Taxes and Property Duties in Italy: What You Need to Know
Do you need to understand the tax regulations on properties in Italy? You’re in the right place. In this guide, we will briefly explain the taxes that apply to real estate ownership in Italy and how to manage accounting and tax obligations.
Initially, it’s important to distinguish between two different types of levies: taxes and duties.
Both are the most significant source of asset income for the Italian State, but while taxes are due based on the taxpayer’s capacity without corresponding activities from the entity, duties assume an activity, a decree, or the provision of a service by the State or local public bodies.
The Italian tax system categorizes property taxes into three main areas:
Asset-based taxes: IMU, Tasi, and Tari Income-based taxes: Irpef, Ires, flat-rate tax Transfer taxes (purchase, succession, donation): Registration Tax, Mortgage, and Land Registry Tax What are the periodic taxes and duties due by a property owner?
The periodic taxes and duties due by a property owner to be paid to the Municipality are three: IMU, Tasi, and Tari.
These are asset-based taxes, meaning they are applied to all property owners (except for the primary residence).
IMU (Municipal Property Tax)
This is one of the main property taxes; it is paid at the municipal level and has replaced the ICI since 2012. It is due for owning luxury homes, villas, castles, buildings, palaces, buildable areas, and agricultural land (excluding primary residences). The liable subject is the owner or holder of another real right (residence, use, usufruct, surface, emphyteusis, surface). Or the concessionaire (if it is about state-owned areas) or the lessee (if it is about leasing).
To calculate the IMU, you need to know the following fundamental elements: the cadastral income of the property, the coefficient, the rate set by the Municipality, the tax base. The latter is given by the cadastral income revalued by 5% to which multipliers are applied based on the cadastral category.
The formula for calculating the IMU is: (cadastral income +5%) X property coefficient.
Determining factors for the amount are the characteristics of the property and the Municipality where it is located.
The useful documentation for the IMU is the cadastral search and the purchase deed/donation deed or a copy of the declaration of succession.
When should the IMU not be paid?
in case of a primary residence (of a cadastral category different from A1, A8, A9) and related appurtenances (of cadastral category C2, C6, C7) if you are the owner of a marital home assigned to the other spouse if you are bare owners, tenants, and loan recipients. Exemption from the payment of IMU also includes subjects who own:
rural buildings for residential use, with farm management rural buildings for instrumental use of agricultural activities agricultural lands located in mountain municipalities When should the IMU be paid?
The first installment is due on June 16, the second on December 16 of each year. To pay the tax, you can use the F24 Form online or a postal bulletin.
Tasi
It is a property tax that, previously, was used by Municipalities to cover the costs of “indivisible services” (i.e., those generally usable by all citizens, e.g., public lighting). From January 1, 2020, it has been merged into the new IMU, becoming a single tax.
It is due by all owners of properties other than the first home (which is the property where one habitually resides and is registered). If one of these last requirements is missing, the property is considered a second home, therefore subject to TASI.
Regarding luxury properties leased out, a percentage of Tasi is also required from tenants.
Another exemption is for elderly property owners who are in nursing homes or long-term care facilities. If the property is rented out, TASI may not need to be paid.
Tari (tax on urban solid waste)
It is a tax that covers the costs of waste collection and disposal services. It is to be paid by anyone who owns or holds, for any reason, premises or uncovered areas that can produce waste. The mere condition of using the property is enough (e.g., utilities connected).
To calculate the Tari, a fixed quota related to the surface of the property and a variable quota related to the number of occupants are applied.
If the property owner decides to rent it out to another subject, the latter will bear the payment of TARI.
The due dates for payment vary for each Municipality; normally, there are at least two installments with semi-annual deadlines.
What are the taxes for purchasing the first home?
When selling the property is a company exempt from VAT or a private individual, the buyer who benefits from the first home advantage must pay:
the registration tax (2% of the price or the cadastral value) the fixed mortgage and cadastral taxes (amounting to 50 euros) Thus, you are exempt from paying stamp duty, mortgage taxes, and special cadastral levies.
What are the income-based property taxes?
IRPEF (Personal Income Tax)
This is a direct tax that residents in Italy and abroad are obligated to pay if they earn income from owning houses, buildings, or land (“real estate income”). This income depends on the application of cadastral rents (with a 5% revaluation), how the property is used, the period, and the percentage of ownership.
In addition to real estate income, IRPEF also includes capital income, employment income, self-employment income, business income, pensions, rents, and others.
IRES (Corporate Income Tax)
This concerns the income produced by companies (e.g., limited liability companies, joint-stock companies, cooperatives) and bodies (public and private located in Italy or non-profit organizations, etc.). The standard rate is 24%.
