Real estate investments in Italy are commonly implemented through a share deal or asset deal.
Share deals, typically, entail the acquisition of the shares of real estate companies and are commonly preferred when the investment involves the transfer of the real estate asset together with administrative authorizations required to run a business activity. This is the case, for example, in the acquisition of shopping mall or retail parks where, in addition to real estate assets, investors are normally also interested in owning the related trading license.
Conversely, the main advantage of the asset deal is that it excludes risks associated with the acquisition of the existing corporate entity that has legal title to the real estate asset.

INVESTMENT MADE BY AN ITALIAN individual

Individual income tax in Italy – General principles

In principle, Italian tax jurisdiction applies on the territory of the Italian Republic. There are no other territories situated outside Italy that are subject to Italian tax jurisdiction.
Individuals are subject to individual income tax (imposta sul reddito delle persone fisiche, IRPEF) at the following rates:

TAXABLE INCOME            TAX RATE

Up to €15,000                     23%

€15,001 – €28,000             27% on band over €15,000

€28,001 – €55,000             38% on band over €28,000

€55,001 – €75,000             41% on band over €55,000

Over €75,000                      43% on all income over €75,000

IRPEF would be applicable to both resident and non-resident individuals.

Resident taxpayers are subject to tax on their worldwide income, and a credit is provided for taxes paid abroad.

Non-resident individuals are liable to IRPEF with respect to income which is treated as arising in Italy, unless such income is subject to a final withholding tax deducted by the payer of the income.

• Italian income tax arising from a real estate property
• Real estate properties not located in Italy

From a direct tax perspective, real estate properties at disposal (not rented to third parties) are not subject to income tax (IRPEF) since they are subject to a property tax (IMU) explained below.

Real estate properties located in Italy

Income deriving from properties rental would be subject to IRPEF at the above-mentioned rate. The taxable income generally corresponds to the highest amount between: (i) the cadastral income increased by 5% and (ii) 95% of rentals of the relevant tax period.

Cadastral income, quoted in the cadastral registries, is calculated on the basis of the dimension, quality and location of the house. Cadastral value is obtained through the updating of the cadastral income value and application of coefficient relevant to the given category.

However, a more favourable tax treatment (called cedolare secca) would be applicable. Under this optional tax regime, the rental income would be subject to a 21% fixed tax rate or 10% if some conditions are met.

This regime replaces income tax (IRPEF), registration, stamp, and other taxes arising from the registration of the rental agreement.

Capital gain arising from the transfer of an Italian real estate property

Capital gains arising from the disposal of Italian real estate properties would be subject to IRPEF at the above-mentioned rate.
The taxable basis is the difference between the sale price and the original cost of real estate together with the sum of all the additional purchase costs (notary fees, taxes, etc.).

However, capital gains would not be subject to tax in Italy if the real estate:

• is owned for more than five years; or
• has been used as main dwelling (first home, prima casa) for most of the period of ownership (even if owned for less than five years).

The buyer can benefit from the Prima Casa tax discount if he moves his permanent residence to the municipality where the house is located. Luxury properties cannot benefit from such a treatment.

Please also note that capital gains on property acquired by way of inheritance are exempt.

Transfer tax arising from real estate acquisitions

Transfer tax arising from the purchase of an Italian real estate, qualified as residential asset, could be summarised as follows:

• if the seller is an individual (non-VAT taxpayer):

• registration tax is levied at the rate of 9% or 2% if the property can be qualified as main dwelling (first home, prima casa);
• 50 EUR mortgage tax is due;
• 50 EUR cadastral tax is due;
• registration tax could be computed on the cadastral value instead of the transfer price;
• VAT is not applied.

• if the seller is a company which did not build or substantially restore the real estate

• the transaction would be exempt for VAT purposes;
• registration tax is levied at the rate of 9% or 2% if the property can be qualified as main dwelling (first home, prima casa);
• 50 EUR mortgage tax is due;
• 50 EUR cadastral tax is due;
• registration tax could be computed on the cadastral value instead of the transfer price.

• if the seller is a company which built or substantially restore the real estate in the last five years:

• the transaction would be subject to VAT at the rate of 10% (4% if the property can be qualified as main dwelling (first home, prima casa); 22% if the real estate is a luxury dwelling);
• 200 EUR registration tax is due;
• 200 EUR mortgage tax is due;
• 200 EUR cadastral tax is due.

• if the seller is a company which built or substantially restore the real estate not in the last five years:

• the transaction would be exempt for VAT purposes; however, VAT could be applicable upon election of the company at the rate of 10% (4% if the property can be qualified as main dwelling (first home, prima casa); 22% if the real estate is a luxury property);
• if the transaction is subject to VAT, registration tax is levied at the rate of 9% or 2% if the property can be qualified as main dwelling (first home, prima casa); the tax basis could be computed on the cadastral value instead of the transfer price;
• if the transaction is exempt for VAT purposes, 200 EUR registration tax is due;
• 200 EUR mortgage tax is due;
• 200 EUR cadastral tax is due.

Please also note that transactions related to social housing, business assets and lands would be subject to a further tax treatment.

Local Property Tax

Imposta Municipale Unica, IMU
Italian properties are subject to IMU payable by the property owners on annual basis. The tax basis is computed as follows:

• the cadastral value of the property, as resulting from the land registrar on January 1 of the relevant year, is increased by 5%;
• the resulting value is then multiplied by a coefficients based on the property type.

The standard rate is 0.76 per cent, but the municipality in which the immovable property is located may increase or decrease the rate up to 0.3 per cent. Properties qualified as main dwelling (first home, prima casa) are not subject to IMU.

TASI (invisible services tax)

Italian properties could also be subject to the TASI, on annual basis (several municipalities do not charge it). The taxable basis is the same as for IMU.
The standard tax rate is 0.1 per cent, but the municipality can increase or decrease it. Properties qualified as main dwelling (first home, prima casa) are not subject to TASI.

TARI (garbage tax)

Finally, Italian properties would be subject to the TARI, a special tax on refuse.

The taxable base is computed on the area of properties and open spaces by each municipality. The taxable base would be equal to 80 per cent of the area occupied by immovable property and open spaces according to the cadastral classification.

Limitation to interest deduction

Interest payable by individuals under a loan can be deducted from IRPEF up to an amount equal to 19% per cent.