Short Term Rentals – Italian Government proposes new restrictions

Italian government prepares new VAT registration requirement for landlords

Italy’s centre left administration proposes to introduces limitations for those who rent rooms, holiday homes or apartments for short periods

An amendment to the “Milleproroghe Decree” (one thousand extensions), presented by the “Democratic Party” to the Italian Chamber of Deputies, proposes a squeeze for those who rent tourist houses, or rooms  on sites such as Airbnb and Booking.Com.

The proposal provides that Municipalities must issue a specific license and will be able to set a ceiling on the duration of stays within the year.  In order to rent more than three rooms, even for just a weekend, and in any case for periods of less than eight days, private individuals will have to register for VAT.

More regulation?

The proposal has already sparked criticism, The move has been attacked on the grounds that  the proposal risks suffocating the sector with more bureaucracy and driving more people into “off-book” transactions.  This is obviously a battle between lobby groups and the proposed measure evidently promoted by hoteliers’ associations.  It is indeed a pity that Italy cannot bring some obviously needed sensible regulation to the whole sector, harmonising the rules across Italy and ensuring a level playing field, in tax terms, by commencing a process of consultation with interested parties and arriving at a consensus.  Instead we see these last minute badly thought out proposals driven by one lobby group, for which landlords, web-portals, councils, regulators and tenants are not prepared, and one which, one fears, are doomed to be subject to challenge in the Courts, including the European Court of Justice, in the same way as the “airbnb tax“.

The Milleproroghe has been approved by the Chamber of Deputies will arrive for approval by the Senate on 29 February.

How will the new rules affect you? 

If you have to get registered for VAT because you are renting out more than three rooms – an absurd blanket threshold: in town three rooms is big, in the country it is not.

The potential tax consequences if you are caught caught by the proposed changes and need to register for VAT are:

if you qualify for the flat tax regime forfettario (gross rents received under Euro 65k annually), you will be paying around 4% tax (first five years then a little under 12%) and 20% social security on gross rents – so a bit more than the 21% tax flat tax on rents but most of it a pension contribution rather than tax – so not the end of the world.

if you don’t qualify for the flat tax regime (regime forfettario) you will be on a normal business tax regime which means that you can deduct the costs involved in letting your property – your tax (and social security ) rate will likely be higher but your tax base will be lower to the extent that you have lot of costs (e.g. airbnb/booking/agency fees, local taxes, cleaning, supplies and maintenance etc.) .

For a lot or people renting property in Italy, the proposed change may not necessarily put them in a worse tax position than before and in fact may make landlords and landladies think a bit more about whether the flat rate 21% cedolare secco is anyway the best regime.

The proposed reforms are a politician’s sop to public concern (possibly justified) about airbnb etc. taking over historic city centre, and a knee jerk reaction promoted by the hoteliers lobby, who are pushing the view that most people in Italy renting on airbnb/ are not paying tax on their income and thus undercutting their shabby old hotels.

The proposals do not actually come anywhere near the well needed reform for the sector aimed at reducing and consolidating the red tape (local authority consents, regional consents, police authority registration and reporting, tourist tax management, income tax and VAT compliance and creating a level tax playing field between hotel type operations, agriturismi, town and countryside, affittacamere, B & B, pensione, large scale business operators and the wee guy letting a spare room.

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