Purchasing a home in Italy is an exciting venture, but understanding the intricacies of the Italian tax system is essential, especially for foreign investors. The taxes you’ll pay when buying a property depend on several factors, including whether the seller is a private individual or a company, and whether you qualify for “primary residence” (prima casa) benefits. Berti Law Firm specializes in providing comprehensive legal support to foreign clients navigating the Italian property market. Our expert team can guide you through every step, ensuring you fully understand your tax obligations and optimize your investment.
This article outlines the tax regime for purchasing a home in Italy without applying for “primary residence” benefits. Berti Law Firm offers in-depth consultations to assess your unique circumstances and provide tailored advice.
Taxes When Buying from a Company
Generally, when the seller is a company, the sale is exempt from VAT (IVA). In this case, the buyer must pay:
- Proportional Registration Tax: 9%
- Fixed Mortgage Tax: €50
- Fixed Cadastral Tax: €50
Berti Law Firm ensures you accurately calculate these taxes, preventing unexpected costs and ensuring compliance with Italian law.
When is VAT Due on Sales?
As a general rule, the sale of residential buildings by companies is exempt from VAT. However, VAT applies in the following cases:
- Sales by Construction or Renovation Companies: If the sale is made by a construction or renovation company within five years of completing the construction or renovation, VAT applies. VAT can also apply after five years if the seller chooses to subject the transaction to VAT, which must be stated in the sales or preliminary contract.
- Sales of Social Housing: For residential buildings intended for social housing, if the seller chooses to apply VAT, this election must be stated in the sales or preliminary contract.
In these cases, the buyer must pay:
- VAT: 10% for sales and transfers of real estate rights on residential properties (including those under construction) classified in cadastral categories other than A/1, A/8, and A/9, provided that the requirements for “primary residence” benefits are not met. Otherwise, VAT is 22% for properties classified in categories A/1, A/8, and A/9.
- Fixed Registration Tax: €200
- Fixed Mortgage Tax: €200
- Fixed Cadastral Tax: €200
Berti Law Firm assists in determining whether VAT applies to your purchase, ensuring you are fully aware of all applicable taxes.
Taxes When Buying from a Private Individual
If the seller is a private individual, the buyer must pay:
- Proportional Registration Tax: 9%
- Fixed Mortgage Tax: €50
- Fixed Cadastral Tax: €50
Berti Law Firm can help you navigate these tax obligations, ensuring a smooth and compliant transaction.
Property Taxes Key Points:
In all cases (whether buying from a company or a private individual), the registration, mortgage, and cadastral taxes are paid by the notary at the time of registration. Acts subject to proportional registration tax and all necessary procedures at the land registry and real estate registers are exempt from stamp duty, special cadastral taxes, and mortgage fees.
Whether buying from a company exempt from VAT or from a private individual, the proportional registration tax cannot be less than €1,000. However, the actual amount may be lower if the proportional tax already paid on the deposit when the preliminary contract was registered is deducted.
Taxable Base for Calculating Taxes
When the sale of a house is subject to VAT, the taxable base for calculating the value-added tax (10% or 22%, as applicable) is the sale price. As mentioned, the registration, mortgage, and cadastral taxes are paid at a fixed rate (€200 each).
If the amount stated in the sale deed (and the related invoice) differs from the actual amount, the buyer, even a private individual (i.e., not subject to VAT), is jointly liable with the seller for paying the VAT on the difference between the actual and stated amounts, as well as any related penalties. In this situation, the private buyer can rectify the violation by paying the additional tax due within 60 days of the deed’s execution. They must also submit a copy of the payment and corrected invoices to the Revenue Agency within the same period.
Berti Law Firm advises on accurately declaring the purchase price to avoid potential liabilities and penalties.
The “Price-Value” System
For sales of residential properties (and related appurtenances), the law provides a special mechanism for determining the taxable base for registration, mortgage, and cadastral taxes under certain conditions and with specific subjective and objective requirements: the “price-value” system.
Implemented in 2006, this criterion offers significant benefits to home buyers. Its purpose is to ensure transparency in real estate transactions and fairness in taxation. The price-value system allows the taxation of property transfers based on their cadastral value, regardless of the agreed and stated price in the deed. This system also protects the buyer by limiting the Revenue Agency’s power to assess value.
Berti Law Firm can help you determine if you qualify for the “price-value” system and guide you through the application process.
When Does it Apply?
The price-value rule applies to sales subject to proportional registration tax (excluding those subject to VAT) where the buyer is a natural person (not acting in the course of business, art, or profession). This mechanism can be used in all sales where both parties are “private,” as well as in sales made to natural persons by non-VAT vendors (associations, foundations, etc.) and in sales made to natural persons by companies or businesses in a VAT-exempt regime.
Which Properties Qualify?