Flat-rate tax
This is an alternative method to IRPEF and is a tax concerning real estate leasing for residential use. Its optional choice replaces all other forms of income tax related to taxing a rented house. In this way, the taxpayer (landlord) waives the rent adjustment for the entire duration of the contract (including the variation ascertained by ISTAT).
The standard rate is 21% on the rental fee and is collected at the date of contract registration.
Among other advantages, there is an exemption from registration tax and stamp duty, as well as exclusion from the total income when calculating IRPEF.
What are the taxes for the second home?
The Italian State considers owning a second home a privilege; therefore, taxation is higher.
IMU and Tasi must always be paid, regardless of the cadastral categories of the properties.
The rates are calculated considering various parameters, including the cadastral income of the property, the number of owners, the municipal rate, etc.
TASI and IMU together must not exceed the maximum rate of 10.6 per thousand on properties other than primary residences and 2.5 per thousand on primary residences.
If the second home is co-owned, taxes are calculated proportionally to the share and the months of possession of each taxpayer.
Are there any exemptions or reductions for IMU on the second home?
Yes, there are reductions for IMU in the following cases:
uninhabited and uninhabitable house (unused). 50% reduction on the taxable base to be declared for IMU purposes. When declaring the house tax, the certificate of uninhabitability or the certificate of unlivability certified by a qualified technician must be attached house rented with an agreed rent. 25% reduction of the IMU housing unit in gratuitous loan for use between direct relatives of the first degree (e.g., parents-children). 50% reduction, provided that the contract has been regularly registered and that the borrower uses the property as the main residence. What are the taxes if you buy the second home?
If you buy a second home from a private individual, the taxes to be paid are:
fixed mortgage tax (50 euros) fixed cadastral tax (50 euros) registration tax of 9% of the cadastral value of the house. If you buy from a construction company, the taxes to be paid are:
mortgage tax (200 euros) cadastral tax (200 euros) registration tax equal to 10% of the cadastral value of the house or 22% if it is a luxury home.
What are the Taxes for Selling a House?
If you intend to sell a property, there may be a capital gain due to the resale at a price higher than the purchase price.
If the property is sold within 5 years from the date of purchase and a capital gain is recorded, this gain is taxed by applying the IRPEF (Personal Income Tax). For instance, if the purchase was made for an amount of 100,000 euros and then the resale occurred before 5 years for a price of 300,000 euros, the Italian State will levy tax on the capital gain of 200,000 euros.
There are two ways to pay this tax:
When filing income tax returns: the capital gain will be subject to the IRPEF rate belonging to the taxpayer, according to his/her income bracket. When visiting the notary for the signing of the deed: a flat percentage of 26% (substitute tax) will be paid to the notary to settle the due with the Tax Office. This is convenient if you have a high IRPEF rate. You are exempt from paying the taxes on the house due to capital gains when reselling a property:
Coming from inheritance or adverse possession. Coming from donation (provided that the donor had purchased the property more than 5 years ago). Used as the main residence for more than half of the time (e.g., resale after 4 years from the purchase, residence for at least 2 years + 1 day). As proof, the certificate of residence is sufficient, or, if it concerns domicile, the utility bills. What are the Taxes in the Case of Selling an Inherited House?
If a house is inherited, there are a series of tax obligations related to inheritance taxes.
The taxes to be paid (which are settled by the Italian Revenue Agency within three years from the date of declaration of succession) vary depending on the degree of kinship between the testator and the heir.
If you wish to delve into the topic, you can consult another article on our blog regarding inheritance taxes.
What are the Transfer Taxes?
In cases where the property is subject to a change of ownership or possession (e.g., sale, lease, usufruct, succession, and donation), there are taxes that are applied (described in their amounts in the previous paragraphs):
Registration Tax: due to the State for registering a deed of establishment or transfer of real estate, which serves to provide legal certainty to the operation. It is an alternative tax to VAT (in fact, acts subject to VAT are exempt from registration tax). Mortgage Tax: due when the asset changes ownership or is subject to a mortgage (or another constraint), and it is necessary to proceed with the formalities of transcription, registration, renewal, and annotation in the public real estate registers. Land Registry Tax: due for the transfer in the land registry when a sale, donation, or hereditary succession of a property takes place.
Conclusions
As seen, the Italian tax regulations on real estate are varied, and it’s crucial to be mindful not to violate these norms to avoid incurring heavy penalties. You can turn to our Italian specialized lawyer in the field to manage your accounting and tax obligations or to address potential tax disputes.
