Italy is an attractive destination for real estate; whether you are considering buying a property in the Bel Paese as your primary residence, a vacation home, or an investment, the opportunity comes with many perks. Italy is also strategically located to travel within Europe and residents enjoy a high quality of living. However, the process can be daunting and raise many questions. For instance, do you have to pay taxes in Italy if you buy a property and rent it? How many days do you need to spend in Italy to qualify as a tax resident?
Codice Fiscale – The Italian Tax ID
Obtaining a Codice Fiscale, or fiscal code, is the first step to purchase a house in Italy. The code is a unique alphanumeric identification number assigned to individuals in Italy for tax and administrative purposes. It is a universal identification code used for official transactions, such as opening a bank account, signing employment contracts, obtaining healthcare services, and filing tax returns. The Codice Fiscale is derived from an individual’s personal information, including their name, date of birth and gender, and is issued by the Italian tax authorities or consulates abroad. It plays a vital role in conducting official and financial transactions in Italy. Individuals born on Italian soil are automatically issued their fiscal code; those who are eligible for Italian citizenship can also get one. The Codice Fiscale is not limited to Italian residents; it is also issued to non-residents for various purposes, including property transactions. Non-residents can obtain a Codice Fiscale at an Italian tax office or through an authorized representative, such as a legal professional or tax consultant. Obtaining a fiscal code does not mean that you automatically become an income taxpayer.
Income taxes and tax residency
When does one have to pay taxes in Italy?
In Italy, taxes are owed by both residents and non-residents who have generated income or own assets within the country. An individual’s tax liability is linked to the number of days spent in Italy. In fact, should an individual spend more than 183 days during a tax year in the country, then his/her worldwide income would be subject to taxation in Italy, whether the individual is registered as a resident or not. In this case, Italy is the person’s legal tax residence, even in case the income is entirely generated outside of Italy.
On the other hand, should the person spend less than 183 days in Italy during a tax year, then the taxation would only apply to the income generated in Italy over that time frame.
In Italy, an individual’s income must be taxed with the “Denuncia dei Redditi” or Tax Report, declaring worldwide earnings, assets, properties, and bank accounts. Depending on your nationality or country of residence, you might be able to avoid double taxation if Italy and your country of origin or residence have a special agreement. Due to the fact that income taxes are tricky to navigate, we recommend consulting an international tax accountant.
Annual property taxes
When you own a house in Italian, aka a “casa di proprietà,” you will have to pay three kinds of annual property taxes, respectively Imu, Tasi, and Tari. They must be remitted to the “Comune” (municipality) where the property is located. Let’s break them down:
- IMU, “Imposta Municipale Propria” or Local Municipal Tax: this tax does not apply to owners of a “first home”, but it needs to be paid for luxury homes, mansions, castles, buildings, farmland, and plots of land. The payment of this tax is remitted in two installments: the first one’s deadline is on June 16th of each year, and the second one is on December 16th of each year.
- TASI, “Tributo per i Servizi Indivisibili” or Tax for Indivisible Services: first homes’ owners are exempt from the Tasi. In January 2020, the Tasi merged with Imu, becoming an “Imposta unica”, a single tax. The Tasi tax is a local property tax imposed by Italian municipalities. Rates vary by municipality and are based on the property’s value.
- TARI: “Tassa sui Rifiuti” or Waste Tax: its payment is required to cover the expenses of waste collection, transport, and disposal. Its amount is set by each municipality, based on the property’s surface (the square meters) and the quantity of waste produced (the number of people living in the property).
Renting your property and earning an income
With Italy being such a substantial market for short and long-term rentals, considering these options can be beneficial. When renting out a property in Italy, several taxes and obligations may apply. Here are some common taxes associated with rental income:
Income Tax: rental income is generally subject to income tax in Italy. The income is added to your overall taxable income, and you must declare it in your annual tax return. The applicable income tax rate depends on your total income and tax bracket. The taxes you owe also depend on the number of properties you own in Italy. The “Imposta di Registro” is the registration tax paid on the rental agreement. The tax rate is typically a percentage of the annual rental value and may vary based on the lease length. The “Imposta di Bollo” is a stamp duty tax that applies to the rental agreement. It applies to certain legal and financial documents, including rental agreements.
Seeking help to make the process smoother
When purchasing a property in Italy, it is essential to remember that there are a few expenses and taxes to foresee. Some are connected to the purchasing process, others are expected as annual costs, and there will also be the regular costs associated with utilities. If you are planning on establishing your residency in Italy, taxes on income are to be evaluated based on the period spent in the country during the tax year. While they are legislations and general rules, each case remains unique and has challenges. Professionals such as Italian Real Estate Lawyers are here to make your dream come true and make the bureaucracy smoother.
If you are thinking of purchasing your future home in Italy and wish to be assisted during each step, do not hesitate to reach out to our bilingual team at firstname.lastname@example.org.
DISCLAIMER: please note that this article aims to provide general information, and it is not to be considered as legal advice as each case may vary based on individual circumstances. Therefore, we always recommend consulting with a dual citizenship taxation specialist.