Tax management for properties in Italy
Being fully cognizant of Italian tax legislation, and aware of its minutiae and technicalities, is vital for a foreign investor. Will one be taxed? How much? When? are crucial questions which undoubtedly affect an entrepreneur’s decisions as regards to what to purchase and how to handle it. Looking at current Italian legislation in the matter of taxation on income generated by properties the Italian Tax Authorities’ recent response n. 278/20 specifically rules that the renting of properties is suitable to be configured as land income generation and consequently be regulated in compliance of articles 36 and 37 of the Italian Income Tax Code (TUIR).
However, should the subject who carries out the rental activity be a legal subject organized in the form of a commercial entity, this income is to be qualified (pursuant to art. 6 of the TUIR) and regulated as business income. An important detail prospective foreign investors should be attentive to is that the number of units available for rent is in no way relevant as regards determining the correct classification of the income.
What is considered decisive, when establishing whether a rental is an entrepreneurial enterprise or not, is if it includes certain specific elements which can determine a business-type rental activity classification. Precisely, what counts is the existence – or nonexistence, of factors such as the supply, alongside the provision of the home, of additional auxiliary services which are not necessarily connected with the residential purposes of the property in question. Good examples of these components are, for instance. the provision of meals, supply of cars or other rental vehicles, or the offer of tourist guides or other similar collateral services. Namely, those types of subsidiary and complementary services which lead to rightfully assume that an entrepreneurial organization exists. Other determinant factors are the presence of employees, use of a real “office”, use of an organization of implements and human resources and, finally, the use of other possible production factors.
Tax regime applied to short-term rentals, i.e. touristic rentals
According to Italian fiscal law a specific tax regime is applied to short-term rentals, i.e. touristic rentas. As per current legislation, short-term leases are those rental contracts for residential properties entailing a duration which does not exceed 30 days. The regime also applies to those rental contracts which also provide linen supply and cleaning services, and are stipulated by individuals, outside the ”exercise of business activities directly or through subjects who carry out real estate brokerage activities, or subjects who manage telematic portals, putting people looking for a property in contact with people who have real estate units to rent”.
The provisions of art. 3 of the Italian Legislative Decree n. 23/2011, establish that individuals can benefit from the 21% flat tax (cedolare secca) instead of the regular taxation (which is calculated on the basis of the complessive income of the landlord). These provisions also apply to gross payments deriving from sublease agreements and from contracts for consideration concluded by the borrower concerning the use of the property by third parties. A regulation on the proposal of the Minister of Economy and Finance allows us, for the purposes of this article, to define the criteria according to which the rental activity is presumed to be carried out in an entrepreneurial form. This, in accordance with article 2082 of the code civil and with the discipline on business income referred to in the TUIR (Italian Income Tax Code) as concerns the number of real estate units rented and the duration of the leases in a calendar year. Law n. 178/2020 introduces a new limit, that brings the number of properties which stand on the national territory and belong to a single owner or manager to four (4).
A relevant point, which should be duly noted inasmuch as the recent appeals and calls to action brought forth by non-hotel associations and property managers against the limitations on short-term rentals have remained unheard. In conclusion, the law as standing aims to make the short-term rental market more balanced than the hotel world.
The above detailed information showcases how knowing one’s way through the legal and fiscal requirements, and bureaucratic issues, of setting up and running a hospitality business in Italy is both crucial and challenging. Our extensive proficiency in the fields of commercial property consultancy, legal and fiscal advisory service and property management allows us to provide foreign investors with all-round assistance every step of the way.
What we can provide:
- advisory consultancy on the applicable law and regulation for running hospitality activities in Italy;
- advisory consultancy on taxation and drafting of accurate tax planning.
- reliable comprehensive advice as to what is the best commercial entity to establish to run a specific rental activity;
- detailed information and advice on the tax impact of establishing a branch in Italy;
- bookkeeping of the payment of the taxes in Italy and eventual penalties issued by Italian Tax Authorities/ payments VAT/ payrolls and payslips of the employees of the Italian branch;
- full assistance in obtaining the necessary licences when and where needed;