Italy is one of the most popular destinations for relocation, particularly among American, British and European Expats. In a bid to foster this trend, the Italian government has introduced a whole raft of tax benefits to help incentivize foreign investors, retirees and professionals to purchase property in the country.
Italian property offers foreign buyers decent investment opportunities. Not only because you can find some great bargains but also because of the tax deductions and benefits that you can enjoy.
How To Qualify For Tax Benefits As A Foreign Buyer.
You are entitled to tax deductions when you buy a property in Italy if you fall under a number of main categories. If you are planning to purchase an Italian property and are unsure about whether or not you qualify for deductions it’s always worth seeking advice from a local lawyer or real estate agency.
Eligibility For Tax Benefits In Italy.
The following are the main categories that are eligible for tax deductions on a property in Italy. However, there are variations in the rules between different cities and regions so if you’re having trouble navigating the fairly complex system of bureaucracy then you can seek further advice from your estate agent or a local lawyer.
If you are not an Italian citizen but you are a resident in Italy and are buying a property as your primary residence then you are entitled to tax deductions. This applies to Expats who already live in Italy; for instance, you are currently renting a house but then you buy a property to live in as your primary residence. Equally, if you are a foreigner who is purchasing a property in Italy to relocate to then you also qualify for tax deductions.
You are purchasing a second property in Italy that you intend to move into and make your primary residence. If you plan to do this you will need to sell your original property within 1 year of buying your second property. You must commit to selling your first property in the purchase deed and if you fail to sell your first property you will not be eligible for any tax deductions and may also have to pay a penalty fee.
You must be an official resident, or in the process of obtaining a residency permit in the municipality where you purchase the property. If you don’t currently live in the municipality where you are buying the property then you need to update your residency status within 18 months of purchasing the new property. The property’s purchase deed must also state that you intend to make the property your primary residence.
To officially establish your residency in a municipality you should visit the Town Hall to submit the relevant paperwork. You will also need to verify your new residency status with the local Police in the municipality. If you fail to register your new residency status in the municipality within 18 months this could be classified as ‘tax avoidance’ and you may either face a fine or lose your right to benefit from the available tax deductions altogether.
If you are under the age of 36 and earn an income that is less than 40,000 Euros per year then you may be able to benefit from additional tax deductions. For example, you may be eligible for a tax credit that is equal to the VAT paid to the seller which you will receive in the form of a reduction in the amount that you need to pay for mortgage taxes, cadastral taxes and registration fees.
Purchasing A Property – Italian Residency Rules.
In order to officially register as a resident in Italy for tax purposes you must commit to living in the country for a minimum of 183 days per year. This means that you can still visit home each year and spend almost half the year outside of Italy while still retaining your official Italian residency status.
However, if you spend less than 183 days of the year outside of the country you are considered to be a non-resident for the purposes of tax. If you do decide to move out of the country or spend the majority of the year elsewhere you are required to de-register your residency.
Failing to properly register or deregister your residency status can lead to legal complications and even fines if you are deemed to be avoiding tax.
Tax Benefits To Foreign Buyers Of Italian Property.
Foreign buyers of Italian property can benefit from a range of tax benefits. If you are purchasing your first property in Italy to use as your primary residence then you can benefit from the following tax deductions and incentives. These calculations can be quite complicated and do vary from one region to another. Hence, it’s wise to seek advice from your estate agent or a local lawyer to ensure you are in compliance with tax regulations.
A reduction of the Value Added Tax (VAT) on the property from 10% to 4%. In addition, if you are buying a property directly from a building firm then you only have to pay a fixed price, usually around 500 to 600 Euros, for the registration fees, mortgage taxes and cadastral taxes.
If you are buying a property from a private seller then you can benefit from a reduction of the registration tax of up to 7%. This percentage is calculated based on the cadastral value of the property and not the actual price that you purchased the property for.
You may qualify to benefit from a fixed rate of 50 Euros for the mortgage and cadastral taxes respectively.
You are exempted from the regular property tax (IMU) if you are classified as a resident and the property is your primary residence, as long as the property is not categorized as a luxury property.
Superbonus Tax Deductions.
