BUYING ITALIAN REAL
ESTATE: AVOIDING THE PITFALLS
Index:
1)
Introduction
2) Choice of property searches and
negotiations
3) The preliminary contract (Compromesso)
4) Contracts for buildings under
construction
5) Pre-completion formalities, the Deed
of Purchase (Rogito)
6) Post completion formalities
Buying a
property in Italy can be exciting.
However, excitement can quickly turn
into disappointment for foreign buyers,
when they encounter the difficulties
usually associated with this kind of
complex legal transactions in Italy, a
foreign language, a different tax and
legal system and, more importantly, a
different attitude to doing business.
This section concentrates on the Italian
law rules and pitfalls involved in
acquiring a house or a flat in Italy and
it is updated to May 2007.
The writer who is a qualified attorney
in Italy (Avvocato) accepts no liability
nor any responsibility for the advice in
this section, unless he is actually
professionally instructed on an actual
Italian property acquisition. This
document is intended as general
practical introductory advice only.
Professional Italian lawyers should
always be instructed in these matters,
especially if the prospective buyer is
not fluent in Italian language and has
no actual experience of doing business
in Italy.
1) -
INTRODUCTION -
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Although most exchange controls have now
been repealed in Italy and foreign
buyers from member states of the EU can
not be discriminated against, acquiring
a property in Italy is still a complex
legal process with specialized
procedures and difficulties peculiar to
the Italian market. Normally, the
purchase of Italian real estate is
arranged in three stages:
The first stage relates to the selection
of the property, survey, legal and
planning searches and initial
negotiations. Either directly or with
the assistance of an estate agent (Mediatore
/ Agente) the foreign buyer will need to
select the property, obtain some basic
information and documentation, and
negotiate the general terms of the
purchase. Sometimes, but this is better
avoided at this stage, the foreign buyer
may be asked to sign a reservation
agreement (Prenotazione), and pay a
small deposit to the agent, as a sign of
serious interest in the property.
At this stage it will also be necessary
to organize a survey of the Italian
property and also, separately all
necessary searches with the local
authorities (Comune), as far as local
planning and building regulations are
concerned. This work is usually
undertaken by a local, qualified Italian
surveyor (Geometra), who should always
produce a written, signed report.
At the same time in acquiring your home
in Italy, it is advisable to check the
legal status of the property in question
and of its owner(s). A special search
should be effected at the local Italian
land registry to check that the
purported vendor has the actual power to
sell the property in question, that
there are no mortgages / charges nor any
third parties rights, etc. This legal
search is normally effected with the
assistance of a local notary. It is
normally complex, and it will be the
task of the Italian lawyers appointed to
select and instruct the local Italian
notary on the particular points of
concern that may have arisen,
considering the Italian real estate in
question.
The second stage of acquiring a home in
Italy is usually spent in negotiating,
drafting, signing and exchanging the
preliminary contract (Compromesso), on
the basis of the outcome of the
searches. This is normally a binding
legal agreement to complete the purchase
at some future specified date, in the
offices of a local Notary Public (Notaio).
In view of the fact that this is an
unequivocal commitment to buy your home
in Italy and to pay the price, and that
a legal deposit is payable at the time
of signature, it is vital to have
acquired and carefully considered all
the documentation and search reports
necessary to complete the purchase, or,
at the very least, to have ascertained
any legal and practical difficulties /
problems, and agreed a timetable for the
vendor to sort them out before
completion.
If the preliminary contract is signed
before carrying out all the searches and
acquiring the relevant documentation as
a matter of urgency, the foreign buyer
may find that unexpected problems arise
with the Italian home, at a later stage.
Even if these problems are covered by
the terms of the preliminary contract,
the buyer may then find that the vendor
is unwilling to deal with them correctly
or to return the deposit paid, and
difficulties may follow as legal
proceedings in Italy are both expensive
and time consuming.
The position would be different if no
preliminary contract has been signed
yet. If any problem is detected with the
property at this stage, the foreign
buyer will be in a much stronger
position with the vendor, as no contract
has been signed and no deposit paid, yet
and he can simply walk away from the
proposed deal.
