Owning a property in Italy has become very popular due to the high number of investment opportunities that its real estate market offers. Consequently, the Italian government has introduced new policies regarding tax deductions and state incentives in order to support this positive trend. Drawing from this, this article will provide you with a detailed overview of the incentives which are available when you purchase your first home in Italy, and the requirements you need to meet in order to benefit from these.
If you are buying your first house in Italy and you intend to move your residency there you can benefit from a number of tax deductions which include:
- Reduction of VAT from 10% to 4%. Furthermore, people who purchase a house directly from the building firm only have to pay a fixed amount of €600 for registration, mortgage and cadastral taxes;
- Reduction of registration tax from 9% to 2%: people who purchase a property from a private seller can benefit from a 7% discount on registration tax. Please note that the percentage is calculated on the cadastral value of the property and not on the actual purchasing price;
- A reduced amount of €50 for fixed mortgage and cadastral taxes respectively;
- Tax credit: if you sell your first house within 12 months from the date you purchase your new property you can benefit from a reduction of your tax credit. In other words, you can deduct the amount of tax you already paid when you purchased your previous house from the total amount due.
You can qualify for a tax deduction if you fall into one of the following categories:
- you are an Italian citizen, you are purchasing your first house in Italy and you are moving your residency there;
- you are not an Italian citizen but you reside in Italy and the house you are buying
will become your primary place of residence; - you are an Italian citizen living abroad, you are registered with the AIRE and you are purchasing your first house in Italy even if you will not move your residency there. If you fall into this category you will need to provide the certificate of registration with the AIRE or a self-declaration to prove your status as an Italian citizen living abroad;
- you are buying your second house in Italy which will become your primary place of residence and you will sell your first house within one year from purchasing your second house. The commitment to sell your property must be stated in the purchase deed. If you do not fulfil your commitment you will not be eligible for the tax deduction and you will be required to pay a penalty fee.
The main requirement to obtain the tax breaks is that you do not own another house in Italy for which you already obtained a tax deduction. If you do, you will need to sell it within one year from the date you purchase your new house. Furthermore, you cannot benefit from the tax deduction on your first house if you already own a property in the same municipality where you intend to buy the new property. However, in order to obtain the tax deduction, you must be a resident in the municipality where the property you are purchasing is located. If you reside in a different municipality, you will need to update your residency within 18 months from the date you purchase your property, and the purchase deed must include a declaration stating your intention to move your residency. In order to establish your residency in a municipality you will need to go to the Town Hall to submit the required paperwork and the Local Police will verify that you live in the property where you intend to establish residency. If you move your residency after the 18 months this could be classified as tax avoidance and you may lose your right to tax benefits.
Finally, if you are under 36 years old and your ISEE (Equivalent Economic Situation Indicator) does not exceed €40,000 per year, you will fall into the “young people” category and you will benefit from additional deductions; in particular you will receive tax credit equal to the VAT paid to the seller which can be used to receive a reduction in the amount paid for registration, mortgage and cadastral taxes on your first house. The tax credit can also be used to benefit from an exemption from paying the substitute tax on the loans granted for the purchase, construction and renovation of the property you buy for residential use. Please note that the benefits linked to purchasing your first house in Italy are valid until December 31, 2022.
In conclusion, if you are planning on purchasing your first home in Italy there are a number of requirements you need to meet in order to benefit from tax deductions. In this sense, it is important to have a good understanding of the legal and bureaucratic requirements to purchase a property. If you are planning on purchasing a property in Italy and you are seeking advice, do not hesitate to contact our team of real estate professionals who would be glad to assist you throughout the process. Feel free to contact us at info@italianrealestatelawyers.com.
