Frequently, the foreign property buyer of an Italian residential property is presented, in the confusion of the completion of his Italian acquisition, in the notary`s office and with garbled explanations, with the question: do you wish to pay Italian Registration Tax (Imposta di Registro) at the full 9% rate, or would you rather prefer to pay the 2% reduced “Prima casa” rate ?
The answer is deceptively obvious. Nobody likes to pay more tax than necessary. However, if this question is considered in some detail, the answer is not always a foregone conclusion.
The “Prima casa” tax rebate.
On the purchase of an Italian property Registration Tax (Imposta di Registro) is levied at the rate of 9% on the land registry value of the property.
Alternatively, where the vendor is a business, Italian VAT (IVA – Imposta sul Valore Aggiunto) is payable at the rate of 10% on the market value. Where
the “Prima Casa” rebate applies, the actual tax rates are reduced to 2% and 4% respectively. A very attractive gift from the Italian taxman.
Unfortunately, taxmen are notoriously not in the business of giving presents …
The “Prima casa” tax rebate was introduced in 1982 and has slowly evolved to apply to all purchases of Italian residential properties, classified in the “A” bracket at the local land registry (Catasto) with the exclusion of properties classified as “A/1” (luxury homes – “Abitazioni signorili”), “A8” villas and “A9” castles. In order to obtain this tax rebate, the buyer must be resident in the district of the local authority (Comune) where the property is located. Alternatively (and more important to foreigners) the buyer must formally undertake in the Purchase Deed (Compravendita) that he / she will become resident in the relevant district / Comune within the following 18 months, and this is really the catch.
The strings attached.
This Italian legislation provides that in the Deed of Sale the property buyer must formally undertake that he / she does not own any other abode in the area and that he /she will become resident within the following 18 months.
When the “Prima casa” tax rebate has been claimed, the property cannot be sold for the following 5 years under penalty of losing the benefit of the reduced tax rate.
Also, the buyer must effectively take up residence, not necessarily in the Italian property, but within the district (Comune) where his property is located.
Where this is not done and if the foreign Italian property buyer does not timely take up residence in Italy, penalties become applicable. The Italian Revenue (Agenzia delle Entrate) can claim payment of tax (either Imposta di Registro or IVA as stated above) at the full rate, interest on the delayed payment and an additional 30% tax penalty.
A recent decision of the Italian Supreme Court (Corte di Cassazione) states that the Italian Revenue has three years, from the date of completion of the acquisition, to catch defaulting buyers. So, an Italian property buyer should not be seduced by the “Prima Casa” tax rebate if he / she does not seriously intend to become resident in Italy within the following 18 months.
Becoming resident in Italy.
If “Prima Casa” is still attractive, and you are considering taking up residence in Italy in order to get this tax rebate, you should consider the consequences.
Residence in Italy will result in the application of Italian Income tax ( Imposta sul Reddito delle Persone Fisiche – IRPEF) at rates ranging between 23% and 43% on the world-wide income of the resident taxpayer. So, if you receive a pension, earn interest, have a business outside Italy, all this income will (subject to any applicable treaty for the avoidance of double taxation) become taxable in Italy.
Also, and in addition, any foreign (non- Italian) buildings and land owned by the newly established Italian resident will become subject to IVIE, an Italian annual tax levied at the rate of 0.76% on foreign (non-Italian) properties. Any foreign (non-Italian) financial assets will also become subject to IVAFE, an Italian annual tax on the value of foreign (non-Italian) financial assets, levied at rates ranging between 1/1,000 (one thousandth) and 2 / 1,000 (two thousandth) of the value of the asset.
So when, on completion of your Italian property acquisition, you are asked the apparently simple question of whether you wish to apply for the benefit of the “Prima Casa” tax rebate or not and whether you wish to pay Italian tax at a substantially reduced rate or not, please carefully consider all the implications.
The answer is not always a foregone conclusion. You should definitely take your time and look the “Prima casa” gift horse in the mouth, before it bites you!
Avv. Claudio Del Giudice – 24.12.2017 Copyrights reserved.