ITALY Law and Practice Contributed by: Guido Alberto Inzaghi, Ivana Magistrelli, Silvia Gnocco and Gabriele Paladini, SI – Studio Inzaghi
7.7 Requirements Before Use or Inhabitation Italian law requires buildings to be fit for use before they can be inhabited. According to the regulations currently in force, fitness for use is self-declared by the developer through a certified technical assessment using a specific form, which confirms that the works comply with the submitted project and the regulations on hygiene, health and safety, plants and systems and fire prevention. 8. Tax 8.1 VAT and Sales Tax See 2.10 Taxes Applicable to a Transaction . 8.2 Mitigation of Tax Liability Where non-residential real assets are purchased by REIF or SIIQ, the applicable cadastral tax and mort - gage tax are halved to 0.5% and 1.5%, respectively. The contribution of multiple real assets, mainly leased, performed by a VAT-registered entity to a REIF or SIIQ is not subject to VAT and is subject to negligible trans - fer taxes of EUR200 each. 8.3 Municipal Taxes An owner of real property is generally liable for the payment of the IMU. The taxable basis equals the cadastral income (including a 5% increase) multiplied by a figure depending on the type of property. The local municipality approves the rates, which range from 0% to 1.14% annually. The user of a property is also subject to the waste removal tax ( tassa sui rifiuti or TARI). 8.4 Income Tax Withholding for Foreign Investors An investor may derive lease income from owned real property, either directly or through dividends or dis - tributions from a corporate vehicle or fund. Tax on rental income may vary substantially, depending on the structure of the investment. Where the property is held by an Italian corporate vehicle, if the real estate is leased to tenants, any
rental income generated is subject to IRES at a rate of 24% and to IRAP at the ordinary rate of 3.9% (or more, depending on the relevant region). The taxable income of a real estate company for IRES purposes is the net revenue after the deduc - tion of costs, as shown in the annual profit and loss account. Roughly all costs relating to the activities of a company can be deducted, including depreciation (excluding land) and interest (as long as this exceeds interest receivable), up to an amount equal to 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA) in each fiscal year. Interest due on loans used to purchase real estate properties for “letting” that are secured by mortgages over the same properties is fully deductible. The taxable income of a real estate company in rela - tion to the leasing of residential real properties for IRES purposes is represented by the rent minus main - tenance expenses and interest up to these limits. No other costs are deductible. Interest is not deductible for IRAP purposes. The taxation of dividends distributed to shareholders depends on the nature of the shareholder, as outlined below. • Dividends distributed to a non-resident individual are generally subject to a withholding tax of 26%. Withholding tax rates can be reduced by any double tax treaty signed by Italy with the country of residence of the foreign investor. • Dividends distributed to a company that is resident in the EU or EEA and subject to income tax therein are liable to a 1.2% withholding tax (to avoid discrimination with dividends received by Italian resident companies). Exemption from Italian with - holding tax under the Parent-Subsidiary Directive may apply. • Dividends distributed to a non-EU/EEA resident company are subject to withholding tax at the rate provided under the applicable double tax treaty. Under recent case law, dividends distributed to a non-EU/EEA resident company may be subject to a 1.2% withholding tax rate (as in the case of an EU-resident company), which may be lower than
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