The seller may choose whether to pay a substitutive tax of 26% or a variable tax based on to his/her income.

Let’s make a couple of examples:

a) Mr. Tom purchased an apartment in 2018 for a price of 100,000 euro; he paied 10,000 euro for restructuring costs* that have increased the value of the property. He resells the good in 2022 for a price of 120,000 euro. The capital gain is 120,000 – 100,000 – 10,000 = 10,000 euro. Thus, if Tom chooses to pay the substitutive tax (26%), the amount will be 2,600 euro.

b) Ms. Jenny purchased an apartment in 2015 for a price of 150,000 euro; she resells it in 2023 for 300,000 euro, no taxation on capital gain is levied by the Italian Tax Agency.

If the property is resold after five years no taxation is levied on capital gain according to the Italian tax law. However, in case of a non-resident person the seller could be liable for taxation in the country of residence, pursuant to the domestic law, as provided for the double taxation agreement (or DTA) stipulated between Italy and seller’s home state.

On the other hand, the buyer is responsible for other taxes and expenses related to the purchase, such as registration and cadastral taxes, and notary’s fee.

* this is only an indicative example, every issue has to be discussed case by case 

The post How capital gain is taxed when an Italian property is reselled? appeared first on S&P Law Firm in Italy.

In general, if you have income from abroad that is not exempt from taxation in your country of residence, double taxation can be avoided (in whole or in part) by requesting a credit for the amount of tax you have paid abroad (source state) or an exemption from taxable base.

This article aims to simplify, and thus make it understandable, the aspect of double taxation.

In the present case, we are assessing a rental income from Italy that is also taxable in Germany.

Initially, it is necessary to take into account that as a resident of Germany you are considered to be subject to unlimited tax liability there (unbeschränkt einkommensteuerpflichtig). Therefore, you also pay taxes in Germany on all your income from abroad (in our case from Italy). In addition, under Italian tax law, rental income is taxable in Italy because the property is located there.

This situation leads to a risk of double taxation (Doppelbesteuerung) if a credit or exemption method is not applied to the foreign derived income.

NOTE:
In Italy you can choose either to pay income tax starting from a rate of 23% or pay an alternative flat tax of 21% called “cedolare secca”. More details in this article: Guide to short term rentals regulations in Italy >>

The “foreign” tax credit method (Anrechnungsmethode), or alternatively exemption method (Freistellungsmethode), is in fact used to prevent double taxation on income derived abroad. It depends on double taxation treaties entered into between your country of residence and the source country. However, we recommend that you contact your accountant or your local Tax Office in Germany in order to accurately assess any tax reliefs currently in force.

It should be noted that a double taxation agreement exists between Italy and Germany in order to avoid the same income being taxed in both countries.
The full text of the agreement can be viewed at this link ==>
Double taxation agreement exists between Italy and Germany

Article 6, first and third paragraphs, of the Double Taxation Convention between Germany and Italy actually provides that “income … from immovable property … situated in the other Contracting State may be taxed in that other State” and such provisions apply to income ” derived from the direct use, letting, or use in any other form of immovable property“.

With reference to a resident of the Federal Republic of Germany, article 24(3) of the aforementioned Double Taxation Convention, which refers to the “Elimination of double taxation“, provides that “shall be excluded from the base upon which German tax is imposed any item of income from sources within the Italian Republic. The Federal Republic of Germany, however, retains the right to take into account in the determination of its rate of tax the items of income and capital so excluded“.

In relation to the present case, a landlord resident in Germany who has received foreign income from renting out his house in Italy can therefore request that the rental income derived from Italy be exempt from the German taxable base. However, the Federal Republic of Germany has the right to take into account that “exempted” income on the determination of the tax bracket.

Let us explain it trough a practical example:

assume that the worldwide income of a resident in Germany amounts to EUR 120,000, of which EUR 80,000 is derived from Germany and the remaining EUR 40.000 represents the rental income from Italy.