Many Expats choose to buy a rundown property in Italy in order to renovate it and create the home of their dreams. If you decide to renovate a property in Italy you can benefit from significant offsets against your income tax for much of the renovation work that you undertake.
However, for anyone who has recently bought a property in Italy, regardless of its current condition, there are several main categories of renovation and property improvement that will qualify you to claim a tax credit of up to 110% of the cost of the work. This means that you claim the expenses for a lot of the renovation work against your future income tax bills. When you claim the expenses against your income tax you will usually have to do so in equal installments over the next 5 or 10 years. Alternatively, you can sell it to a back which is what I chose to do. You submit the documents to the bank, the bank will take a percentage (typically 1%) and give you the rest of the money.
There are two main categories of renovation and home improvements that qualify for the Superbonus 110% tax credit scheme in Italy. The first category is Primary Improvements and the other category is Secondary Improvements.
Primary Improvements to a property include adding a new external coating to the building or replacing an existing heating system. Secondary Improvements to a property include replacing windows, installing solar panels or adding an E-Vehicle charging station.
Seismic Improvements To Your Property.
Italy has been hit by some pretty major earthquakes over the years that have caused wide-scale damage and destruction to property and businesses. As a result, in 2017 the Italian government introduced new tax benefits for owners who upgrade a property’s seismic resilience to help mitigate future earthquake damage.
This work can be quite expensive but you can claim back up to 96,000 Euros for seismic improvements against your future income tax bills. As well as gaining tax benefits from seismic improvements you’ll also be able to rest easy knowing that you’ve done all you can to protect your property from future earthquake damage.
Energy Efficiency Improvements To Your Property.
The Italian government takes its commitments to a Greener society very seriously and consequently, you can claim up to 65% of the costs of improving your property’s energy efficiency. The regulations are quite complex so you should always check with an industry professional to confirm that the improvements you are planning to make will qualify for the EcoBonus scheme, however, the main categories that do qualify include:
Replacing your Heating System with an up-to-date energy efficiency model.
Replacing the Property’s Boiler.
Installing Heat Pumps.
Installing a Hybrid Heating System.
Installing a Micro Generator.
Installing Solar Panels.
Upgrading the building’s External Coating with an energy efficient material.
Replacing old windows with energy efficient alternatives.
Property Facade Bonus.
Sadly, many Italian towns and cities have numerous buildings which are in a poor condition, with facades that require major renovations to improve the overall look of the neighborhood. As a result, you can claim up to 90% of the cost of improving the façade of your building with renovations and upgrades back against future income taxes.
You only qualify for this tax benefit if your property is in a town or city so any property that is out in the countryside will not be eligible. On top of this, the façade of your property must be visible from a public road in order to qualify. However, it’s worth noting that balconies do qualify as a part of a property’s façade.
Tax Bonus For Buying Furniture.
Did you know you can actually claim back 50% of the cost of purchasing new furniture or A+ home appliances for your property? You can claim 50% of the cost up to a maximum of 16,000 Euros against your future income tax bill. However, in order to qualify for this tax benefit you need to have undertaken renovation work on the property first. You will also need to pay for the furniture or A+ home appliances using a bank transfer, debit or credit card so you can prove the expenses.
Garden Improvements For Your Property.
Making improvements to your property’s garden can qualify you to claim up to 36% of the costs back against your future income tax bills. However, this only applies to individuals and so limited companies do not qualify for this benefit. You will also need to pay for the garden improvements using a traceable form of payment such as a debit or credit card or a bank transfer. If you qualify for this tax deduction you can claim it back against your taxes in 10 equal installments.
Summary – Tax Benefits Of Renovating A Property In Italy.
It’s important to remember that everyone’s individual circumstances are unique and so it’s always worth seeking the advice of a professional in law, real estate or accountancy to find out exactly which tax benefits you qualify for. It’s also worth noting that there is a maximum limit of 110% of the total costs of renovation and property improvement that you can set against your taxes in any given year.
Even so, the numerous tax benefits, tax relief schemes and potential income tax deductions that are available in Italy make purchasing a property very appealing for many Expats and investors.