What taxes am I going to be subject to if I buy real estate in Italy?
No doubt a crucial question, and definitely one of the very first issues a foreign investor starts “worrying about” when pondering whether to invest in property in Italy. Indeed, being well aware of how the Italian fiscal system works and what Italian tax legislation implies is essential to ensure one has a full overview of one’s investment.
Real estate taxes for investments in italy
So, let’s look at what standing Italian fiscal legislation provides for in terms of property-generated income. First and foremost, pursuant to a recent update, specifically response n. 278/20, as of today property rental carried out by an individual is considered land-generated income, and as such regulated by articles 36 and 37 of the TUIR, i.e. the Italian Income Tax Code. But, if the juridical subject who performs the rental activity is a commercial entity, its income is considered business income, and hence ruled for as provided by art.6 of the same TUIR code.
One element most foreigners find somewhat surprising is that there is no relation between the number of real estate units the aforesaid subject rents out and the calculation of income taxes due. What makes the difference is whether the Italian tax authorities consider the rental activity a business-type venture or a non-entrepreneurial enterprise. How is this determined? Standing Italian legislation maintains that a business rental activity is one that, alongside a dwelling, provides ancillary services not necessarily inherent with the property in question. For instance, when the real estate owner/manager supplies guests with means of transport, meals or tourist-related services. In a nutshell, Italian law classifies rentals as business enterprises when and if these offer their tenants auxiliary services, and/or when the property owner employs staff to deal with the premises/guests, and/or houses offices or personnel quarters.
As concerns short-term rentals, Italian law provides for a special tax regime that applies to these. In Italy, short-term leases, also known as touristic rentals, are those that imply contracts with a duration equal to maximum 30 days. The aforementioned special taxation regime can also be applied to short-term rentals whose owners offer their tenants ancillary services such as supply of basic linen and cleaning.
Pursuant to the Italian Legislative Decree n. 23/2011, namely art. 3 of the same, owners who carry out activities as described above are entitled to benefit from a special tax regime known as cedolare secca or 21% flat tax. Basically, what the relevant legislation maintains is that this fixed percentage (21%) is applied to income generated by rental properties, instead of the regular taxation regime, which is based on the proprietor’s total income. Prospective foreign investors might also want to bear in mind that the same ruling applies to gross payments generated by sublease agreements or by contracts that establish the use of the property by third parties.
As concerns determining the criteria used to define a rental activity as an entrepreneurial one, a relatively recent ruling based on the proposal of the Minister of Economy and Finance is enlightening. Former regulations applied in compliance with article 2082 of the Italian Civil Code and the articles of the TUIR (Italian Income Tax Code) specifically dedicated to the headcount of rental units owned by a sole proprietor and the number of leases carried out in a year, have been slightly varied by rulings as stated in Law n. 178/2020. This recent law, in fact, sets the maximum number of rental properties owned by a single individual to four (4), hence establishing a novel situation, that, all in all seem to make for a more equitable and balanced short-term rental market.
As the above clearly demonstrates, mastering the infinite details, and reading through the fine print of the provisions made by Italian law and bureaucracy is far from easy. Indeed, a foreign proprietor desirous to rent his/her property is bound to feel challenge by the minutiae connected with the many, diverse, legal and fiscal requirements.
On the other hand, knowing one’s way through standing local rulings is crucial for anyone who aims to run a successful hospitality-related business in Italy.
As most far-sighted discerning investors well know, being able to count on the support and assistance of a proficient locally based team of experts is the key to success, and to a hassle-free rental experience. Specialized in legal and fiscal advisory services, experienced in commercial property consultancy and property management, our crew provides foreign owners desirous to rent their Italian property with comprehensive, dedicated, assistance every step of the way.
Our services in terms of real estate taxes planning and management
How we help?
Providing straightforward savvy advice as concerns applicable laws and regulations related to hospitality activities and taxation, and drawing up detailed business plans and accurate tax estimates.
Offering all our insight and professional know-how to help you decide what commercial entity to establish for your enterprise, and our advice as regards the tax impact of setting up a branch of your company in Italy.
Alongside our team of lawyers and fiscal advisors, our skilled accountants assist by providing comprehensive bookkeeping services, and expediting tax payments, comprising VAT, payrolls and payslips, and our resourceful assistants facilitate all paperwork filing, including applications for licenses when and if required.
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