Introduction

The information contained in this document relates only to people not resident for tax purposes in Italy. A person is resident for tax purposes if:

• They are physically present in Italy for more than 182 days in any calendar year;
• Their main home is in Italy;
• They are in business or employed in Italy

There are other rules that can capture you as a tax resident in Italy. It is impossible to give tax advice without detailed knowledge of your personal circumstances.

You should, therefore, treat this document as no more than background reading designed to give you some idea of the structure of the tax system in Italy. We can accept no responsibility for any action that you take or fail to take as a result of reading this document. The Italian tax system in more complex than most and taxes in Italy seem to change more than in any other country we deal with - and to be subject to a wide range of interpretation! You will need to seek up to date advice.

The machinery of tax collection in Italy

The Italian Authority responsible for the collection of taxes is the “intendenza di finanza” (intendenza). This is organised on a local basis. In each commune there is an office of intendenza.

There is an important difference between the way in which the Italian and the British collect their taxes.

In Italy it is your responsibility to obtain a tax form (usually, but not always, from the local tobacconist or newspaper shop!). It is your responsibility to complete the form and to calculate the amount of taxes that you owe to the State. It is then your responsibility to submit the form to the tax office together with the appropriate amount of tax payable.

Taxes payable on the transfer of property

• Imposto de Registro (Registration Tax)
  
  This is a tax payable when you purchase either agricultural land or a house, apartment or building plot. It varies from 3 - 10 per cent of the declared value of the property as expressed in the Rogito (Deed of Conveyance. For non-residents buying a holiday home it is usually 7 per cent.
  
  This has led people to be tempted to under-declare the value of the property. Though this practice was and is widespread, IT IS A SERIOUS MISTAKE. Severe penalties are payable in respect of under declarations which, in addition, can lead to monumental Capital Gains Tax headaches at a later date, as the declared value on your purchase is the base line used by Authorities when assessing the Capital Gain you make on the disposal of the property. Imposta sul Valore Aggiunto (VAT).
  
  This is charged at 10 per cent on all new property except luxury homes, which bear 20 per cent. It is usually included in the advertised price of the property.
  
  Notary’s Fees
  These vary according to the value of the property, the number of pages in the documents prepared and various other factors. They would normally be about £1,500 for a £70,000 house.
  
  Estate Agent’s Commission
  This is not strictly a tax but is included here for the sake of completeness. In Italy the buyer will often be expected to pay all or part of the Agent’s charges. These typically vary from 5 - 8% of the price of the property.
  
  All together, the cost of buying a holiday home in Italy usually comes to about 15 per cent of the price of the property.

Property taxes

• Imposto municipale (Local Taxes)
  This is the main local property tax affecting owners of properties in Italy. The amount of the tax is calculated by reference to the “rendita catastrale” (official value of the property), registered in respect of all properties in Italy.
  
  The official values were, until recently, very very low. They are now rapidly rising, pursuant to a policy of the Italian Government that will result in the official values approaching the real value of the property.
  
  In general terms, local taxes will cost less than taxes on a similar property in the UK.
  
• Tassas Comunales
  Some Municipalities raise additional taxation in relation to the services that they supply to people in the area. These may include rubbish collection, cleaning of the streets and beaches etc.
  
  Municipalities also have the right to raise a charge for the use of a vehicle in their area. Not all do so. The amounts of these charges are not generally high. also have the right to raise a charge for the use of a vehicle in their area. Not all do so.

Wealth Tax

There is no wealth tax in Italy.

Imposto sul Reddito delle Persone Fisiche (IRPF) (Income Tax)
A person not resident in Italy for tax purposes must still make an annual declaration for income tax.

The Italian Authorities are only concerned with the income you derive from activities in Italy, not your worldwide income.

Typical examples of this will be interest on any money you have on deposit with an Italian bank or income you derive from letting your apartment or house.

If you let your house you will have to declare the income received. You will be able to set off certain expenses against that income - repairs, management expenses, local taxes etc. The residue is taxed at between 19 and 46 per cent, depending on the amount. For most people it will be about 30 per cent.