1)  The Italian tax rate on rental income is a flat tax on 21%.

40,000 x 21 % = EUR 8,400

NOTE! The foreign landlord can choose to pay an alternative flat tax of 21% on rental income according to Italian tax law. This choice should be made directly when drawing up the Italian income tax return or when registering the contract with the Italian tax office.

2)  Under the Germany-Italy Double Taxation Convention, Germany applies the “exemption with progression method” towards the income derived in Italy.

In order to simplify the calculation, we don’t take into consideration the real German income tax brackets.
We assume that in Germany the rate of tax on income from EUR 60,000 up to EUR 100.000 is 40%, and on income above EUR 100,000 45%.

As the worldwide income of the residence taxpayer amounts to EUR 120.000, the tax rate applicable would be 45%. However, due to application of the convention, the tax rate (45%) will only be applicable to the income derived in Germany (i.e. resident country). This means that the tax due in Germany will be 80,000 x 45% = EUR 36,000.

In summary:
=> tax levied by Italy => 8,400 EUR;
=> tax levied by Germany => 36,000 EUR.

You claim relief for the Italian tax in your income tax return with reference to the year you report that income from Italy.

*  *  *

NOTE:
Particular attention should be paid to the submission of the income declaration to the Italian Tax Authority “Agenzia delle Entrate”.

An income tax return for the rental income received must be submitted in Italy each year, even though the landlord is resident abroad (in our case, Germany). Forgetting to submit the declaration in Italy can have serious consequences (high fines) depending on the length of the delay.

Our law firm very often faces problems related to double taxation of income abroad as well as forgetfulness (or delay) in filing the tax return in Italy. This happens more often to people living abroad who receive additional income from renting property in Italy.

If you have forgotten to declare your rental income in Italy, contact an accountant or a lawyer as soon as possible in order to settle your tax position before a tax assessment check is carried out. In this way, the situation can be regulated through the payment of minor penalties/fines.

If you need information regarding the taxation of your rental income from Italy, please contact us. We are happy to provide information and answer all your questions. In addition to this, in the event that legal assistance should be required, our law firm offers a complete customized assistance to foreign landlord who owns a property in Italy by addressing all tax matters even related to double taxation issues.

The post Rent house in Italy. How is rental income taxed in Italy and in my Country? appeared first on S&P Law Firm in Italy.

If you have decided that you want to rent out your house in Italy (i.e., short-term leases), there are certain obligations that must be taken into account in accordance with Italian laws as well as international tax law.

Investing in real estate in Italy with a view to future rental income is becoming increasingly common. Short-term tourist lets have risen sharply in Italy in recent years. Renting out your property in Italy is actually a good extra income, especially as tourism in Italy continues to grow exponentially. Moreover, it should be added that at the moment it is still possible to buy nice houses at a good price and the rental prices are more than satisfactory in relation to the investment costs.

NOTE. In the following, we do not take into account all the details concerning double taxation issues between Italy and landlord’s country as well as the taxation levied on income from Italy in landlord’s country.

INDEX

1. When a lease can be considered “short-term”
2. Advantages and disadvantages of choosing a “short-term lease”
3. Form of the Italian rental contract
4. Short-term lease not to be registered with Italian tax authorities
5. Fiscal obligations (taxes and income declaration in Italy)
6. Registration of the tenant’s data in the Italian police website “Alloggiati Web”
7. Notification of the activity to the Italian municipality
8. Other information regarding additional services to tenants

*  *  *

1) When a rental contract can be considered “short term” in Italy

What does short-term lease mean?

According to the Italian Tax Law (art. 4 of Decree Law no. 50/2017), a letting can be considered a “short-term letting” if the duration of the rental contract does not exceed 30 days (30 days refers to one person for the whole year). Short-term rental contracts are for residential (and non-commercial) use only and must be concluded by natural persons.

