Just before Christmas 2011 the Italian Parliament confirmed the corrective, emergency legislation issued earlier in the same month. This legislation aims to salvage the ailing Italian economy and was very aptly called “Decreto Salva Italia” (the Decree that will save Italy) by PM Mario Monti himself.

This new legislation is a raft of very different measures, with very heavy tax and cuts to public expenditure. It came under heavy criticism in Parliament, but was eventually passed with comparatively minor amendments.

This is a commentary of only some of the main points of interest to the general public, it is not a full list of all the changes / provisions introduced.

1) Property Matters.

Unfortunately, it is clear that Italian property owners will bear the brunt of the new measures.

1a) IMU (Imposta Municipale Propria) or the new Italian Council tax will replaceICI (Imposta Comunale Immobili) and Italian income tax (IRPEF) on all properties from 01.01.2012.

As for ICI, this new tax will be levied on the land registry value of Italian properties which, has been “updated” and substantially increased.

Basically, land registry values of properties (which are historical values, frequently far below the corresponding current market values) must now be multiplied by statutory coefficients / figures, in order to establish the property value being subjected to IMU as follows:

  • residential accommodation, villas, warehouses, stables and similar buildings, will have their current land registry values increased by multiplying them by 160,
  • Banks, insurance and offices in general, will have their taxable value increased by 80
  • Factories, hotels, cinemas, theatres, private hospitals and industrial / commercial buildings will have their statutory taxable value increased by 60, before the new tax is applied.

IMU will be levied at the rate of 0.40% on individual resident taxpayers` main homes (Abitazione principale) and at the rate of 0.76% on all other properties. Previously, with ICI, individual taxpayers` main homes were not taxed.
Local authorities (Comuni) are given some discretion, and may make slight variations to these tax rates and introduce limited exemptions.

Measures have been introduced to lighten the burden on poorer families. Apart from a flat Euro 200 discount on all individual resident taxpayers main homes, a further deduction of Euro 50 is granted for each dependent child up to the maximum amount of Euro 400.

Unfortunately, properties and homes owned by Italian nationals living abroad will no longer be exempted as “main homes” under IMU and will not be spared the full brunt of the new taxation, as it used to be the case.

For the first time, Italian agricultural land and farm buildings will also be taxed.IMU will be levied on land, farm buildings, farmhouses, and farm plant such as greenhouses, “green” energy plant etc. The taxable base land registry value(Reddito dominicale) must first be “updated” by multiplying it by 25 and then, again, multiplied by 130, before being subjected to tax, at the reduced rate of 0.2%.

2a) RES (Tributo Comunale sui rifiuti e sui servizi) will replace TARSU and TIAfrom 01.01.2013. This is a new tax which will be levied by the local authorities, to cover the cost of the refuse collection and disposal, and other services provided to the general public on a local basis.

This tax will be payable by anyone in occupation of any property in the relevant district (Comune), and will be applied on the surface area of the relevant property, building or area.

Local authorities are required to issue implementing regulations, to levy a charge in line with all the refuse collection and disposal costs from each property in the area, adding a further amount (0.30 Euro per sq. metre) to cover the costs of other “indivisible” services supplied to the local community in general. A reduced refuse collection tax will be payable, in areas where there is no refuse collection as such.

A limited number of exemptions / reductions can be introduced under the new rules. It is clear that this legislation will result in a substantial increase of the current charges.

In order to levy the new RES charge, Returns will have to be lodged by taxpayers to the relevant local authority and additional powers are granted to local authorities. Penalties are introduced where Returns are late or questionnaires / requests for information by the authorities are not timely and fully answered.

3a) Registration of farm buildings – All farm buildings whether used for residential accommodation or for other purposes, currently listed in the “farm land registry”(Catasto Terreni) will have to be re-registered in the new Land Registry (Catasto Edilizio Urbano) by 30.11.2012. This will result in anew  land registry taxable values being assessed and determined.

There is clear indication that the Italian land registry (Catasto) is due for a complete revision and substantial reform. Established in 1939 to assess taxable income of properties, it was later adapted to provide capital values of the same properties. It is an inefficient tool, and a cause of widespread discrimination in Italian property taxation.

4a) Confirmation of the “restoration costs” Income tax rebate (Bonus per il recupero edilizio).
The silver lining of this dark property tax cloud, is the new provision which allows a 36% deduction of all expenses (as defined) incurred in restoring / improving residential properties, farmhouses etc. up to an overall limit of Euro 48,000 on a permanent basis, from taxable income. For many years this was a “temporary” relief, which was being renewed from year to year.
This relief is now firmly established on a permanent basis in the Italian tax system. The actual income tax rebate must be split in 10 annual instalments. If, after restoration works / expenses are incurred, the relevant property is sold, then unless otherwise stated, the tax relief for any unexpired instalments will pass to the buyer.

