Purchasing of a property in Italy (real estate transactions)

 | Purchasing of a property in Italy | Global Immigration Partners

The real estate market in Italy is accessible to all kinds of purchasers from nations where an Italian national can exercise the same buying privileges (reciprocity). This includes individual buyers, corporate investors, trusts, SIPPs, and so on. 

Providing a precise timeline for the completion of this process is challenging, and like in other nations, it largely depends on factors such as the property type (whether it’s a single home or a development project), potential issues with the property (like necessary repairs or problems with building permits/planning regulations), and the pace at which financing is secured, if needed. Some of the key considerations when purchasing property in Italy are outlined below.

1. Acquisition agreement / deal, finalization and closing phase

The acquisition agreement or deal necessitates a written format and requires signing in the presence of an Italian notary, a state official. The notary ensures the transferability of the rights and checks if the property is burdened with a mortgage, levy, or any other limitation. The jurisdiction (i.e., the location for resolving any conflicts) and the contract’s law must be Italian.

The complete ownership of the property is transferred when the notary finalizes the process and records the contract in the local land registry. If any of the buyers do not comprehend Italian, the entire contract must be translated into their language and an interpreter must be appointed. Alternatively, the individual who does not understand Italian can delegate authority to an Italian speaker (typically, their attorney). This power of attorney must be authenticated in the presence of a public notary in Italy or, as is often the case, in the party’s home country. A power of attorney can be beneficial for two reasons; first, only the power of attorney (not the entire contract) needs to be translated and second, the parties are not required to be present before the notary.

The prevalent mode of payment is the issuance of a cashier’s check during the signing of the purchase deed.

Assuming there are no issues, the notary meeting typically lasts between one to two hours. While a lawyer can draft the contract, each notary tends to favour their own standard form. Consequently, the lawyer will handle the Notary’s draft and negotiate changes, if required.

2. Mortgage

The purchaser has the option to apply for a loan from an Italian bank.

A bank typically finances around 70-80% of the property’s value, subsequently registering a lien against the property. The mortgage agreement must be notarized, usually coinciding with the signing of the purchase agreement. Similar to the purchase deed, this agreement can also be signed via a separate power of attorney, provided by the mortgagee (the purchaser) to someone fluent in Italian, usually their attorney.

Having an Italian bank account usually simplifies this process. Opening a bank account in Italy is generally quite straightforward.

3. Suggestion and Initial Agreement

3.1 Purchase Proposal

This is a written contract in which the buyer unilaterally pledges to make a purchase. The proposal may include specific conditions or contingencies determined by the buyer (for instance, the property must comply with building permits and zoning laws).

Once the seller agrees to the proposal, it binds both parties in the same manner as a preliminary agreement (refer to section 3.3 below). 

3.2 Initial Payment

Along with the purchase proposal, the buyer is typically expected to provide an upfront payment (usually ranging from 0.5-3% of the total price). These initial payments, reservation fees, purchase proposals, and so on, are frequently drafted in vague language and could result in the forfeiture of the deposit. Therefore, it is highly recommended, particularly for overseas buyers, to have any proposal, contract, or document reviewed by their attorney before signing anything.

3.3 Preliminary Agreement

In Italy, especially when the property isn’t immediately available for handover to the purchaser (for instance, when the seller is a developer or is undertaking renovation work) or when certain crucial aspects are still pending (like verifying building permits) or when the purchaser doesn’t have the necessary funds yet (such as needing a mortgage), it’s quite usual to sign a “preliminary contract”. The property rights don’t transfer upon signing this preliminary contract, but from this point onwards, the seller is bound to sell, and the buyer is bound to purchase. If either party fails to fulfil their obligation, (i.e., the seller doesn’t sell or the buyer doesn’t purchase) they have two alternatives:

1. Request an Italian judge to issue an order that mandates the breaching party to fulfil its obligation, that is, to buy or sell.

2. Retain the confirmatory deposit (the seller), or demand twice the amount of the deposit paid (the buyer).

The “caparra confirmatoria” (confirmatory deposit) is a sum of money, typically 20-30% of the total cost, handed over to the seller by the buyer upon signing the preliminary contract. Its purpose is to impose a penalty if either party violates the preliminary contract, i.e., the buyer fails to buy or the seller refuses to sell.

4. Professionals needed by an overseas buyer

– Notary (Notaio) – mandatory. The buyer is entitled to select the notary who will:

– Conduct verifications and affirm that, at the point of signing the final purchase agreement, the seller/owner holds clear ownership of the property and that the property is free from mortgages, restrictions, adverse registrations, etc.

– Validate the identities and the signatures of the parties involved in the purchase agreement

– Register the agreement at the local land registry

– Handle the payment of transfer-related taxes on behalf of the purchasers.

Notary fees are typically set by a national tariff, with a minimum and a maximum for each task. We have strong connections with numerous notaries in Italy, enabling us to negotiate favourable rates for our clients.

– Attorney (Avvocato) – The attorney is responsible for drafting/reviewing and negotiating all contracts associated with the property transaction: from the directives to the real estate agent, to the ultimate purchase deed, including the purchase offer and the preliminary agreement, if required. Moreover, he coordinates the buying procedure in line with the client’s requirements and the results of technical/legal evaluations. Considering this, it is highly recommended to engage the services of an attorney, preferably one who is fluent in the buyer’s language.