The short-term rental contract differs from the other Italian types of rental. For indicative purposes, we list only three types:

• ordinary lease “a canone libero” which has a duration of 4 years plus another 4 years renewable;
• “transitional lease – ad uso transitorio” which has a maximum duration of 18 months;
• “renting to university students” the duration of the contract is a minimum of 6 months and a maximum of 3 years.

* NOTE! According to the law n. 178/20, in case of renting out more than 4 properties, the exercise of the activity must be changed into a tourist activity in entrepreneurial form.

2) What are the advantages of taking out a short-term rental contract in Italy?

– The landlord does not commit for a long period of time as in a normal rental contract (4 years);
– the rental contract does not need to be registered with the Italian tax authorities;
– no registration tax or stamp duty is required;
– fixed tax of 21% of the rent.

You must
– register tenants’ details on the police website within 24 hours;
– notify the municipality of tenants’ details (only applies to certain municipalities).

3) Form of the Italian rental contract

For short-term rentals, no specific form of contract is required. However, the contract must contain certain information such as the identification of the tenant and the landlord, the property details, the purpose of the contract (i.e., state that it is a short-term lease), the obligations of the tenant and the landlord, the duration, the amount of the rent and other charges.

The rental contract must be signed upon the guest’s arrival. The tenant must also provide a copy of his/her passport or ID card. A copy of the document is necessary to allow the landlord to register the guest’s details in the police website (see below point 6).

4) Short-term rental contracts should not be registered with the Italian Tax Agency

Short-term rental contracts, i.e. a rental contract where the duration does not exceed 30 days, do not need to be registered with the Italian tax agency “Agenzia delle Entrate”. This means that the landlord does not have the burden of paying registration tax (imposta di registro) and stamp duty (Imposta di bollo).

Can I still choose to register short-term rental contracts with the tax authorities?
You can register the contract with the tax office. If at registration the application of a fixed tax rate of 21% is chosen, called “cedolare secca” (see below point 5), registration tax and stamp duty will not have to be paid.

NOTE: Registration is always compulsory if you choose to enter into an ordinary rental contract or another form of rental contract that provides for a term of more than 30 days.

5) Fiscal obligations of the landlord (taxes and income declaration in Italy)

The landlord is obliged to declare the rent and consequently pay tax on it. An income tax return showing the rental income received must be submitted to the Italian tax authorities even though the landlord is resident in abroad, i.e. not domiciled in Italy.

NOTE: Failure to submit or forgetting to submit the declaration in Italy can have serious consequences (high fines) which vary according to the period of delay. In this case, you should urgently contact an accountant or a lawyer in Italy in order to settle your tax position before an inspection for tax purposes takes place. In this way, the case can be settled through the reduction of penalties/fines.

Regarding taxes on rental income in an international context, they are primarily paid in the country where the property is located. The person receiving the income from abroad may still be taxed in their home country. It is therefore always necessary to assess the international double taxation conventions. The double taxation agreement between Italy and the landlord’s country may provide for the recognition of a deduction to the latter in order to avoid the payment of the same tax in both countries.

With regard to taxation in Italy, the landlord has the possibility to choose between two different paths:

1. include the income in their Italian annual income tax return. Income tax in Italy starts from a rate of 23%. (NOTE! this choice is particularly suitable for resident in Italy);
2. pay an alternative flat tax of 21%. This option is called “cedolare secca” and constitutes a fixed taxation. It shall be calculated on the full annual rental amount as specified in the contract (GROSS AMOUNT). This choice should be made directly when drawing up the Italian income tax return or when registering the contract with the tax office. It is recommended to turn to a local Italian accountant.
   (NOTE! Flat taxation is a good solution for those who are not resident in Italy).

6) Registration of the tenant’s data on the Italian police website “Alloggiati Web”

In accordance with Italian law (Article 109 T.U.L.P.S.), the landlord is obliged to register (via the web) the tenants’ details on the police website “Alloggiati Web“. This obligation applies to both EU and non-EU guests.