As this income is part of your worldwide income, it will have to be declared to the British Tax Authorities but double taxation relief does exist as a result of a Treaty between the two countries.

You do not need to file a tax declaration if you have no income in Italy.

National Income Tax

There is also a tax to pay upon the notional rental value of your house, even if you do not actually rent it out. This is based on the official rendita catastrale (rateable value). It is normally small.

Capital Gain Taxes

In most cases there is no longer any capital gains tax on the sale of land and buildings in Italy.

Taxes Payable on Death

In most countries, the state likes to take a chunk of your assets when you die. How much they will receive depends largely on how well you plan your affairs. In Italy they have recently abolished Inheritance Tax for most people. Many think this is a political gimmick and that the policy will be reversed after the next change of government. As a result we are also explaining the system that existed before the abolition - on the basis that if tax is reintroduced it is likely to be something similar.

The whole system of taxation on death is very different from the English system and so poses a real danger to English people who subconsciously assume that similar provisions will apply and arrange their affairs accordingly.

In Italy, for example, there is no automatic inheritance by a wife or other joint owner of the deceased joint owner’s share in any property. If it is left by will or on intestacy to the other joint owner, the gift will be taxable.

The amount of tax paid is determined partly by the size of the whole estate - as in this country - but also partly by the size of each individual inheritance. The tax is progressive - the more you inherit, the higher the rate of tax you will have to pay. Near relatives pay tax at a lower rate than more distant relatives, who in turn pay less tax than total strangers. Rates vary from 0 - 60 per cent.

Near relatives are also entitled to receive a sum tax-free. Spouses and children about £80,000 each, brothers and sisters about £33,000. More distant relatives and strangers are not.

An estate of, say, £200,000 can therefore produce a large tax bill if it is all left to one person - especially a non relative - and little or no tax bill if it is divided amongst a number of beneficiaries who are close relatives.

Putting all of these things together, there is great scope for minimising tax payable on death. In general terms, dividing your assets between your husband/wife and children tends to produce the lowest tax bills.

Penalties are imposed if the tax due is not paid within six months of the date of death.

In many cases where sizeable tax payments are going to be a problem, it is possible to dispose of the assets during the owners lifetime much more cheaply than in his death.

VAT

As in England, most transactions in Italy involve the payment of VAT. The normal rates are 4 and 10 per cent. Transactions involving luxury items can carry a rate of 20 per cent.

Fiscal representatives

We consider any person who has dealings with Italy should appoint a fiscal representative.

A Fiscal Representative is a person who undertakes on behalf of the taxpayer all dealings with the Italian Tax Authorities.

The Fiscal Representative can be a friend or a professional adviser and does not necessarily need to be an Italian national.

The appointment of a Fiscal Representative is the only way in which you can be sure that the Italian Tax Authorities, unable to contact you because you are not in the country, do not take damaging and expensive action against you to collect any sums of taxes which they allege to be due. We can advise you concerning bodies able to act as your fiscal representative in Italy.

Appeals

As in most countries, if you disagree with the amount of tax that you are required to pay you can appeal against the decision of the Tax Authority. We can advise you concerning this.

Codice Fiscale (Tax Code)

This is an identification number for use in Italy.

If you have dealings within Italy - even if you are not full time or tax resident - you are required to have a number.

This is obtained from your local tax office. However tempting it may be not to bother obtaining this number you will find that it will cause you great inconvenience in the future.

What do I do next?

We are used to acting for clients from all over the world and, generally, find that it is not necessary to meet in order to deal with their tax affairs in Italy. Of course, we are delighted to meet to discuss matters personally if that is convenient for you.

Biography

John Howell is a partner in the international law firm John Howell & Co, which is based in London. They are the only firm of English lawyers who do nothing but work involving continental Europe and Dubai. Mr Howell is the author of the Sunday Times guides to buying a property in France, Spain, Portugal, Italy & the USA. He has also written the two “Advising the Private Client with Problems Overseas” volumes of Butterworth’s prestigious Encyclopedia of Forms & Precedents - a core resource for law firms in England & Wales - and a number of other books and publications.

For more information please visit: www.lawoverseas.com