Francesco Papurello

PROPERTY TAX

The acquisition of real property produces a double tax burden on the owner: Personal Income Tax ( IRPEF ) and Local Municipal Property Tax ( ICI ).

Personal Income Tax ( IRPEF )

The personal income tax is paid by anyone who owns property titles, usufruct, or other titles to real property in Italy, which are or must be registered at the local land registry with its assessed value. In case of usufruct or other titles to real property, the holder of a "nude" residual property shall not have to declare income. Among the rights that shall be declared, is the right to live in the home, for instance, by the surviving spouse or the spouse seperated by a legal separation or a seperation agreement.

Real property used as the primary home, this is the home where the taxpayer and his family usually reside ( normally the same as the registered address ), are subject to tax deduction. This deduction referes to the period of the year in which the property has been used as the primary home, and the percentage of ownership. The tax is levied on its assessed local property value. ( In synopsis, the income of the primary home is not subject to income tax. )

For property units which are rented out and commercial activities are not untertaken, taxes are collected by declaring 85% of the rental income ( 75% for property situated in the city center of Venice, the islands of Giudecca, Murano, and Burano ). The total due tax is calculated from the sum indicated on the rental contract. Possible automatic reevaluation in line with the ISTAT-Index ( National Institute of Statistics ) and possible income from subletting are included; expenses of a condominium, such as, electricity, water, gas, doorman, lift, heating, etc. are excluded, should they be implimented in the rent. In case of common property the entire amount, in spite of the percentage of ownership, shall be declared.

Ownership of real property, limited to a certain time frame of the year, shall be declared, referring to the time frame of ownership. In case, the lease agreement referes to not only the living space, but also includes other units of the property with proper registered local land value, the single rental fee of each unit must be declared seperately. In order to calculate the rental fee of each unit, the basic rent of the property and the local land registry value of each unit are put into a proportional relation. Should the property owner have been sole owner for the entire year, and should the property have been subject to tenancy without legal rent control, then, the income tax is assessed by choosing the higher amount between local land registry value and 85% of the rental fee. Income tax on tenancy with legal rent control corresponds to 85% of the rental fee.

Should the taxpayer not have been sole owner, or should he have owned the property only for just a time frame of the year, we may distinguish different cases:

• property used as primary home or rented out. Rent determined by official rent control price index: multiply the land registry value with the number of days and the percentage of ownership, then divide by 365;
• property kept at disposal ( income calculated on land registry value ): multiply the three times higher land registry value with the number of days and percentage of ownership, then, divide by 365;
• property rented out and income calculated on rental income: multiply rental income with the percentage of ownership.

A tax of three times the land registry value is levied on property units kept at disposal. These are property units used as homes in addition to the primary home on behalf of the taxpayer or his family, or as property for commercial use, artistic or professional activities. A home is considered primary home, should the family members live there, even if the ownership or disposal is in another family members` name. The tax of three times the land registry value will not be levied, as on primary home, on property units put at disposal to family members at no charge. It is mandatory that the family member has his permanent address there, and is registered at the council`s register office.
Furthermore, the increased rate does not apply under the following circumstances:

• one of the units kept at disposal in Italy by a taxpayer resident of a foreign country;
• property already used as primary home by taxpayer, who temporarily relocated to another community for work reasons.
• common property used wholy as primary home by one or more joint owners, limited to the ones using it.
• property without energy, water and gas supply, and effectively not being used. It is mandatory to prove such conditions by means of an autocertification to be exhibited upon demand of the competent authorities.

Local Municipal Property Tax ( ICI )

The local municipal property tax is paid by anyone who owns property, buildings, construction land and agricultural land within the state of Italy; Buildings are property that are or must be registered at the local land registry.

Construction areas are considered part of the building and are not subject to ICI taxation. In fact, they are seen as integrated part of the whole property, and are included in the property`s income.

Newly constructed buildings are subject to taxation upon completion of construction work, or in case of prior completion, upon the effective usage of the building.

Concerning the common areas of the building with own proper land registry value, ICI tax is paid and declared directly by the administrator on behalf of all the condominiums. Common areas without a proper land registry value are excempted from the taxation. ( e.g. assets which cannot be assessed; staircase, roof, balconies, hallway, cellar ways, etc.).

The taxpayers` "primary home" enjoys tax benefits. Primary homes are:

- taxpayer owns home by means of title to property, real estate, and other real rights;
- the home in which the taxpayer and his family usually reside.

A home does not qualify for primary home, should the concerned party, not owning other properties, rent an appartment elsewhere. On the other hand a home is considered the owner`s primary home, should he live together with individuals, who cannot be considered family. In this case, the owner has no marital status, nor kinship, nor affinity with the individuals ( cohabitation ). Such circumstances are not part of family concepts recognized by the fiscal legislation.
Hence, the concept of primary home is not linked to the registered address: the Minister of Finance, took position on this more than once, stating that the permanent residence might not coincide with the registered address, and if tax deductions or reductions of tax rates are expected, it has to be referred to the permanent residence and not the registered one. Furthermore, the taxpayer may take advantage of the tax deduction even if he lives permanently in a home other than his official residency, or out of his community.

Now, referring to the primary home, communities may apply a lower tax rate under the following conditions:

• Property units immediately used as primary homes by people and partners of real estate partnerships;
• Property and real property owners etc. excempted from tax, for the property units rented out, under the condition, that the rental contract is registered and the property unit is used as the primary home by the tenant.

Furthermore, a tax deduction of € 103.28 for the primary home is granted. This deduction referres to the time period of the year, in which the property unit has been used as a primary home.

Property units with title to property or real estate owned by Italian citizens with residency outside the state of Italy, are automatically considered a primary home, should the property unit not be rented out.

The following table illustrates the criteria on which tax deductions for primary homes are granted.