This is why in buying a home in Italy it
is better to collate all the relevant
documents and to effect all the searches
before exchange of contracts, to avoid
practical difficulties at a later stage.
If the foreign buyer is buying with a
mortgage (Mutuo ipotecario), it is
absolutely vital to organize a binding
mortgage agreement, or to formally
accept an irrevocable offer before
signing the preliminary contract to
acquire the Italian real estate. In any
case, it is important to remember that
Italian law requires all contracts
relating to land or buildings to be in
writing, signed by both parties.
The third stage relates to the
completion formalities, which normally
take place in the offices of a local
notary (Notaio). Italian Notaries (and
not just Italian lawyers “Avvocati”)
have a legal monopoly on the legal work
involved in actually transferring the
legal title to Italian real estate and
special duty of correctly drafting the
Purchase Deed (Rogito), to ensure their
proper execution, registration, and
payment of all Italian taxes ancillary
to the completion.
It is advisable for the foreign buyer to
obtain the assistance of Italian lawyers
(Avvocati), to organise all the required
searches and report on the outcome / the
required action to be taken, to draft
the preliminary contract, to advise on
exchange of contracts and to instruct
the notary on completion. However the
Italian lawyers will not be sufficient
to deal with the acquisition of Italian
real estate as the assistance of other
professionals as stated above, is also
required.
In this section, I shall deal with these
three stages, in the above order. A
foreign buyer should be warned that in
view of the legal, technical and
practical difficulties involved in
buying a property in Italy, it is highly
advisable to seek the assistance of
specialized Italian lawyers, at a very
early stage, possibly before signing any
document, or paying any deposit.
2) - CHOICE OF PROPERTY, SEARCHES AND
NEGOTIATIONS -
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To begin with, the foreign buyer will
need to select the area in Italy where
he wishes to buy his Italian home,
decide which type of property he is
going to be looking for and whether to
operate directly on the open market or
to seek the assistance of a local agent
(Mediatore or Agente Immobiliare).
2) (i) The agent
If, as frequently happens, an Italian
estate agent is appointed, it is
important to select the right person.
Under Italian law the agent is paid a
commission (Provvigione) both by the
buyer and the vendor, if it is a "Mediatore",
or only by the buyer if it is an "Agente
Immobiliare". It is possible to agree
other legal arrangements, whereby the
agent is paid by the buyer or the vendor
only. Usually, the Mediatore has a duty
to put both parties to the proposed sale
in touch with each other, and to inform
each of them of anything known to him
which may be material or relevant to his
clients.
Under Italian law an agent must be
registered with the local Chamber of
Commerce, and should also lodge with the
local Chamber of Commerce a specimen of
his draft terms and conditions of
business. This will involve some form of
supervision, and ensure a minimum of
professional qualifications. Where the
agent is not registered, he will be
liable to fines and other penalties and,
more importantly, may not be entitled to
the commission on the sale of Italian
real estate.
Frequently, in dealing with an Italian
agent a foreign buyer will be required
to sign a standard agency contract,
which should carefully be considered
before signature. This applies
especially to the terms relating to the
amount of commission and the time when
it will become payable. As mentioned
earlier, this or other documents offered
for signature frequently include a
"booking" (Prenotazione) for the
particular property and the payment of a
deposit. The signing of these documents
at such an early stage is to be avoided
if possible because they tend to result
in binding legal contracts to buy the
particular Italian home in any event. If
any payment is made, the foreign buyer
should keep full records, if possible a
copy of any cheque delivered / bank
transfers organised, as these
information / documentation will be
required by law at a later stage in the
transaction. The prospective buyer
should also ask for an invoice, a
written receipt and a written statement
expressly indicating that any payment
effected by the foreign buyer is on
account of the purchase price for the
property in question and will be
returned if the transaction is not
progressed. Payments in cash should be
avoided as it is illegal to effect any
payments in cash in excess of Euro
12,500 for each transaction in Italy,
under current money-laundering
regulations. Any breach could result in
heavy fines and criminal prosecution.
