New legislation, coming into force on the 1st January 2014 will make substantial changes, actual improvements to the way the Italian property market works. New, improved selling / buying procedures are introduced. At the same time, the taxation of Italian properties will also change. Reduced rates of tax will become applicable to property transfers, new taxes replace part of the current council tax.

Some of these changes are a definite improvement others will have to be judged in light of their actual implementation and performance.  The devil, as always, is in the detail.

Overall these changes make it difficult, even for experts, to keep up to date and to fully understand all possible implications. From 01.01.2014 there is bound to be a period of adjustment, where Italian property transactions will require special attention and skill in order to avoid new, old and a combination of the two, pitfalls.

New selling / buying procedures – New legislation coming into force on 01.01.2014 completely changes the established Italian property selling procedure.

These changes require Italian Notaries to act as stakeholders in the sale of an Italian property. Notaries are now under a duty to receive the sale price, taxes and fees from Italian property buyers well before completion, into special escrow bank accounts. Notaries must then hold these funds as stakeholders while completing the property sale and will only release them to the seller after the legal title to the Italian property has been registered in the name of the buyer.

Under this new legislation such escrow bank accounts are not part of the Notary`s Estate (so there would be no risk if the Notary died before completing the transfer) and cannot be attached by their personal creditors. Notaries being public officials in Italy with substantial compulsory professional indemnity insurance, this new procedure offers a reliable guarantee that these funds will not be misappropriated.

It used to be the case that on a sale of Italian residential property, payment was effected by the buyer actually handing over Italian bankers` drafts (Assegni Circolari ) to the seller and to the other parties involved in the transaction.

Assegni Circolari are special drafts issued by Italian banks, and will not bounce. In a past when Notaries were not prepared to hold funds as stakeholders because of the tax risk of receiving the sale proceeds into their personal bank account, and other lawyers attending to the sale on behalf of one of the parties could not be trusted by the other, the “Assegni Circolari ” was the only “safe” selling procedure. Complications would arise where one of the parties to the transaction being non resident in Italy, did not have an Italian bank account where these special Italian bankers` drafts (Assegni circolari ) could be cashed. The unfortunate seller would have to take the Assegni Circolari, carry them across the border and then cash abroad. Foreign banks unfamiliar with these instruments would take weeks to clear them. At best, the foreign seller would have to wait weeks, after completion of the sale, before acquiring control of his sale proceeds.

Of course all will change now, as the Notary will be acting as a stakeholder, and will guarantee that the funds are released to the seller by bank transfer as soon as the transaction has safely been completed. The funds will be released by the Notary, by bank transfer, directly into the seller` s bank account in Italy or abroad, without delay.

New letting procedure – The same new legislation, as part of the general strategy against tax evasion, provides that rent from residential Italian properties can no longer be paid in cash, whatever the amount.

Currently, cash cannot be used for an amount exceeding Euro 999.99 in any transaction in Italy. From 01.01.2014, any rent from Italian properties paid in cash will be subject to a fine ranging between 3% and 40% of the actual amount. Local Authorities are required to enforce this legislation and are given access to the records which managers of blocks of flats (Amministratori di condominio ) are required to keep under some other, recent, new legislation.

New taxation of Italian property transfers – Substantial changes (and simplification) are introduced to the taxation of transfers of Italian residential property.

From 01.01.2014 Italian Registration Tax (Imposta di Registro), currently levied at rates ranging between 3% and 15% will be charged at a flat 9% standard rate (subject however to a minimum levy of Euro 1,000). This will mark a substantial reduction of taxes payable on the acquisition of an Italian property.

Special rules and rates will apply to Italian agricultural land.

Other taxes (Imposta Ipotecaria e Catastale ) associated with Italian property transfers, previously levied at a flat 3% rate, are reduced to a flat, overall amount of Euro 100. Again this will result in a tangible reduction of taxes payable on the acquisition of Italian properties.

At the same time, the current host of reductions, special rates, discounts and conditions on Italian property transfers are all abolished. Under the new legislation, from 01.01.2014 there will be only one, 2% reduced rate applicable to the purchase of the taxpayer` s main residence (Prima Casa ). Even this reduction is greatly simplified, as it will only apply to residential dwellings which are entered at the local Land Registry under particular, non-luxury, headings. A number of other qualifications and conditions required to qualify for this rebate, and dating back to a 1969 Decree, will be swept away.

These changes will not affect other taxes (such as Italian VAT – “Imposta sul Valore Aggiunto ” or IVA), levied as an alternative to Italian Registration tax (Imposta di Registro ) on some, particular Italian property transactions.

New local property taxes – The new legislation introduces new taxes levied on anyone owning or legally entitled to use Italian properties. The local council tax levied by the local authorities will change name and extent / application. A new local council tax is introduced. It will be called “Imposta Unica Comunale” or “IUC ” for short. Within this tax the existing IMU tax will continue to apply, whereas the old TARSU or refuse collection tax will be replaced by TASI (Tributo servizi indivisibili) (tax to finance local services which cannot be allocated to individual properties) and a new refuse collection tax called “Tassa sui Rifiuti” (or TARI for short).

It is impossible to provide any description of the operation and extent of these new local taxes, as they will be introduced by local regulations to be issued by local authorities, by the 16th June 2014.

Overall, if correctly implemented, this new legislation will provide some relief for the Italian property market which for a few years now, has been one of the main victims of the current financial crisis and recession in Italy.

Avv. Claudio Del Giudice – Copyrights reserved – 30.12.2013