ITALY Law and Practice Contributed by: Paolo Ludovici and Andrea Mirabella, Gatti, Pavesi, Bianchi, Ludovici
1.5 Taxation of Real Estate Owned by Non- Residents and Non-Citizens General Considerations From a tax perspective, the most efficient way for an individual to purchase and hold residential properties is through direct ownership, since individuals may be entitled to certain benefits, especially in terms of reduction of transfer taxes. From a non-tax perspective, it should be noted that the acquisition of Italian real estate by foreign indi - viduals may be subject to the reciprocity requirement under Article 16 of the Preliminary Provisions to the Italian Civil Code. Under this principle, foreign nation - als may acquire real estate in Italy only if Italian nation - als enjoy equivalent rights in the foreign purchaser’s home jurisdiction. Taxes Upon Purchase One of the following alternatives may be applied to the purchase of a property in Italy: • registration tax ( imposta di registro ) at the rate of 2% (if the primary residence tax benefit applies) or 9% of the purchase price of the property; or • VAT at the rate of 4% (if the primary residence tax benefit applies), 10% or 22% on the purchase price of the property (in this case, registration tax is also applied at the fixed amount of EUR200). In case of application of registration tax, it is also pos - sible to apply the “cadastral value” ( valore catastale , usually substantially lower than the market value) as taxable base, if the purchaser is an individual who is not acting in the context of a business activity. Mortgage and cadastral taxes are also due (EUR50 each in case of application of registration tax or EUR200 each in case of application of VAT). Capital Gains Upon Sale For capital gains realised from the sale for considera - tion of undevelopable land and buildings, the seller may request the application of a 26% substitute tax. Capital gains realised upon sale of properties held for more than five years are not taxed.
The option to pay the substitute tax in instalments is also permitted; for this purpose, the instalments must be of equal amount. The Tax Regime of “Controlled Realisation” (Realizzo Controllato) If certain conditions are met, Article 177, paragraph 2 and 2-bis, TUIR, provide a form of tax neutrality regime for contributions of shareholdings, based on their accounting classification in the financial state - ment of the receiving company. Such tax neutrality regime has proven successful for corporate reorganisations and for the creation of fam - ily holding companies. 1.4 Pre-Immigration and Exit Planning Both inbound and outbound relocations require care - ful tax planning, as the treatment of assets, invest - ment structures and income may differ significantly between Italy and the relevant foreign jurisdiction. Accordingly, a review of an individual’s wealth and income sources before any change of residence is generally advisable. Particular attention should be paid to financial insur - ance products, carried interest arrangements and for - eign holding companies, as their tax treatment may change following a relocation. Foreign financial invest - ments and art collections may also be held through an Italian fiduciary arrangement to simplify tax reporting. Individuals intending to benefit from the special flat tax regime under Article 24-bis of the Italian Income Tax Code may apply for an advance ruling before becom - ing an Italian tax resident, obtaining confirmation of both eligibility and the tax treatment of specific assets or structures, including trusts and holding companies. As regards outbound relocations, Italy does not levy an exit tax on individuals. Exit taxation applies only to companies transferring their tax residence abroad under Article 166 of the Italian Income Tax Code, sub - ject to specific reliefs where the assets remain allocat - ed to an Italian permanent establishment or where the transfer is made to qualifying EU or EEA jurisdictions.
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