The Italian real estate market is becoming increasingly attractive to foreigners. Multiple combined factors, from Brexit that has resulted in the shift of the center of gravity of many investment banks from London to Milan to the “competitiveness” of prices per square meter compared to other major European capitals (think of the average price of real estate in Paris or London). Moreover, the appreciation of the Italian way of life and the quality of life narrated in foreign media have contributed to the demand for real estate, particularly for high-end and luxury residential apartments in Milan, which continue to mark significant increases in average prices despite the market momentum.
The booster of tax benefits for Hnwi
Indeed, a big booster for this type of investor is the tax breaks that Italian law grants to high-net-worth individuals (Hnwi) who become new taxpayers. Regardless of the foreign income, the new resident can choose to pay an annual flat tax of 100 thousand euros and, if they intend to opt for the advantageous regime for other family members as well, an additional amount of 25 thousand euros for each member.
As it is known, this tax regime has a maximum duration of 15 years and is revocable at any time and without any cost burden. The benefit also includes
- exemption from gift and inheritance tax for assets located abroad,
- exemption from tax monitoring, and
- exemption from paying tax on the value of financial assets held abroad and tax on the value of real estate located abroad.
Here, to benefit from this favorable regime or because their office has been relocated, many foreigners set out in search of a property to buy, causing prices to soar. The first approach to the market is often complicated, especially for foreigners unfamiliar with Italian real estate law.
Who can buy houses in Italy? Analysis of individual cases
Let’s give a few pointers with this brief guide to buying, which – with some interventions, even later – will focus on convenient aspects. Let us start with a preliminary question: who can buy property in Italy?
Citizens of the European Union or Efta countries and stateless persons residing in Italy for more than three years are not restricted to purchasing.
If legally residing with their family members or stateless persons for less than three years, other foreigners must have a valid residence permit or residence card.
If they are non-regularly staying foreigners, there must be an international agreement that allows this, or there must be a so-called condition of reciprocity, meaning that in the foreigner’s country of origin, the Italian citizen is also allowed to purchase the property.
To purchase property, any foreigner must possess an Italian tax code, which is issued upon request by the Italian Revenue Agency. The application to obtain the tax code can also be submitted by an appointed professional, and the code is given quickly.
Tax benefits for the first home
If the foreign national has no other property, they can benefit from tax advantages for the first home.
Italian law wants to facilitate and encourage purchasing one’s primary home (so-called first home), decreasing taxes for those who buy it in various ways. Specifically, at the time of purchase, homebuyers pay a 3 percent registration tax if they buy from a private person, or 4 percent VAT if they buy from a company or corporation (except for a few exceptional cases), plus mortgage and cadastral taxes in a fixed amount, which are very low.
Foreigners are eligible for “first home” benefits if they meet the requirements, just like Italian citizens. The buyer may apply for the “price-value” regime to calculate the registration tax. In this way, the tax will have as a basis for calculation not the commercial price of the property, but the cadastral value (usually lower, in some cases where the property has not been subject to cadastral revisions for a long time, even to a very significant extent).
“First home” tax benefits do not apply if the property is classified as a luxury property and, therefore, as a stately home (cadastral category A1), villa (cadastral category A8), or castle (cadastral category A9).
In reality, the stately homes in cadastral category A1 are very few (they account for about 0.01% of those stacked, and, for example, in Milan, there are about 2,500), and many fine properties do not fall into this category.
These taxes apply for all properties, although not stately, that are purchased not as a first home. However, where the property you intend to purchase is included among the stately ones, the fiscal impact will have to be adequately assessed. In such a case, in addition to cadastral tax and mortgage tax (which have a fixed and very modest amount), the registration tax is 9%, and, in the case of applying VAT, the tax is 22%.
In evaluating the purchase, one must then also consider the existence of constraints on the purchase, such as historical and artistic preemptions by law (in particular existing on villas and castles), for which a waiver of the exercise of the right of first refusal must be obtained from the state and titular entities (in particular, the municipalities where the property is located) or conventional preemptions, which derive from previous leases on the property or contractual condominium regulations. In some condominiums in Milan, particularly those built in the 1940s, there are very stringent preemption clauses in favor of other condominiums, similar to what happens in some New York condo buildings.
Upcoming appointments: the figures who have a central role in the sale
In the following insight, we will delve into the figures of the agent and the notary and then continue with the forms of contract and protection that exist within Italian law, trying to give some valuable suggestions to those who are thinking of coming to live in the most beautiful country in the world.
