What Taxes Will You Pay when Buying an Italian Property?
Isabella Zammit, Friday, 15 November 2013
This article is part of a series of 8 articles about buying property in Italy. The other articles in the series cover the following topics:
Buying Italian property involves more than the cost of the property alone. You’ll have to take into account the various costs of buying and the taxes. In this article we’re going to discuss the issue of taxes. There are more taxes than you think and a number of nuances which influence the amount of tax you pay.
VAT
Value Added Tax (VAT) is applied to practically every tax and expense you pay on buying a property. The standard Italian rate of VAT currently stands at 22%, although this is subject to change. This can add on a significant amount of money to what you pay when you buy a property.
You pay the VAT directly to your public notary upon signing the final contract. They’re a representative for the state and it’s their responsibility to deposit any tax money with the government.
This will automatically be added to the final bill. You don’t have to calculate it or file a separate tax return.
Stamp Duty
The stamp duty is 10% and you’ll pay this as you would in the UK. It’s the extra tax on property transactions. It scales according to the value of the property. Unlike other countries, the purchasing price doesn’t come into it. It’s based on the taxable value of the property.
This is supposed to stop tax avoidance by simply lowering the purchasing price and making a private transaction of more money. Whilst this is supposed to work, in practice the amount you actually pay in stamp duty is 30-50% less than it would be if they decided to use the purchasing price.
Remember, the actual taxable value of a property doesn’t always influence the purchasing price. The purchasing price is an expression of what someone is willing to pay for the property not on what the property is actually worth.
Stamp duty values differ depending on who you are. A non-national might pay 10%. On the other hand, if a buyer decides to become a resident and use their Italian property as their first home they only pay 3%.
The higher stamp duty for foreigners is designed to stem the tide of holidaymakers buying cheap property and only visiting a few times each year. The Italian government don’t want areas to turn into ghost towns.
Land Registration Tax
The main tax on property is the land registration tax. It’s quite a complicated concept to understand for people coming from the UK.
The land registration tax is 10% of the declared value for what’s considered urban property and 17% for what’s considered rural property. These terms are confusing and can lead you down a bad path. What we would see as rural is actually considered urban.
An urban property is actually any area of land with a building on it. This could be a derelict building with nothing but fields around it. In the Italian tax system, it’s considered ‘urban’, despite the reality being contrary to this.
The ‘rural’ tax is only applied to land or land with dedicated agricultural buildings.
For companies who buy property, the land registration tax isn’t paid. The
y have to pay a VAT rate up to a maximum of 20% of the total value of the property. What is the declared value of the property, though?
The declared value of the property is the rateable value of the property. In other words, they only take the taxable value of the property into account. If there are any tax breaks, this value isn’t taken into account.
You need to research the tax rates in your local area. Italy doesn’t have a universal tax rate on property. It all depends on the location, the size of the house, and the category of property it falls into. This is where you need to seek help from a professional who knows about the area you’re buying in.
Another factor you have to take into account is your status. If you’re a resident moving into a primary residence, you’ll get a lower rate of tax than a non-resident moving into a second home.
Should You Become a Resident to Cut the Tax?
It might seem like a good idea to become a resident of Italy in order to cut the tax rates. This is a good decision if you already live in Italy for a portion of the year. It’s a long process, though. You’ll have to show you can afford to live in Italy and you’ll bring something of value to the country, such as in the form of specialist skills.
In most cases, it’s simply too complex and too time-consuming to consider. You could earn the same amount you pay in tax in the amount of time it takes to get your residency application processed.
Your avvocato will be able to advise you on the best course of action for you.
This article is part of a series of 8 articles about buying property in Italy. The other articles in the series cover the following topics:
Buying Italian property involves more than the cost of the property alone. You’ll have to take into account the various costs of buying and the taxes. In this article we’re going to discuss the issue of taxes. There are more taxes than you think and a number of nuances which influence the amount of tax you pay.
VAT
Value Added Tax (VAT) is applied to practically every tax and expense you pay on buying a property. The standard Italian rate of VAT currently stands at 22%, although this is subject to change. This can add on a significant amount of money to what you pay when you buy a property.
You pay the VAT directly to your public notary upon signing the final contract. They’re a representative for the state and it’s their responsibility to deposit any tax money with the government.
This will automatically be added to the final bill. You don’t have to calculate it or file a separate tax return.
Stamp Duty
The stamp duty is 10% and you’ll pay this as you would in the UK. It’s the extra tax on property transactions. It scales according to the value of the property. Unlike other countries, the purchasing price doesn’t come into it. It’s based on the taxable value of the property.
This is supposed to stop tax avoidance by simply lowering the purchasing price and making a private transaction of more money. Whilst this is supposed to work, in practice the amount you actually pay in stamp duty is 30-50% less than it would be if they decided to use the purchasing price.
Remember, the actual taxable value of a property doesn’t always influence the purchasing price. The purchasing price is an expression of what someone is willing to pay for the property not on what the property is actually worth.
Stamp duty values differ depending on who you are. A non-national might pay 10%. On the other hand, if a buyer decides to become a resident and use their Italian property as their first home they only pay 3%.
The higher stamp duty for foreigners is designed to stem the tide of holidaymakers buying cheap property and only visiting a few times each year. The Italian government don’t want areas to turn into ghost towns.
Land Registration Tax
The main tax on property is the land registration tax. It’s quite a complicated concept to understand for people coming from the UK.
The land registration tax is 10% of the declared value for what’s considered urban property and 17% for what’s considered rural property. These terms are confusing and can lead you down a bad path. What we would see as rural is actually considered urban.
An urban property is actually any area of land with a building on it. This could be a derelict building with nothing but fields around it. In the Italian tax system, it’s considered ‘urban’, despite the reality being contrary to this.
The ‘rural’ tax is only applied to land or land with dedicated agricultural buildings.
For companies who buy property, the land registration tax isn’t paid. The
y have to pay a VAT rate up to a maximum of 20% of the total value of the property. What is the declared value of the property, though?
The declared value of the property is the rateable value of the property. In other words, they only take the taxable value of the property into account. If there are any tax breaks, this value isn’t taken into account.
You need to research the tax rates in your local area. Italy doesn’t have a universal tax rate on property. It all depends on the location, the size of the house, and the category of property it falls into. This is where you need to seek help from a professional who knows about the area you’re buying in.
Another factor you have to take into account is your status. If you’re a resident moving into a primary residence, you’ll get a lower rate of tax than a non-resident moving into a second home.
Should You Become a Resident to Cut the Tax?
It might seem like a good idea to become a resident of Italy in order to cut the tax rates. This is a good decision if you already live in Italy for a portion of the year. It’s a long process, though. You’ll have to show you can afford to live in Italy and you’ll bring something of value to the country, such as in the form of specialist skills.
In most cases, it’s simply too complex and too time-consuming to consider. You could earn the same amount you pay in tax in the amount of time it takes to get your residency application processed.
Your avvocato will be able to advise you on the best course of action for you.
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