The price-value system generally applies to sales of residential properties and related appurtenances. It also applies to the purchase of homes (and related appurtenances) without “primary residence” benefits and to transfers or establishments of partial and enjoyment rights (e.g., bare ownership and usufruct) and purchases in foreclosure or at public auction. In these cases, the properties must be residential and their appurtenances.
Buyer’s Request
The application of the price-value system requires a specific request from the buyer to the notary in the purchase deed. The request cannot be included in a subsequent supplementary deed.
Stating the Consideration
In any case, the parties must indicate the agreed consideration in the purchase deed. If the consideration is concealed, even partially, the registration, mortgage, and cadastral taxes will be calculated on the actual amount agreed upon, not on the cadastral value. A penalty ranging from 50% to 100% of the difference between the tax due and the tax already applied will also apply.
However, if the cadastral value stated in the deed is lower than that resulting from the correct application of the coefficient established by law, the price-value rule is not disapplied. In this case, the Revenue Agency does not assess the market value of the property but requests the additional tax resulting from the correct cadastral value.
Berti Law Firm ensures all aspects of the transaction are transparent and compliant, protecting you from potential penalties.
How to Calculate Cadastral Value
The cadastral value of residential buildings (other than “primary residences”) is determined by multiplying the cadastral income (revalued by 5%) by a coefficient of 120.
Cadastral Value = Cadastral Income x 1.05 x 120
In summary, the price-value system applies if:
- The building being purchased is for residential use (i.e., only homes, with or without “primary residence” requirements).
- The buyer is a private individual not acting in the course of a business, art, or profession (e.g., not for purchasing a professional’s office).
- The buyer explicitly requests the notary to apply the price-value rule in the purchase deed.
- The parties state the actual amount agreed for the sale in the deed.
Berti Law Firm assists you in meeting these conditions to take full advantage of the price-value system.
Price-Value Also on Appurtenances
The price-value system also applies to the purchase of appurtenances to residential properties (without quantitative limit and even if made with a separate deed), provided that:
- The appurtenance has its own cadastral income.
- It is possible to identify with certainty that the appurtenant asset is accessory to the principal asset (which must be a residential property).
- The appurtenant relationship is stated in the purchase deed.
Berti Law Firm ensures that all appurtenances are correctly identified and included in the application of the price-value system.
Advantages for the Buyer
Buyers who choose to apply the price-value system, in compliance with all legal requirements, enjoy significant benefits, including a limitation on the Revenue Agency’s power of assessment for both registration tax and income tax (IRPEF).
For buyers using the price-value system:
- The Revenue Agency cannot proceed with a value assessment for registration tax purposes, except in cases of concealment of all or part of the price agreed upon.
- The rules on assessment for income tax purposes based on simple presumptions do not apply.
- The law provides for a 30% reduction in notary fees.
Berti Law Firm ensures you receive all applicable benefits, reducing your overall costs and minimizing potential tax liabilities.
Substitute Declaration
In real estate sales, even those subject to VAT, the parties must include a substitute declaration of affidavit in the deed, in addition to the specific declarations regarding the application of the price-value system and the existence of “primary residence” benefits. This declaration must contain the following information:
- A detailed indication of the payment methods for the consideration (check, bank transfer, etc.).
- Whether a mediator was involved in the transaction and, if so, all identifying details of the owner (if a natural person) or the name, corporate name, and identifying details of the legal representative (if an entity other than a natural person), the VAT number, the tax code, and the registration with the Economic Administrative Index (R.E.A.) of the Chamber of Commerce.
- The expenses incurred for the mediation activity, with detailed payment methods.
Agents not registered in the “Mediation Affairs” register
The notary must report agents not registered in the “Mediation Affairs” register to the Revenue Agency.
In the event of omitted, incomplete, or false indication of the data to be included in the substitute declaration, an administrative penalty ranging from €500 to €10,000 will apply (in addition to the criminal penalty for making false declarations). Furthermore, the sale is subject to a value assessment for registration tax purposes, even if the parties requested taxation based on the cadastral value.
To prevent sales of urban real estate units not compliant with cadastral regulations (properties not reported to the land registry or that have undergone changes never communicated), it is mandatory to indicate not only the cadastral data but also the reference to the plans filed in the land registry in the notarial deed, under penalty of nullity. Additionally, the deed must contain a declaration by the owners stating that the actual situation of the property complies with the cadastral data and plans (the declaration may be replaced by a certificate of conformity issued by a technician authorized to submit cadastral update acts). Before executing the deed, the notary must identify the cadastral owners and verify whether there is correspondence with what appears in the real estate registers.
Berti Law Firm ensures that all necessary declarations are accurately completed, preventing potential penalties and ensuring compliance with cadastral regulations.
Buying with “Primary Residence” Benefits
The taxes to be paid are reduced when the purchase is made with “primary residence” requirements. In general, these benefits apply when:
- The building being purchased belongs to certain cadastral categories.
