Taxation on transfer of real estate property in Italy
The VAT exemption and "first home" tax benefit applied on purchase of buildings
All kinds of taxes to pay when you buy or sale an immovable property
Taxes for registration of the preliminary agreement
In case the parties sign a preliminary agreement, it could happen that:
- the seller sells the same property to another person or
- the seller constitutes a right of enjoyment (for example, a usufruct) or
- that a mortgage is entered on the property covered by the preliminary contract;
in these cases, the buyer can only ask the judge for damages and not the cancellation of the sale or registration of the mortgage.
To avoid being in such a situation, the law provides for the transcription of the preliminary contract in the real estate registers; in this way, any sales of the same property or the establishment of other rights in favor of third parties will not affect the rights of the buyer.
The preliminary agreement of real estate sale must be registered within 20 days from the subscription; if it is stipulated with a notarial deed, the notary will provide for registration within 30 days.
For doing the registration is necessary:
• the payment of registration tax of € 200 euros, regardless of the purchase price;
• the stamp duty, in the amount of € 16 every 4 pages and in any case every 100 lines (if the contract is formed by public deed or by authenticated private writing, the stamp duty is of € 155).
When the preliminary agreement provides for a payment, the proportional registration tax is also due:
• 0.50% of the sums envisaged as a deposit;
• 3% of the sums envisaged as a deposit on the sale price.
In both cases, the tax paid with the preliminary agreement will then be deducted from that due for the registration of the final purchase contract.
In the event that the proportional tax paid for the deposit and for advanced payments of the price is higher than the registration tax due for the final contract, the refund of the higher tax paid for the registration of the preliminary contract is due; reimbursement must be requested, under penalty of revocation, within three years from the date of registration of the final contract. The refund request must be submitted to the office that made the registration. If in the preliminary contract it is not specified for which reason the sums have been paid, these must be considered advanced payments on the sale price.
Real estate transfer of property agreement subject to VAT
When the transfer of the property is subject to VAT, the tax treatment of the preliminary agreement will be different depending on whether it provides for the payment of a sum as a down payment or as a deposit:
• the payment of a deposit, being an advance payment of the agreed consideration, must be invoiced with VAT; in this case, the registration tax will be due in a fixed amount (€ 200);
• the confirmation deposit, even if stated by a specific contractual clause, is not subject to VAT, because it does not constitute the compensation for a provision of services or a supply of goods; therefore, the proportional registration tax will be paid (0.50%).
Taxation applicable to property purchases
The tax benefit for the purchase of the "first home" allows to pay reduced taxes on the deed of purchasing a home under certain conditions.
Those who buy from a private individual (or from a company that sells VAT-free) must pay a registration tax of 2%, instead of 9%, on the cadastral value of the property, while the mortgage and cadastral taxes is due each a fixed amount of € 50.
If the seller is a company subject to VAT, the buyer will have to pay the value added tax, calculated on the sale price, equal to 4% instead of 10%; in this case, registration, cadastral and mortgage taxes are paid in the fixed amount of € 200 each.
The taxes to be paid when buying a home depend on several factors and vary depending on whether the seller is a "private individual" or a business subject and the purchase is made, or not, with the "first home" tan benefits.
Taxes due when buying from a business subject
If the seller is a company, the general rule is that the transfer is exempt from VAT; in this case, therefore, the buyer will have to pay:
• the registration tax in prorated to 9%;
• the fixed mortgage tax of € 50;
• the fixed cadastral tax of € 50.
The sale by companies of buildings for residential use, as a general rule, exempt from VAT; however VAT is due in the following cases:
• for the sales made by companies manufacturing or doing restoration of the buildings within 5 years from the completion of the construction or the intervention or even after 5 years if the seller chooses to subject the operation to VAT (the choice must be expressed in the deed of sale or in the preliminary contract);
• the sales of residential buildings intended for social housing, for which the seller chooses to submit the transaction to VAT (also in this case, the choice must be expressed in the deed of sale or in the preliminary contract).
In these cases, the buyer will have to pay:
• 10% VAT (for the sale and for deeds of establishment of real estate right on houses (also under construction) classified or classifiable in the cadastral categories other than A/1, A/8 and A/9, if the requirements to benefit from the "first home" concessions are not met, ie VAT at 22% for the sale and deeds of constitution of real estate right concerning properties classified or classifiable in categories A/1, A/8 and A/9;
• the fixed registration tax of € 200;
• the fixed mortgage tax of € 200;
• the fixed cadastral tax of € 200.
Taxes due when buying from an individual
If the seller is an individual, the buyer will have to pay:
• the prorated registration tax of 9%;
• the fixed mortgage tax of € 50;
• the fixed cadastral tax of € 50.