2. Finance and the economy

2a) Reduction on the statutory limit to cash transactions. – This new legislation further limits the use of cash / banknotes in Italy from Euro 2,500, down to a new overall maximum limit of Euro 1,000 for each transaction, to prevent crime and tax evasion. This provision come into force with immediate effect, at the end of 2011. However a “grace period” of up to 31.01.2012 was granted to implement all required adjustments.

All payments by Italian public authorities are now required to be effected by electronic means / bank transfers. This will include, for instance payment of salaries, pensions and any professional fees / charges paid.

2b) “Base current accounts” (Conti di pagamento di base) were introduced. Because of the restrictions on the use of cash (still widely used in Italy) banks and post offices are required by law to offer a “base” current account, to pensioners and other low income individuals who are still unfamiliar with these basic banking tools, at a very reduced cost and reduced tax and bank charges.
This provision was widely criticised, as it will involve quite a “revolution” in the settled “cash” lifestyle of many elderly pensioners and disadvantaged Italian taxpayers.

2c) Final demise of the Italian Lira. The old Italian Lira is definitely put to rest, and the Bank of Italy will no longer convert old Italian Lira banknotes into Euros, with immediate effect.

2d) ACE (Aiuto alla Crescita Economica). In order to support self-financing businesses that do not rely on borrowing from third parties, this legislation introduces a new income tax relief.
Basically where an individual trader, firm, company, trust or the permanent establishment of a foreign company, re-invests any income / profits produced in the previous tax year, it is entitled to the benefit of a relief, which is calculated as a notional interest on the amount thus invested.
The amount of this “notional” interest income tax relief is currently fixed at 3%, for the next three years. If required it can be brought forward and set off against taxable income of subsequent years.

2e) Periodical disclosure of all private bank data to the Italian Revenue. From 01.01.2012 banks are required to report to the tax authorities all the movements of funds in and out of all private bank accounts held in Italy, on a regular basis.
Implementing regulations are still to be issued. Basically the Italian Revenue will receive full details of all private bank transactions, except for some forms of funds transfers not exceeding Euro 1,500.
Apart for being used in tax investigations, this data is also likely to be used to determine the taxpayers whose affairs need investigating.
All this is fine, if these and other new sweeping powers of the Italian Revenue will be used only to fight tax evasion. Under current legislation and international obligations, the authorities will have to comply with data protection obligations.

3) Taxes, taxes and more taxes.

As was expected (and probably sadly necessary), several new taxes have been introduced in Italy. This is still a main outline legislation and much will have to be added by detailed, subsequent implementing regulations.
All the new taxes have are of a “Patrimonial” nature, in the sense that they are levied on capital value of assets (Imposta Patrimoniale), rather than any income / gains they may produce (which are already taxed, in any event).

3a) “Bollo speciale sui rapporti segretati” – This is a new tax at the rate of 1% in 2012, 1.35 in 2013 and from then on at the rate of 0.4% on the capital value of all the foreign assets which were brought back into Italy, following a 2008 Italian tax amnesty called “Scudo Fiscale” (read article). Under the terms of the said tax amnesty, taxpayers who brought back foreign assets into Italy were still entitled to keep them secret.
A similar tax has also been introduced, resulting in a one off payment, if the (secret) assets in question no longer exist / have been spent.

3b) Tax on foreign financial assets. A new tax has been introduced, at the rate of 0.1% for 2011 and 2012, to be increased at the rate of 0.15% from 2013, on the capital value of financial assets held abroad by Italian resident taxpayers. To avoid double taxation, a deduction is allowed for any “patrimonial” taxes paid abroad on the same assets.

3c) Foreign properties Italian council tax (Imposta sul valore degli immobili situati all`estero), is totally new in Italy. This is a new tax, levied at the rate of 0.76 on the value of foreign properties (that is buildings or land located outside the Italian Republic, anywhere in the world) owned by Italian tax residents. This new tax will affect Italian national and foreigner (non-Italian nationals) residents in Italy, alike. It is unlikely to be covered by current double taxation treaties.

3d) A new tax has been introduced on “luxury cars” (Addizionale erariale della tassa automobilistica). This is an annual charge of 20 Euro for any Kilowatt of power of the relevant vehicle in excess of 185 Kilowatts.

3e) A new tax has been introduced on all ships moored in Italian ports. This tax is based on the length of the vessel, and the daily charges range between 5 Euros for boats of a length of up to 10 meters to a daily charge of Euro 763 where the ship is more than 64 meters long.

3f) A new tax has been introduced on Italian aircraft, which is substantially increased in the case of helicopters (Imposta erariale sugli aereomobili privati). This tax is based on the weight of the aircraft on takeoff, and ranges between Euro 1.5 per Kilos where the aircraft is not heavier than 1,000 Kilos to Euro 7.55 where the aircraft exceeds a total weight of 10,000 Kilos.

These taxes and other sacrifices are the price paid to support the financial viability of the Italy and also the survival of the Euro. It must be hoped that this very bitter medicine will, soon, produce the desired results.

Avv. Claudio Del Giudice
12.01.2012 copyrights reserved.