Registration of guests’ data in the police portal will be completed:

– within 24 hours of the guest’s arrival in case the stay is longer than 24 hours;

– within 6 hours of the guest’s arrival in case the stay is shorter than 24 hours.

How do you register your accommodation and guests?
The landlord must first contact the police headquarters “QUESTURA” located in the province concerned to obtain the login details. You can also request login details by email.

Here you can search for the address of the police headquarters in your province:
https://alloggiatiweb.poliziadistato.it/PortaleAlloggiati/Contatti.aspx

After activating the service, the landlord can log in to the police web portal “Alloggiati Web” and register his tenants. For each registration you receive a receipt that must be kept for 5 years.

Here is the link to the Alloggiati Web site:
https://alloggiatiweb.poliziadistato.it/PortaleAlloggiati/Default.aspx

7) Notification of the activity to the municipality

The Italian municipality (or region) in which the property is located may require the landlord to notify its activities and the details of its guests even if they are not carried out in the form of a registered business activity (company).

Rules vary between municipalities or regions. It is recommended to contact the municipality (or check on the website of the regional administration) before starting the activity.

8) Other information regarding additional services to tenants

It should be noted that:

– the additional services allowed are only those linked to the rent, i.e., changing bed linen/towels and cleaning the property.

– if you offer additional services such as breakfast or food then you have to change the activity to a “different” business form like B&B, affittacamere, countryhouse, etc.

The post Guide to short term rentals regulations in Italy appeared first on S&P Law Firm in Italy.

Don’t forget that if your inheritance also includes a property (house or even just some shares of a house), you will have to pay certain taxes on the transfer of the property. Italian Cadastre registry and all data must be updated.

The Italian Cadastre registry is divided in two sub-systems:

• Urban Building Cadastre (Catasto Urbano) => list of all buildings for civil, industrial and commercial use;
• Land Cadastre (Catasto Terreni) => list of all rural properties and unbuilt land plots.

If the estate in Italy also includes real estate, the following taxes will be due:

GENERAL SITUATION (not resident in Italy)

Taxes are as follows:

– imposta ipotecaria, 2% of the cadastral value of the property;

– imposta catastale, 1% of the cadastral value of the property.

Note: the cadastral value is the value that the Italian administration gives to each property, based on data found on the Italian cadastre registry. The cadastral value is usually significantly lower than the “selling price” of the house

If I transfer my residence to Italy, what tax benefits would I be entitled to?

TAX BENEFIST *

Taxes are as follows:
– mortgage tax 200 € (fixed amount)
– cadastral tax 200 € (fixed amount)

* Not applicable to luxury properties.

However, the above tax benefits are subject to the following conditions

• if the heir will establish his/her residence in the Italian inherited house (or in the municipality where the inherited house is located) within 18 months;
• if the heir has no other property in Italy purchased with the same tax advantage;
• if the heir does not own another property in the same municipality where the inherited house is located.

Below is a brief summary of obligations that must be performed in the event of succession in Italy :

1. draw up and submit an declaration of succession to the Italian tax authorities within 12 months of the death and pay taxes on the transfer of property;
2. you must update the information in the Italian Cadastre registry when you draw up the declaration of succession;
3. if your father also had a bank account, you will need to prove to the bank that you have the right to inherit so that they can transfer money to you and close the account;
4. it is always a good idea to inform the municipality about the property transfer and to check that all the data concerning waste tax is up to date;
5. update your names on bills (electricity, water, gas, etc.).

Finally, I would like to emphasis that the law of succession (and who has the right to inherit) depends on the law to be applied.

You wrote that your mother will inherit your father’s share. NOTE: This is not always true.

You said that your mother is Swedish citizen and the property is located in Italy. Thus the EU law (EU Regulation n. 650/12 ) must be taken into account.
In general, the law of the country where the deceased had her habitual residence at the time of death applies to the succession. This means that if the deceased had her habitual residence in Italy, Italian law applies. In any case, a will allows you to choose which country’s law will apply to your inheritance.

