FINANCE AND TAX PLANNING FOR REAL ESTATE PURCHASE AND BUSINESS IN ITALY
Endangering individuals’ health and well-being, crushing economic activity, destroying lives and sabotaging jobs Covid-19 has generated an economic decline which, as the IMF has observed, is possibly the worst the world has seen since the 1930s.
The financial crisis triggered by the Covid-19 pandemic and consequent lockdowns is the most severe and far-reaching worldwide economic recession in over 100 years. Like all other countries Italy has suffered greatly. And, considering the importance of inbound tourism for the Italian economy, it is due to see the negative impact for longer still. Yet, as surveys show, while some production sectors, such as hospitality, catering, leisure and entertainment, have experienced a severe shock and are likely to be impaired for an extensive period of time, the Italian real estate market is showing very positive signals.
Reviewing the current data available for property investments, both related to private housing and commercial real estate, leads to encouraging and promising deductions. In fact, the figures show a gradual, but unmistakable, upward trend for all that concerns investments for purchases of residential and non-residential properties, including those intended for rents. Certainly related to a cultural peculiarity – i.e. how important property is for the Italians, who consider owning one’s home, and when possible investing in additional real estate, one of the very best investments – this tendency is at once reassuring and auspicious.
Investments and tax planning strategies
In detail: the first quarter of 2020 saw the gross profitability rate of buying a house to put it on the rental market at 6.7%, and in the second quarter of 2020 it had already increased by 7.4 percentage points.
What kind of real estate investment in Italy is, as of today, the most fruitful, cost/quality-effective and advantageous? A legitimate and sensible question that any prospective foreign investor interested in purchasing real estate in Italy might ask, seeking local insight and advice. The answer, based on a specific cross-market research, is quite straightforward: the most profitable real estate investment in Italy as of right now is undoubtedly in property intended for commercial use.
The impromptu survey we cite was conducted by dividing the sale price offered by the rental price requested by the properties’ owners in multiple markets, and taking into account the quarterly indexes of houses, commercial premises, garages and offices in the second quarter of 2020. What resulted is the gross percentage of return that a landlord earns by renting his home. This complex and illuminating report’s final results demonstrate that as of today the most profitable investment one can make in Italy is, without a doubt, purchasing property intended for commercial use.
Drawing a detailed picture of the current rental scenario in Italy, and thus simplifying and clarifying the analysis and evaluation of the present state of the market, this report’s results can easily serve as a helpful pragmatic basis for all foreign entrepreneurs and/or foreign companies interested in investing in Italy and purchasing real estate to have a revenue.
In fact, as the study clearly exemplifies, this type of investment registered 9.9% gross yield last quarter and 11.4% this quarter, with specific use properties revealing a soundly increasing trend. Specifically, surveys show the gross yield from the purchase of office for rent at 8.4%, where it was 8.2% a mere three months ago, and a consistent profitability for car parks purchase, which has been stable at 6.3% for a year as of today.
A foreign company which holds its fiscal residence outside the Italian territory and is interested in investing in Italy may well decide to do so, and acquire properties whether these are instrumental to the company’s business or not. However, when acquiring properties – whether instrumental or not – which are apt to produce income, the company’s management should be alert and act cautiously. The main risk is that these real estate assets be considered as a “permanent commercial establishment” (“stabile organizzazione commerciale” in Italian) by the Italian authorities. Consequently, the company would be required to establish an Italy-based branch, and tax saving options would no longer be applicable
In circumstances such as the above, having a reliable on-site legal and fiscal advisor by one’s side makes all the difference. An insider’s view of the regulation’s mechanisms and red tape, in fact, allows for careful and savvy actions which can help the foreign investing company economize. In essence, a wise and proficient legal advisor might suggest to declare that the properties owned are not instrumental, and that they generate passive income. This way the foreign company may avoid having to establish an Italian branch. Simply phrased the company can have its pie and eat it too.
Comprising discerning lawyers, accountants and real estate developers our team has the capability, professional expertise and insight it takes to knowledgeably advise a foreign company that is planning to invest in the Italian real estate market.
Namely our assistance will comprehend:
- drafting the relevant business plan and tax planning to optimize the costs of opening a Branch in Italy;
- informing the investor of all necessary documentation to establish a Branch in Italy and carrying on the required legalizations and translations of the documents;
- assisting in incorporating the Branch proceeding with signing all the papers on client’s behalf;
- assisting in the commercial property purchase process including negotiation and technical due diligence of the premise;
- assisting on obtaining VISA for those foreign employees required to move to the Italian branch;