There are a number of options for the purchase of Italian Real Esate. Here we look at the principal alternative options, but there are others. We look at purchasing :
- Personally (as an individual or individuals), or
- Through a company, or
- Via an Italian entity – the standard here would be a tax-transparent entity (società semplice) which are often used to better organise ongoing management of the property and costs where there are multiple owners
There is no automatic choice. Much will depend on the type of property and if you are going to rent the property or simply occupy it for your own use. Other structures might exist. It might also be advantageous to arrange a “split structure” e.g purchase as individuals and rent to the company who then carries on a letting or business activity. Corporate structures and ideas like this, can lead to extra cost which needs to be weighed up against savings.
This note is intended as high level establishment of a framework, to assist the initial decision-making and will be refined once we have reviewed your specific circumstances.
The initial point to note is that this type of planning needs to be effected BEFORE you sign anything, especially an irrevocable offer, which is typically proposed by Italian agents. The terms of such an offer typically constitute a binding legal agreement once accepted by the seller and the terms of it may impact your chosen structure. If you are buying to let, then you must check in advance that there are no restrictions, either under condominium regulations or local planning laws on the carrying on of a rental activity.
Table of Contents
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Capital Gains Tax on Future Sale
Individuals
Capital gains on the sale of Italian real estate are generally taxable in Italy only if the property is sold within five years of purchase (unless it was used as a primary residence “Prima Casa”). After five years, gains are exempt, under current law. The French tax position needs to be checked.
French Sarl
A French company without a permanent establishment (PE or taxable presence) in Italy is subject to Italian tax on capital gains from Italian real estate under domestic law and the Italy–France tax treaty. The company cannot benefit from exemptions available to individuals (e.g. primary residence). The PE issue needs to be reviewed. Implication: If deemed to have a PE, the SARL would be subject to Italian corporate income taxes and filing obligations. as well as VAT on rents .
Passive ownership and rental of Italian property does not automatically create a PE. However, active management (e.g. local staff, marketing, contracting) or short-term letting with services (cleaning, concierge) may trigger PE status.
Società semplice
Transparent for Italian tax purposes. Gains are taxed in the hands of the members under same 5 year rule as applies to individuals.
Any capital gain is calculated as the difference between sale price na dpuirchase price, increased by all costs that are “inherent” to the property. This usually means that purchase agent’s fees can be deducted but not selling agentàs fees. All costs claimed for deduction must be appropriately documented.
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Rental Income – Taxation and Treaty Relief
Individuals
Rental income from short-term letting is taxable in Italy. The “cedolare secca” regime may apply (flat 21% tax on gross rents, no deductions).An alterantive regime maybe available,and permit deduction for running and maintenance costs, but this generally requires registration for VAT, and hence, in particular, the requirement to add 10% VAT to rents. Review of any alternative should only be cosndiered after calcultating French tax (after offset of Italian income tax) – there is no point reducing Italian tax, just to pay more French tax.
French SARL
Rental income is taxable in Italy. The SARL may claim a foreign tax credit in France under the treaty, but administrative complexity increases. French tax treatment of foreign rental income in a company structure may be less favourable than personal ownership (depends on costs)
Società semplice
Income flows through to members. Italian tax applies, with potential credit in France depending on member’s status. Will require filing of four separate Italian income tax returns, involving possibly some extra expense compared to the Sarl. The cedolare secco regime is not permitted for individuals who are members of società semplice, with the result that tax will be charged at scale rates.
3. Purchase Tax – Prima Casa Benefits
Individuals
May benefit from reduced registration tax (2% instead of 9% for residential property, tax base is a multiple of deemed land registry yield, often lower than purchase price) if purchasing a “prima casa” and meeting residency and use conditions. The prima casa reduction will likely require transfer of tax residence to Italy, with serious potential consequennces in terms of tax worldwide income.
French SARL
Not eligible for “prima casa” benefits. Standard rates apply.
Società semplice
Also not eligible for “prima casa” benefits.
4. IMU – Ongoing Property Tax
Applies to all owners (individuals or entities). Rates vary by municipality, property type and official land registray yield .
No exemption for foreign companies or società semplice unless the property qualifies as a primary residence (which is rare for non-residents).
5. VAT Considerations
Rental Income: Short-term rental of a single apartment only subject to VAT if provided with ancillary services beyond minimum (e.g. wifi, aircon and bed linen). Long-term residential leases are typically VAT-exempt.
VAT Recovery: A French SARL may be able to recover Italian VAT on property purchase (if applicable) or renovation costs if registered for VAT in Italy and conducting taxable rental activity.
Individuals / società semplice: Generally not VAT-registered; VAT recovery not available.
There is also a refuse disposal tax (TARI) but should be fairly standard across all purchase strategies, although a review of the Comune (Mairie) rules need to be checked.
6. Practical Aspects
Notarial Process
All purchases require a public deed before an Italian notary. A power of attorney )with authenticated signature certified by a notary in France (and possibly apostille, although exemption from the requirement to affix an apostille and wilkl be required for any individual not attending the signing of documents . For a French SARL, additional documentation will likely be needed:
- Italian fiscal code numbers for directors and Sarl itself
- Anti money laundering as required by the Italian notary – usually a form of self certification to the effect that the funds being used derive from a legitimate source
- Certified translations of company statutes
- Certified translations
- Certified copy of minutes of board approving real estate acquisition and possibly delegating power to an individual director or group of directors to execute the necessary documentation
- Powers of attorney
- French business registry extracts
Italian Tax Reporting:
Individuals: Annual Italian tax return to report official land registry yield for days not let out, and rents on days in which the property is rented.
SARL: Will require an annual tax return Italian tax filings, especially if PE is triggered or VAT registration is needed.
Società semplice: Requires Italian filings and member-level reporting.