- The building is located in the municipality where the buyer has (or intends to establish) residence or works.
- The buyer meets certain requirements.
Berti Law Firm can help you determine if you meet the requirements for “primary residence” benefits and guide you through the application process.
Reduced Taxes
The taxes to be paid when buying with “primary residence” benefits are:
- If the seller is a private individual or a company selling VAT-exempt:
- Proportional registration tax at 2% (instead of 9%)
- Fixed mortgage tax of €50
- Fixed cadastral tax of €50
- If purchasing from a company, with a sale subject to VAT:
- VAT reduced to 4%
- Fixed registration tax of €200
- Fixed mortgage tax of €200
- Fixed cadastral tax of €200
In any case, the proportional registration tax (2%) cannot be less than €1,000. However, the actual amount may be lower due to the deduction of the proportional tax already paid on the deposit (when the preliminary contract was registered) or due to the tax credit for the purchase of the “primary residence.”
Acts subject to proportional registration tax and all procedures necessary to fulfill requirements at the land registry and real estate registers are exempt from stamp duty, special cadastral taxes, and mortgage fees.
The same reduced taxes apply to appurtenances, even if purchased with a separate deed from the “primary residence” purchase.
Berti Law Firm ensures that all transactions are structured to maximize tax benefits.
Taxable Base for Calculating Taxes
Sales with VAT
Even when buying with “primary residence” benefits, if the sale is subject to VAT, the taxable base for calculating the value-added tax (4%) is the sale price, while the registration, mortgage, and cadastral taxes are paid at a fixed rate (€200 each).
The Price-Value System
The price-value mechanism applies to sales not subject to VAT, even when buying with “primary residence” benefits. In this case, the cadastral value is determined by multiplying the cadastral income (revalued by 5%) by a coefficient of 110.
Cadastral Value “Primary Residence” = Cadastral Income x 1.05 x 110
Requirements for Obtaining Benefits
The tax benefits for purchasing a “primary residence” are recognized in the presence of certain conditions and only if the buyer meets specific requirements. In addition to all the information to be included in the substitute declaration mentioned earlier, the buyer must expressly declare that they meet the “primary residence” requirements (this declaration can also be made with a subsequent act that supplements the original purchase deed).
Cadastral Category
To qualify for “primary residence” benefits, the home being purchased must belong to one of the following cadastral categories:
- A/2 (civil-type dwellings)
- A/3 (economic-type dwellings)
- A/4 (popular-type dwellings)
- A/5 (ultra-popular-type dwellings)
- A/6 (rural-type dwellings)
- A/7 (villas)
- A/11 (typical local dwellings and lodgings)
“Primary residence” benefits are not allowed for the purchase of a home belonging to cadastral category A/1 (luxury homes), A/8 (villas), or A/9 (castles and palaces of artistic or historical value).
Location of the Property
To qualify for “primary residence” benefits, the property must be located in the municipality where the buyer resides or intends to reside within 18 months of the purchase. Alternatively, the property can be located in the municipality where the buyer works.
Berti Law Firm advises on property location to ensure eligibility for tax benefits.
Exceptions
There are exceptions to this rule. For example, if the buyer works abroad for government reasons, they can purchase a property in the municipality where their employer’s headquarters are located.
Another exception applies to Italian citizens residing abroad who can purchase a property as a “primary residence” in any Italian municipality.
Buyer Requirements
To qualify for “primary residence” benefits, the buyer must:
- Not own other residential properties in the same municipality as the one being purchased.
- Not own other homes throughout Italy for which they have already received “primary residence” benefits.
- Declare that they will establish their residence in the municipality where the property is located within 18 months of the purchase.
If the buyer fails to transfer their residence within 18 months, they will lose the tax benefits and be required to pay the difference between the taxes paid and the taxes that would have been due without the benefits, plus interest and penalties.
Berti Law Firm assists you in meeting all these requirements to ensure eligibility for “primary residence” benefits.
Selling the “Primary Residence”
If the buyer sells the “primary residence” within five years of the purchase, they will lose the tax benefits unless they purchase another property to be used as a “primary residence” within one year of the sale.
How Berti Law Firm Can Help
Navigating the complexities of Italian property taxes can be challenging, especially for foreign investors who are planning to buy a property in Italy. Berti Law Firm provides comprehensive legal assistance to ensure you understand your obligations, optimize your tax position, and make informed decisions. Our services include:
- Tax Planning and Advice: We provide tailored advice on all aspects of property taxes, including eligibility for “primary residence” benefits and the application of the “price-value” system.
- Due Diligence: We conduct thorough due diligence to identify potential tax liabilities and ensure compliance with Italian law.
- Contract Review and Negotiation: We review and negotiate purchase contracts to protect your interests and ensure favorable tax treatment.
- Representation Before Tax Authorities: We represent you before the Italian tax authorities in the event of audits or disputes.