Other restrictive clauses may be
included in the documentation submitted
for signature to the foreign buyer, such
as limitations of liability, lack of any
legal commitments on the part of the
seller, etc. The presence of these
one-sided clauses is usually shown by
the tell tale request to sign the same
document twice. This is a requirement of
Italian law for unfair, unbalanced or
unusual clauses, and should be a warning
to the foreign buyer not to sign the
particular document, without legal
advice.
2) (ii) The searches / survey
Italian law requires both parties to a
prospective transaction to act in good
faith. Thus, before any form of legally
binding obligation is accepted it is
normal for the vendor to pass to the
buyer or their legal advisers, copy of
all the documentation relating to the
property, and to inform them of any
material fact which may affect the
decision of the foreign buyer to proceed
with the purchase of the Italian real
estate. This documentation will also
enable the buyer to organise his
searches.
Before considering any draft contract,
the foreign buyer should organize a
survey of the property with the
assistance of a local surveyor and
effect all the searches required to
satisfy himself that the property is
what it has been described to be, that
it is legally saleable and that the
Italian home is legally fit for human
habitation.
In particular, and with the assistance
of a local Italian notary (Notaio) (who
may later assist with the completion of
the acquisition), the foreign buyer will
need to check the legal title to the
Italian real estate, i.e.:
- that the property legally exists (in
the sense that it is correctly
registered with the local land
registry), that it is registered as
described, and that it belongs to the
prospective seller who, in turn, must
have a valid title to sell it, and
- that there are no third parties'
rights, mortgages or other undisclosed /
encumbrances affecting the property,
(or, if there are any, they should be
considered with great care).
With the assistance of a local surveyor
(Geometra) the foreign buyer should
check that the property:
- complies with all the applicable local
planning, building and land registry
regulations (Regolarita` edilizia
urbanistica e catastale), and with any
relevant consent / building plan issued
by the Local Authority (Comune).
- is fit for human habitation and that a
certificate to this effect (Certificato
di abitabilita') will be available,
and also that
- the vendor has complied with all the
relevant Italian tax legislation by
lodging tax returns, and paying income
tax (Imposta sui Redditi) and council
tax (ICI - Imposta Comunale Immobili),
and any other taxes or charges which may
have been due in the previous tax years.
and:
- if the vendor is a trader / commercial
entrepreneur or a company, that he / it
has not been adjudged bankrupt nor was /
has been compulsorily wound up (Fallito),
and no application to this effect are
pending against him / the vendor Italian
company (as may be applicable).
- where the property is in a block of
flats (Condominio), all service charges
due should have been paid up to date
- where the property is inclusive of
agricultural land, that there are no
tenants / neighbours having farming
pre-emption rights (Prelazione agraria)
nor any third parties rights over the
property.
It is important to ensure that the
prospective Italian home complies with
any applicable land registry planning
and building regulations, and this
should be considered with great care by
the buyer’s professionals. Breach of
this legislation may result in the
avoidance of the purchase contract and
heavy penalties. In case of any breach,
if the vendor has applied for the
benefit of a Planning Amnesty (Condono
Edilizio) as introduced by law since
1985, it will be necessary to obtain
copies of all the documentation, and to
check that it is complete and in order.
All required returns should have been
lodged with the authorities and charges
effected within the statutory deadlines.
Where any breach can be remedied, any
remedial action should be clearly
defined
These are only some of the points to
watch, but there are many others which
can not be listed here, all with
potentially disastrous consequences for
the unwary buyer and this is why the
assistance of an Italian lawyer at an
early stage is advisable.
3) - THE PRELIMINARY CONTRACT (COMPROMESSO)
-
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When all searches have been
satisfactorily completed or any problem
detected at an early stage, it will be
necessary to agree the terms of the
preliminary contract, such as the price,
the amount of the deposit payable on
exchange of contracts, and the date of
completion. Special terms may have to be
introduced to deal with any particular
problems / irregularities disclosed by
the searches or the documents submitted
by the vendor. Any remedial action by
the vendor should be clearly defined,
and a time limit to complete all
relevant procedures, agreed. A draft
contract is normally produced and
considered by both parties.