For example, if Italian law applies, then both you and your mother should inherit and not just your mother.

According to Italian law, if the heirs consist of a wife and a child, the “reserved share” is:

– the wife inherits 50% of the estate;

– the child inherits 50% of the estate.

If the heir consists of a wife and two children, the “reserved share” is:

– the wife inherits 1/3 of the estate;

– child 1 inherits 1/3 of the estate;

– child 2 inherits 1/3 of the estate.

The post Inherit an apartment in Italy. Obligations and taxes for heirs appeared first on S&P Law Firm in Italy.

The subject would require a long explanation, especially if we were to consider all individual cases even in the context t. ex. with tax deductions, additional income generated in Italy (due to renting their home in Italy or commercial activities), residing in a property other than the one owned. We therefore try to simplify the answer by providing general information.

In this case, we are also considering only private properties, not rented and not those considered as luxury homes.

It should also be noted that:

• houses abroad (in our case…in Italy) can be subject to property tax also in the owner’s country of residence
• every Italian real estate (house or land) has a specific value according to the land register, it is called in Italian “rendita catastale“. The value can be found in the land title (visura catastale) or in the purchase contract. This value is used to calculate all taxes on real estate;
• in Italy, the municipal property tax (IMU) generally replaces the income tax for natural persons (IRPEF) related to real estate not rented. This means that when you pay municipal property tax (IMU) you do not have to pay income tax (IRPEF) on the value of the property and consequently, if you have no other income apart from the property, you do not have to submit an income declaration to the Italian tax agency “Agenzia delle Entrate”.

As indicated in the question, it is necessary to distinguish cases where the owner is resident in Italy from those where he is not.

RESIDENCE ABROAD (i.e. not tax redicence in Italy) + income declaration abroad

If you own one or more properties in Italy, the owner (or the usufructuary) must pay every year the municipal property tax (IMU) to the Italian tax agency “Agenzia delle Entrate”. This means that no income tax return has to be submitted in Italy.

Don’t forget that in addition to the property tax (IMU), there are also another municipal tax (TARI) that the owner must pay. More details on the annual property taxes can be found on this article >>>

RESIDENCE IN ITALY + income declaration in Italy

1) A property owned

If you own a property in Italy and you are registered there (i.e. tax redicence in Italy), you do not have to pay the property tax IMU. You also do not have to pay the personal income tax (IRPEF) on the value of the property.

In practice, the value according to the land registry (rendita catastale) must be declared in the Italian income tax return, but since the law in this case allows to deduct the entire value from the total taxable value, it means that no income tax is paid on the property.

2) Two or more properties located in different Italian municipalities

For example, if you own two properties located in two different Italian municipalities and you are registered in one of the two properties, then the situation is as follows:

• property 1 in municipality A where you are registered => see point 1);
• property 2 (not rented) in municipality B => you only pay the municipal property tax (IMU).  Consequently, no income tax (IRPEF) is payable on the value of the property.

3) Two or more properties located in the same municipality

For example, if you own two properties located in the same municipality and you are registered in one of the two properties, then the situation is as follows:

• property 1 in municipality A where you are registered => see point 1);
• property 2 (not rented) in municipality A => in this particular case the general rule does not apply. This means that you have to pay both the municipal property tax (IMU) plus a reduced income tax (IRPEF) on the assessed value (income tax is only paid on the 50% of the assessed value). For more details on the calculation of the tax, we recommend contacting us directly or getting in touch with a trusted Italian accountant.

NOTE: The reduced assessed value must be added to other income. Depending on the level of all income, different tax rates are paid (23%, 25%, 35% and 43%).

NOTE: If the property is rented out, different rules apply and, in addition, an income tax return must be filed in Italy even if the owner is resident abroad.

The post Own one or more houses in Italy. When an income tax return is required? appeared first on S&P Law Firm in Italy.