– Accountant (Commercialista) – This is a necessity when the property generates income, for instance, if it’s rented out. It’s highly recommended if the buyer intends to purchase shares in a company that owns a property, such as if the property is used for commercial/agricultural purposes (B&B, agriturismo, etc). We have an internal accountant who offers accounting services to a large number of our clients.

– Surveyor (Geometra) – It’s highly recommended to get a surveyor’s report to verify the technical details and to ensure the actual condition of the property aligns with the city/town planning records, regulations, and restrictions. The surveyor is also capable of inspecting and overseeing work done on the property.

– Real Estate Broker – If necessary, a real estate broker can be engaged. The broker’s charges are typically shared by the purchaser and the vendor. According to Italian law, the brokerage fee is payable if the transaction is finalized due to the broker’s involvement. In the event of no agreement between the parties and the broker, the fee is set based on professional rates or local customs. To prevent unexpected issues, we recommend clients to enter into a written contract with the broker, outlining the agreed charges, any payable expenses, and pertinent payment terms and conditions, etc.

5. Insurance

Property insurance in Italy isn’t mandatory. However, it’s recommended, and if you have a mortgage, the bank will insist on it. Banks and insurance firms provide a range of policies covering fire, theft, and other property damage, as well as third-party liability, typically costing a few hundred euros annually. We are ready to liaise with insurance companies on our clients’ behalf to identify and negotiate the best insurance policy.

6. Inheritance

When purchasing real estate in Italy, be aware that Italian inheritance law assigns minimum percentage interests to certain classes of heirs (such as spouses, children, etc.), even if a Will suggests a different distribution of the inheritance. Typically, in nations like the USA or UK, private international law dictates that the inheritance law of the country where the property is located applies to the succession. To prevent common issues with the future transfer of these properties into the heirs’ names, we strongly recommend our clients to create and register an Italian will, the specifics of which should be reviewed by a lawyer on an individual basis.

7. Tax Considerations

When acquiring a property in Italy, the following taxes are applicable:

a. Taxes on property transfer:

the applicable transfer taxes in Italy, to be paid by the buyer, depend on several issues: the seller (if a development company, a company or private individual), the intention of the buyer (if he wishes to take out residency or not), the kind of property to be transferred (if registered as luxury property or not, or for residential use or not). 

Typically, the transfer taxes amount to approximately 10% of the property’s value. Given the above, in order to provide clients with the exact figure of the taxes due, it is necessary to receive all the relevant information.

If the buyer intends to take up local residency, the taxes come to 4% or 3% on the price of the property, depending on whether the seller is a company or private individual. To benefit from this “prima casa” (first home) tax reduction, the purchaser must secure local residency within 18 months of the closing date. Furthermore, they should not have bought any other properties nationwide using this “prima casa” discount, nor should they sell the “first home” within 5 years of the purchase date, unless they acquire another property as their main residence within a year of the sale.

Additionally, if the property is registered for residential use and the buyer is a private individual, the aforementioned taxes can be computed based on the property’s “cadastral value”, which is typically much less than the buying price.

The “cadastral value” is a figure derived by multiplying the “cadastral income” (rendita catastale) by either 110 or 120. The “cadastral income” is a monetary value assigned by the Italian Tax Office to all properties, determined through a calculation that considers factors such as the property’s size, location, number of rooms, and so on. For purchase deeds relating to the purchase of building sites or agricultural land, the registration taxes are 8 and 15% respectively, and not 10%.

All the above taxes are remitted to the notary during the final purchase deed signing. The notary is then responsible for transferring these funds to the Tax Office.

b. Applicable taxes

IRPEF (Imposta sul Reddito delle Persone Fisiche – Personal Income Tax). This tax is only payable in the event rental income is earned from the Italian property, full details of which will need to be reported in the Italian Tax Return filed yearly. When a person takes up residency in Italy, he normally pays taxes in Italy.

IMU (Imposta Municipale Unica – Municipal Tax). This is a levy that must be remitted to the local government where the property is situated (akin to a council tax). It is usually much lower compared to the UK or US Property taxes.

TASI (Tributo Servizi Indivisibili – Local services tax) + TARI (Tassa rifiuti – Local Sewage tax). These small-scale taxes need to be paid to the local governing body where the property is located. Some local authorities provide discounts if the property is only occupied for short periods or if there is a sole occupier.

8. Residency

A foreigner can apply for residency in Italy. One of the requirements to take up residency is that the foreigner must live in Italy for no less than 6 months per year. Residency has tax implications:

9. Inheritance Transfer Taxes

A “succession declaration” (dichiarazione di successione – it is highly recommended to seek the counsel of an Italian attorney in these situations) must be filed within 12 months from the date of death of the owner/co-owner of real estate properties in Italy, at the appropriate Tax Office where the deceased last resided. If the deceased did not reside in Italy, the declaration should be submitted at one of the Tax Offices in Rome.

The tax rate is contingent on the magnitude of the assets being passed on to the beneficiaries. Typically, a 3% tax is levied on the cadastral value of the assets. For assets whose cadastral value exceeds 1 million euros, an additional inheritance tax of 4% (or 6% if the beneficiaries are not the decedent’s spouse or offspring) is imposed on the amount that surpasses 1 million.

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