Corporate income tax

The standard rate of corporation tax (IRES) is 33%.  A local profit tax (IRAP) generally applies at 4.25% on an adjusted profit figure which is calculated by deducting production costs from sales value, with wages and interest expenses (for non-financial companies) not deductible. IRES and IRAP taxable bases are different, so the effective tax rate is not simply 37.25%. These taxes apply to an Italian or foreign resident company holding property in Italy and are generally reportable to the tax authorities on an accounting year basis.

Capital gains

Capital gains realised by an Italian resident company or a non-resident company operating in Italy via a permanent establishment on the disposal of property are generally taxable to IRES and IRAP at the standard rates, however IRAP does not apply to the disposal of going concerns (e.g., a functioning hotel or shopping centre).

Non resident companies with no permanent establishment in Italy are in principal subject to IRES at the standard rate on capital gains realised on disposal of

1. Italian real estate (including land) purchased or constructed in the last 5 years; or
2. the disposal of developable land.

Property tax

Any entity owning real estate in Italy is liable to pay an annual local tax (ICI) on the ‘cadastral’ value of such property as determined by the Italian Cadastral Office and then adjusted according to the nature of the property.  Rates vary locally from 0.4% to 0.7%.

Property transfer taxes

The purchase of Italian land is subject to Registration Tax, Cadastral Tax and Mortgage Tax. These are charged on the purchase price as follows:

• Any transaction subject to VAT at a standard or reduced rate is generally subject to Registration, Cadastral and Mortgage taxes at a fixed amount of €168 for each tax totalling €504, (previously €129.11 and €387.33 respectively).
• If the transaction is VAT exempt or does not fall within the scope of VAT, the Registration Tax applies at 7% to 15%, Cadastral Tax applies at 1% and Mortgage Tax applies at 2%.The purchase of shares in an Italian property holding company will generally be subject to a transfer tax at 0.14% on the share price.  Exemptions may be available in certain circumstances. 

VAT

VAT registration is compulsory for both residents and non-residents within 30 days of commencement of business activity in Italy.

VAT is charged at the standard rate of 20% or the reduced rates of 10%, 4% or 0% depending on the specific circumstances of the sale, for example:

• Purchase of commercial buildings or development land from a VAT registered entity in the course of its business is subject to VAT at 20%
• Sale of non-luxury residential buildings by a construction company is subject to VAT at 10%, or 4% in certain cases
• Sale of residential houses performed by companies other than building or real estate management companies is VAT exempt.

Sale of land that is not-developable due to zoning regulations is outside the scope of VAT.

Real Estate Fund (REF)

Italian REFs are closed-ended funds and may be formed and managed only by an Italian asset management company (SGR).  REFs are not liable to IRES or IRAP.  Profits distributed by the fund to Italian resident unit-holders are subject to withholding tax at 12.5%.  Profits distributed to certain non-resident unit-holders are not subject to withholding tax.


The above is for general information purposes only. It is not intended to be comprehensive or to provide any specific tax advice.

This article is from 'European Property', published annually by Freeman Business Information plc, www.efreeman.co.uk.

Return to the list of European real estate tax guides.