Italian Real Estate Market: A Taxation Overview
24 February 2020
The Italian real estate tax system configuration has a complex nature and involves all levels of government. It differs as a function of the parties involved (companies and professionals, or those not exercising the business activities and self-employment) and the nature of real estate (houses and buildings for industrial use). Thus, a case by case analysis should be conducted in order to ascertain the right tax treatment for income derived by real estate properties. Generally, the real estate tax consists of taxes on income, wealth and on the transfer deeds. There are four main categories of taxes levied on real estate:
- Nature of tax “income” whose premise is the income produced from the property or possession of the property (personal income tax, corporate income tax);
- Nature taxes “asset” whose premise is the ownership or possession of the property (IMU);
- Tax on public services provided to property owners (TASI);
- Tax on the transfer of property for consideration (VAT, registration, mortgage, land).
Real Estate income from properties situated in Italy is typically subject to Italian income taxes. The income generated by the properties contributes to the formation of the tax base which is applied to the personal income tax (PIT-IRES) levied on individuals and companies. For individuals the income derived from properties is subject to a personal progressive tax or and from 2011, on the lessor’s option, to the “flat rate tax scheme (cedolare secca)”. For companies’ income derived from properties is subject to corporate income taxes “IRES” levied at 24% rate on the net income a Regional Tax on Productive Activities (IRAP) of levied at 3.9% (i.e. standard rate) on the net production value.
The Municipal Tax on Real Estate (‘Imposta Municipale Unica’ or ‘IMU’) is levied on the ‘cadastral value’ of immovable properties located in Italy. Everyone who owns a land or a property in Italy, whether they are resident or non-resident, must pay IMU. The law provides for a 0.76 percent standard rate, but municipalities can increase or reduce such standard rate by 0.3 percent. If the property is passed as uninhabitable or being restored, the tax is reduced by 50 percent. This tax is partially deductible for corporate income tax purposes.
Tax on public services
The premise of the tax on public services is the possession of any kind of buildings, including the main house, whatever its use, which in turn is divided into Tribute for indivisible services (TASI) and the tax on waste (TARI) to finance the costs of collection and disposal of waste. Also, for TASI, the taxable base is the cadastral income, as determined by the immovable property registry, multiplied by a coefficient equal to 160 for residential property and to 65 for business property (with some exceptions). The combined rate for IMU and TASI ranges from 0.46% to 1.06% depending on the municipality. This tax is partially deductible for corporate income tax purposes.
Acquisition of real estate in Italy is subject to transfer duties (registration, mortgage and cadastral tax) and/or VAT. A registration tax is usually levied on the transfer of immovable property located in Italy (DPR 131/1986). The rates vary according to the property transferred. The standard rate is 9%. A reduced rate of 2% applies to transfers of immovable properties qualifying as first dwelling, and a 15% rate applies on transfers of agricultural land, except for transfers to agricultural entrepreneurs. In all cases, the minimum registration tax levied is EUR 1,000. In addition, mortgage and cadastral taxes are levied on the transfer of immovable property at a lump sum of EUR 50 each. In the case of commercial property, mortgage and cadastral taxes are levied at a total rate of 4%. Most frequently transactions of commercial properties are between companies. In this case VAT is charged on the sale price at a rate of 22%. However, if the transaction is subject to VAT, registration, mortgage and cadastral taxes are levied at a lump sum of EUR 200 each.
Incentives introduced for real estate redevelopment
After three years of growth, with a record-breaking 2017, the Italian real estate market suffered a setback in 2018 and has been influenced by political and economic uncertainty. In order to revert this negative trend of the Italian real estate market, the Italian law (with the so called “Growth Decree” converted in law on June 27, 2019) introduced new tax incentives to boost the sector.
First of all, the Decree provides for numerous measures aimed at facilitating the disposal of non-performing loans owned by banks and financial institutions through securitisation transactions in order to facilitate the transfer of position classified as ‘probable default’ and widen the scope of securitisation SPV. Furthermore, the Decree has clarified that amounts deriving from the acquisition, management and disposal of real estate properties performed by Real Estate Company and Lease Companies qualify as a so called ‘patrimonio separato’, thus they are classified as ‘off-balance items’ that should not be subject to corporate income tax.
In transfer tax, the Decree introduced a negligible fixed amount for the transfer taxes (e.g. registration tax, mortgage and cadastral taxes), irrespective of the nature of such properties, for the acquisition of real estate proprieties carried out by real estate companies and lease companies. Further incentives have been introduced in relation to the transfer of buildings in favour of construction or renovation companies which, within 10 years following the transfer, will demolish, rebuild (in compliance with the anti-seismic regulations and the new building is classified in energy classes “A” or “B) and finally sell the transferred building. The incentives are granted for transfers occurring within 31 December 2021 and even if the renovation activities will imply a volumetric variation of the existing building. The tax incentives consist of the application at fixed Euro 200 rate of registration, mortgage and cadastral taxes upon the transfer or upon the “disposal” of the building.
It is expected that growth in the sector will come from logistics and hotels, while in retail no significant growth is forecasted. Based on findings from the Italian Housing Market Survey, issued by Banca d’Italia, it appears that the Italy’s housing market is recovering gradually, despite the country’s struggling economy. The tax incentives introduced will help boost real estate companies and lease companies activities which is leading to a rise in demand and increase in residential and logistic construction activity, with an overall market outlook improvement.
By Francesco Dori, HLB Italy
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