Italian Real Estate Market: A Taxation Overview
The Italian real estate tax system configuration has a complex nature and involves all levels of government. It differs as a function of the parties involved (companies and professionals, or those not exercising the business activities and self-employment) and the nature of real estate (houses and buildings for industrial use). Thus, a case by case analysis should be conducted in order to ascertain the right tax treatment for income derived by real estate properties. Generally, the real estate tax consists of taxes on income, wealth and on the transfer deeds. There are four main categories of taxes levied on real estate:
- Nature of tax “income” whose premise is the income produced from the property or possession of the property (personal income tax, corporate income tax);
- Nature taxes “asset” whose premise is the ownership or possession of the property (IMU);
- Tax on public services provided to property owners (TASI);
- Tax on the transfer of property for consideration (VAT, registration, mortgage, land).
Income Tax
Real Estate income from properties situated in Italy is typically subject to Italian income taxes. The income generated by the properties contributes to the formation of the tax base which is applied to the personal income tax (PIT-IRES) levied on individuals and companies. For individuals the income derived from properties is subject to a personal progressive tax or and from 2011, on the lessor’s option, to the “flat rate tax scheme (cedolare secca)”. For companies’ income derived from properties is subject to corporate income taxes “IRES” levied at 24% rate on the net income a Regional Tax on Productive Activities (IRAP) of levied at 3.9% (i.e. standard rate) on the net production value.
Property tax
The Municipal Tax on Real Estate (‘Imposta Municipale Unica’ or ‘IMU’) is levied on the ‘cadastral value’ of immovable properties located in Italy. Everyone who owns a land or a property in Italy, whether they are resident or non-resident, must pay IMU. The law provides for a 0.76 percent standard rate, but municipalities can increase or reduce such standard rate by 0.3 percent. If the property is passed as uninhabitable or being restored, the tax is reduced by 50 percent. This tax is partially deductible for corporate income tax purposes.
Tax on public services
The premise of the tax on public services is the possession of any kind of buildings, including the main house, whatever its use, which in turn is divided into Tribute for indivisible services (TASI) and the tax on waste (TARI) to finance the costs of collection and disposal of waste.
In November 2016, the State Secretary for Finance came up with the following three suggestions to tighten the substance requirements for letter box companies:
1. A company can only get an advance tax ruling if it they can prove a presence in the Netherlands by meeting a minimum expense account and a minimum number of employees. Additionally, international holding companies will need to have more equity than the 15% that is currently required.
2. The Dutch Tax Administration will exchange information on holding companies that do not meet the substance criteria. Currently this is only done for financial service companies.
3. To increase the minimum risk threshold of 1% of its outstanding loans or €2 million in order to be able to apply the treaty withholding tax rates on interest and royalties.
On January 25 2017, the Dutch Parliament requested the government draft a proposal that is in line with these suggestions. The government was asked to focus on the creation of employment and the amount of salary paid.
The substance requirements in the Netherlands will be tightened with more focus on local employment and salaries. If you have an international holding company in the Netherlands you may want to check whether the current status of the substance of the company is in line with these new measures.