In both cases (purchase from a company or purchase from an individual), registration, mortgage and cadastral taxes are paid by the notary at the time of registration of the deed.
Both when buying from a company exempt from VAT, and when buying from an individual, the prorated registration tax cannot in any case be less than € 1,000; however, the amount actually to be paid may be lower due to the deduction of the prorated tax already paid on the deposit when the preliminary contract was registered.
The deeds subject to the register tax and all the deeds and formalities necessary to carry out the obligations at the land registry and the real estate registers are exempt from stamp duty, special cadastral taxes and mortgage taxes.
Tax benefits "first home"
The taxes to be paid are reduced when the purchase is made in the presence of the "first home" requirements; in general, this benefit applies when:
• the building to buy belongs to certain cadastral categories;
• the building is located in the municipality where the buyer has (or intends to establish) residence or place of job;
• the buyer has certain requirements.
The taxes to be paid when buying with the "first home" benefit are:
• if the seller is an individual or a company that sells VAT-free:
- proportional registration tax of 2%;
- fixed mortgage tax of € 50;
- fixed cadastral tax of € 50;
• if the seller is a company whose sales are subject to VAT:
- VAT reduced to 4%;
- fixed registration tax of € 200;
- fixed mortgage tax of € 200;
- fixed cadastral tax of € 200.
Taxation for purchases not "first home"
For purchases without "first home" benefit, the registration tax (2%) cannot be less than € 1,000; however, the amount actually to be paid may be lower due to the deduction of the amount of tax already paid on the deposit (when the preliminary contract was registered) or due to the tax credit for the purchase of the "first home".
The deeds subject to registration tax and all the deeds and formalities necessary to carry out the obligations at the land registry and real estate registers are exempt from:
• stamp duty;
• special cadastral taxes and
• mortgage taxes.
The same benefit tax apply for the appurtenances, even if purchased by separate deed from that of the purchase of the "first home".
The tax base for the calculation of taxes
Sales with VAT
Also when buying with "first home" benefits, if the sale is subject to VAT, the tax base on which to calculate the value added tax (4%) is made up of the sale price, while the mortgage tax, registration tax and cadastral tax are paid in fixed amount (€ 200 each).
The price-value system
The price-value mechanism applies, for sales not subject to VAT, even when buying with the "first home" benefit. In this case, the cadastral value is determined by multiplying the cadastral income (revalued by 5%) by the coefficient 110. "First home" cadastral value = Cadastral income x 1.05 x 110.
Example of calculation of the registration tax: assuming that a house purchased with "first home" benefit, has a cadastral income of € 900 and the price paid is € 200,000:
- if the application of the price-value rule is required, the tax base on which to apply the 2% registration tax is equal to: 900 x 1.05 x 110 = € 103,950; therefore, the registration tax due will be € 2,079 (103,950 x 2%);
- if the price-value rule is not required, the tax is calculated on the transfer value (€ 200,000) and will be € 4,000 (200,000 x 2%).
To take advantage of the "first home" (so called “prima casa”) benefit, the home you buy must belong to one of the following cadastral categories:
• A/2 civil type homes
• A/3 economic type houses
• A/4 housing of popular type
• A/5 ultra popular housing types
• A/6 rural houses
• A/7 houses in small villas
• A/11 homes and typical accommodation of the places
To take advantage of the benefits, the home must be located in the territory of the municipality where the buyer has his residence. If residing in another municipality, within 18 months of purchase, the buyer must transfer the residence to the one where the property is located. The declaration of intention to make the change of residence must be contained, under penalty of revocation, in the deed of purchase. The change of residence is considered to have occurred on the date on which the interested party submits the transfer declaration to the municipality.
It is possible to get the “first home” tax benefit when the property is located:
• in the territory of the municipality where the buyer carries out his business (even if carried out without remuneration, such as, for example, for study, volunteering, sports activities);
• in the territory of the municipality where the employer is based or carries on business, if the buyer had to move abroad for work reasons;
• throughout the country, provided that the property is acquired as a "first home" on Italian territory, if the buyer is an Italian citizen who has emigrated abroad.
The benefits obtained when buying a home as "first home" may be lost and, consequently, "saved" taxes, interest and a penalty of 30% of the taxes must be paid, in the following cases:
• the declarations required by law in the purchase deed are false;
• the home is sold or donated before 5 years have elapsed from the date of purchase, unless, within a year, another property is bought back, even free of charge, to be used in "reasonable" time as one's main home; the repurchase requirement is not satisfied when only a preliminary agreement is stipulated within one year from the sale of the first property, since the asset is not transferred with this type of contract;
• the residence is not moved to the municipality where the property is located within 18 months of purchase;
• within one year from the purchase of the new property, the one already owned, purchased with the "first home" facilities, is not sold.