Italy traditionally attracts foreign investors interested in profitable real estate investments. However, the most common mistake when purchasing properties is underestimating the tax burden, which can increase the final cost of buying and maintaining housing. The amount depends on the type of property, its value, and the owner’s residency status.
It is a mistake to assume that tax rates are the same for everyone. Without a detailed understanding, one may face unexpected expenses, such as a tax on second properties or additional fees for rental housing.
Let’s delve into detail on what property taxes an investor in Italy must pay, how the cadastral value of housing is calculated, what benefits exist when purchasing, and what additional expenses are important to consider.
What taxes does a foreign investor pay in Italy
When buying property in Italy, investors encounter various types of taxes, which can be divided into mandatory and annual fees.
Taxes on property purchase
When acquiring residential properties, foreigners must pay:
- Registration tax (Imposta di Registro) — 9% of the cadastral value of real estate in Italy if purchased from a private individual.
- VAT (IVA) — 4%, 10%, or 22% if the property is purchased from a developer.
- Stamp duty (Imposta di Bollo) — 50 euros.
- Mortgage tax and cadastral fee – 2% and 1% of the property value.
Taxes on property ownership
After purchasing a property, the following annual payments are made:
- IMU — property tax, rates range from 0.4% to 1.06% depending on the region.
- TASI — municipal service fee, rate – 0.1%–0.3%.
- TARI — fiscal waste disposal fee, amount depends on the area and number of occupants.
These property taxes in Italy depend on the property value and region. For example, rates are higher in Milan compared to southern provinces.
How is the cadastral value calculated and why is it important
The cadastral value of real estate in Italy (Valore Catastale) is the assessed value of the property determined by government authorities based on the property category, location, and type of use. The amount is usually lower than the market price, with a difference of 30-50%. The government assessment is used for tax calculation, so it is important to consider it before purchasing.
The assessed value is based on coefficients multiplied by the base price per square meter set for each type of property. Residential properties have coefficients of 110–160, while commercial properties have coefficients of 40–80. These coefficients are periodically reviewed by Italian authorities.
How the assessed value affects taxes
Several key taxes depend on the cadastral value:
- Registration fee — 9% of the cadastral assessment when purchasing property from a private individual.
- IMU — property ownership tax, calculated based on a coefficient multiplied by the base value. The higher the assessment, the higher the tax.
- TARI — waste disposal fee, directly related to the cadastral value: higher assessment leads to higher payments for municipal services.
If an investor chooses property with a lower assessed value, they can significantly reduce the tax burden. However, before purchasing, it is advisable to consult with specialists, as properties with underestimated cadastral values may have legal or operational restrictions.
What tax benefits are available to foreign investors
There are benefits for foreign buyers when purchasing property in Italy:
- First property: if the property is purchased for personal use, the registration fee is reduced to 2%.
- For residents: if residency is established, one can avoid IMU on primary housing.
- IVA rate: when buying new construction, one can benefit from a reduced 4% rate.
- IMU reduction for rented property: if the property is rented with an official contract, the IMU rate is reduced by 25%.
It is important to find out in advance what benefits are available and how to apply for them.
What property taxes need to be paid annually in Italy
Property owners in Italy annually pay mandatory taxes related to property and municipal services:
1. IMU — property tax. Required for all properties except primary residences (unless they are luxury properties like villas, castles, historic buildings):
- rate: from 0.4% to 1.06% of the cadastral value;
- payment: twice a year — in June (advance) and December (final payment).
2. TASI — municipal service tax. Covers expenses for lighting, roads, security:
- rate: up to 0.3% of the cadastral value;
- who pays: owner, sometimes the tenant.
3. TARI — waste disposal tax. Depends on the property area and number of occupants:
- calculation formula: base rate × area + adjustment based on occupants;
- payment: once a year or quarterly.
4. Rental income tax. When renting out property, the tax on income is:
- Cedolare Secca — 21% (fixed rate);
- IRPEF — from 23% to 43% (progressive scale).
5. Penalties for non-payment:
- 30% of the amount owed + late payment interest;
- property seizure is possible.
Conclusion
Acquiring property in the beautiful European country is a profitable investment, considering all the obligations placed on the buyer. Property taxes in Italy include both one-time expenses at the time of purchase and annual payments that can significantly impact the owner’s budget. Ignoring tax nuances can lead to additional expenses, while careful planning can result in significant savings. By determining the cadastral value of real estate in Italy in advance, one can correctly calculate upcoming payments and minimize the tax burden. A sensible approach to taxation is the key to successful property ownership and high return on investment.
