ITALY Law and Practice Contributed by: Guido Alberto Inzaghi, Ivana Magistrelli, Silvia Gnocco and Gabriele Paladini, SI – Studio Inzaghi
Residential Property The sale of residential property by a VAT entity to another VAT entity is generally VAT exempt, except where: • the seller is the developer of a new property or is the company that carried out renovation works on an existing property, provided that the sale is performed within five years from the date of the construction or renovation works being completed; or • the seller is the developer or the entity that per - formed the renovation works and the transaction takes place more than five years after the works are completed, if the seller exercises the option to apply VAT. In this case, VAT will be applied under the reverse charge mechanism. The following taxes apply to sales of residential prop - erties in VAT-exempt sales: • registration tax at 9% of the sale price (the tax authority may verify if the price is in line with the fair market value within two years); • cadastral tax of EUR50; and • mortgage tax of EUR50. In a sale subject to VAT, the registration tax, mortgage tax and cadastral tax of EUR200 each will be due. The sale of real property whose VAT was not fully deducted by the seller’s VAT entity at the time of pur - chase is always VAT-exempt by law (and is liable to proportional registration, cadastral, and mortgage taxes). The purchaser will typically pay the transfer tax and the notary’s fees. Brokerage fees typically range from 1% to 3% of the sale price. If the transfer of the asset results from the acquisition of the entity that owns the asset (ie, a share deal), the transfer transaction is VAT-exempt and a registration tax of EUR200 will be due, regardless of the percent - age of ownership in the entity purchased. No stamp duty will be due in connection with the transaction. However, a financial transaction tax or a Tobin Tax will be due on a purchase of any number of shares
the exercise of this option is properly set out in the deed providing for the sale and purchase of the real asset (this is known as the VAT upon option). In either of these cases, one of the following two mechanisms will apply: • the ordinary regime in the first case, which pro - vides that the seller must issue an invoice in con - nection with the sale, charging the VAT; or • the reverse charge mechanism in the second case (ie, when the seller opts for VAT to apply), which provides that the seller will not charge VAT in the invoice and the purchaser then adds the rate and amount of applicable VAT in the invoice, registers the invoice and the VAT in its input VAT register and its output VAT register. There is therefore no cash out for VAT between the parties to the transaction, and the VAT is offset in the purchaser’s hands, pro - vided the purchaser is entitled to the full deduction of VAT on the purchase of goods. The applicable VAT rate is generally 22%. A reduced rate of 10% applies if the real property underwent material renovation works. The following transfer taxes will be payable in any sale and purchase of non-residential real assets: • cadastral tax at 1% of the sale price; • mortgage tax at 3% of the sale price; and • registration tax of EUR200. Mortgage and cadastral taxes can be reduced to an aggregate 2% rate if one of the parties to the trans - action is an Italian real estate investment fund (REIF) or if the property is acquired by an Italian listed real estate investment company ( Società di Investimento Immobiliare Quotata or SIIQ). The tax authority may verify if the sale price is in line with the fair market value within two years. Generally speaking, VAT can be offset against output VAT and other taxes or recovered through a refund by the tax authority in certain circumstances.
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