration Tax Transfer Taxes	1% -2% 2% - 9%
Non-Resident company	Rental income Transfer of real estate services	Registration Tax Transfer Taxes	1% -2% 2% - 9%

 

Value Added Tax & Registration Tax

Individuals

Introduction

The transfer of a real estate property represents ‘transfer of goods’ for VAT purposes and it falls within the scope of VAT (with the exception of non-buildable lands, never subject to VAT) only if the vendor carries on a business or is a professional taxpayer and the real estate is included among the assets concerning the business or professional activity carried out. 

The Italian VAT system provides a general VAT-exemption regime in certain instance. 

When a transaction falls in the scope of VAT, it should be determined if it is subject to proportional tax or if the general VAT-exemption regime applies. 

Transfers of agricultural land (ie, non-buildable lands) is always outside the scope of VAT. Transfers of other kinds of land are subject to proportional VAT.

Transfers of buildings are generally VAT-exempt, with the following exceptions:

• Transfers executed by subjects that have performed construction or restructuring works within five years from the end of such works.
• After five years, if the builder/restructurer opts to apply VAT (to be expressed in 
  the transfer deed).
• In other cases, upon the seller’s option for the VAT application. 

 

Liability to tax

If an individual performs commercial or professional activities in Italy, in principle it will be subject 
to VAT.

 

Basis to tax

For real estate transfers subject to VAT, the following rates apply:

• 22% ordinary rate; and
• 4% and 10%, applicable in particular cases.

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.

Rental fees are generally VAT-out of scope or VAT-exempt, and therefore subject to Registration Tax (1% or 2% rates).

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. 

 

Companies

The same rules for individuals apply.

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

 

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).

 

Transfer Taxes

Individuals

Introduction

A transfer tax Is a tax on the passing of real estate from one person or company to another. The rights of immovable property can qualify as real estate. 

 

Liability to tax

Seller and buyer are jointly and severally liable for the payment of registration tax.

 

Basis of tax

Registration Tax is based on the revaluated cadastral value (usually lower than the market price).

For transfers of buildings that are VAT-exempt or out of VAT scope (such as, eg, transfers performed by non-VAT entities), registration tax falls due in proportional amount (with a minimum amount of €1,000). The rates generally applied are the following: 

• 2% if the purchaser fulfils the requirements for the ‘first home tax benefit’.
• 9% in the other cases.

For residential buildings subject to proportional VAT, Registration Tax applies at the fixed amount of €200. 

For instrumental buildings under VAT application, Registration Tax is due for the fixed amount of €200, regardless of whether they are subject to proportional VAT or VAT exempt. 

 

Cadastral and mortgage taxes

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.

 

Companies

The same rules for individuals apply. 

 

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

 

Italian local taxes

Taxpayer	Basis of tax	Tax levied	Tax rates (2023)
Resident individual	rev. cadastral value	Municipal Tax	Approximately 1% - see below
Non-resident individual	rev. cadastral value	Municipal Tax	Approximately 1% - see below
Resident company	rev. cadastral value	Municipal Tax	Approximately 1% - see below
Non-Resident company	rev. cadastral value	Municipal Tax	Approximately 1% - see below

* local taxes are based on the revaluated cadastral value. The cadastral value is generally an amount lower than you have paid for the house, as it's based on a valuation of the property from several years ago.

 

Introduction

Every municipality levies an annual municipal tax on Italian real estate. 

 

Liability to tax

Every owner or user of residential or commercial buildings in Italy is liable to local municipal tax.

 

Basis of tax

Municipal Property Tax (IMU)

Real estate properties (ie, buildings, building lands) are generally subject to Municipal Property Tax (IMU) which is levied on the owner of the property right or on the holder of other real estate rights, in proportion to the months of effective possession. IMU is computed in different ways, depending on the characteristics and location of the properties. 

The IMU tax rates are determined by the competent municipality, within the limits stated by the law, and may vary on the characteristics of the properties and on the status of the owner. The standard IMU rate is 0.86% for properties (excluding residential properties held by individuals as their main home). However, municipalities can increase it up to 1.14% or reset it.

IMU generally is not deductible for the purpose of income tax for individuals (IRPEF) and corporate income tax (IRES) for companies. However, in case of instrumental buildings 60% of the IMU paid is deductible for IRES purpose only.

Municipal Waste Tax (TARI)

TARI is calculated based on the tariffs established by the Municipality (derived from the floor area and the business activity carried on). Generally, the computation is made directly by the Municipality and provided to the taxpayer for relevant payment. 

TARI is owed by the user of the property (owner or, where there is a lease contract, the tenant)

 

Italian net wealth/worth taxes

Individuals

A wealth tax is not present in Italy.

A wealth tax on real estate properties (Imposta sul valore degli immobile situati all’estero or IVIE) located outside of Italy has been introduced where an individual is resident for Italian tax purposes. 

The IVIE applies on the value of the real estate (i.e. the cost of the property or the market value in force where the property is located).

 

Vehicles for Italian real estate

Commonly used vehicles for Italian real estate

Real Estate property 

An alternative to the direct acquisition of real estate properties may be the purchase of interest in ordinary corporate companies (limited liability companies, such as the S.p.a. or S.r.l.) owning such properties. From the investors’ perspective, this route has specific features, different from those associated with the direct investment in real estate. 

However, in case the real estate investment is done through a partnership the income tax still is applied directly on the investor, the vehicle being considered tax transparent.

In general, the investment through a real estate corporate company generates income having a financial nature: dividends from net profit distributions and capital gains from shareholding disposals.

For personal income tax (IRPEF) purposes, the tax for both dividends and capital gains earned by individuals is applied with a 26% rate, separately from the ordinary tax base.

For corporate income tax (IRES) purposes, as far as dividends earned by corporate companies are concerned, the dividend exemption regime applies (only an amount equal to 5% of the dividend is taxable).

Specific real estate vehicles for Italian real estate

 

Real estate investment funds (REIF)

The Real Estate Investment Fund is a collective investment vehicle (closed end regulated fund) without legal personality, established and managed by a management company known as an SGR (Società di Gestione del Risparmio). The REIF invests, exclusively or prevalently, in real estate properties, real estate rights and shareholdings in real estate companies. 

The REIF is set up as a closed-end fund.

The Italian REIF is not subject to income taxes (Corporate Income Tax - IRES – and Regional Tax on Production - IRAP). 

For income generally subject to withholding taxes (WHT), for REIFs WHT is levied as definitive taxation, apart from cases in which the law expressly excludes REIFs from WHT (for example, where interest and income derived from capital investments in foreign funds).