It is important to note that if the
foreign buyer is undertaking any of
these negotiations personally, he should
be very careful in drafting his letters
/ E-mails / correspondence to his
vendor, to avoid unwittingly entering
into a legally binding preliminary
contract. All the correspondence should
be marked subject to contract, with the
particular wording required under
Italian law.
3) (i) The Preliminary contract
Normally, in Italy, a contract for the
purchase of property (Compromesso) is a
legally binding agreement to complete
the purchase and to pay the balance of
the agreed price on a specified, future,
date. For this reason it is frequently
called "preliminary contract" (Contratto
preliminare), as another final contract
/ deed will be executed on completion of
the acquisition.
An Italian preliminary contract (Compromesso)
is a complex legal document, which
should always be considered with the
assistance of specialized Italian
lawyers before signature, to avoid the
pitfalls that plague the property
market, in Italy as anywhere else.
Basically, the foreign buyer should
ensure that the proposed Preliminary
Contract:
- specifically defines in detail the
property sold. Reference should also be
made to all the parcel numbers of the
relevant Local Land Registry (Catasto)
and possibly a scale plan of the
property sold should also be attached to
the contract, and
- states the amount of the deposit paid,
including a receipt for any payment
made, indicating the actual, agreed
total price for the property, and
- states without reservations / doubts
the legally binding and unconditional
commitment of the vendor to sell the
property in question on or before the
agreed date of completion, and
- deals with any existing mortgage or
third parties' right, or other problems
discovered on effecting the survey /
searches or on examining the
documentation submitted by the vendor
- includes all the required formal sworn
declarations / details required under
recent legislation issued in August
2006, to protect both the buyer and the
vendor.
3) - (ii) The legal deposit
Usually (but not necessarily nor, in any
event), at the time of signature of the
Preliminary Contract of Italian real
estate, a deposit ( Caparra) will be
payable, ranging between 10% and 30% of
the sale price of the property.
Under Italian law the legal definition
of this deposit can have serious
implications for the foreign buyer. If
the deposit paid is defined as "Caparra
Confirmatoria", it means that in case of
default in completing the sale of the
Italian real estate on the agreed terms,
the purchaser will automatically lose
the whole of the deposit paid.
Conversely, if the vendor is to blame,
he will be under a binding legal duty to
pay to the buyer twice over, the sum
originally received as a deposit. In
addition further sums may be payable, if
it is proved that the damages actually
exceed the amount of the deposit.
If the deposit is defined as "Caparra
Penitenziale " then, subject to the
actual wording of the contract, it will
enable either or both parties to the
contract to withdraw from the
transaction, by allowing the vendor to
keep the deposit paid, in the case of
the buyer withdrawing, or compelling the
vendor to return the deposit received,
where the vendor wishes to terminate the
contract.
3) - (iii) The mortgage
Where the property is subject to a
mortgage (Mutuo Ipotecario) or the
purchase is to be completed with the
assistance of a mortgage, it is
essential to deal with all the necessary
banking and legal arrangements before
signing the contract. In Italy bank
mortgages cover most of the sale price
of the property, and may be agreed in
Euros, or any other foreign currency.
Repayment may be fixed or by floating
instalments.
Obviously, where Italian home is already
subject to a mortgage, it will be
necessary to agree with the vendor that
the existing mortgage will be paid off,
and the corresponding entry on the Local
Land Registry cancelled before
completion of the acquisition. The
assistance of a local Italian notary
will be required in Italy, and the
procedure may be expensive and time
consuming. Alternatively, it is possible
to agree with the vendor and the bank
that the buyer will "take over" the
mortgage (Accollo del Mutuo) , but in
this case it is essential to check the
state of the past repayments and the
terms of the original mortgage
agreement.
In the alternative, if the property is
to be bought with a mortgage, it will be
advisable to finalize all the
arrangements (expensive and frequently
protracted in time) before committing
oneself to purchase the property.
3) (iv) Exchange of contracts and
legal protection
When all the arrangements have been
completed, and the draft preliminary
contract agreed, signature of two
identical original Preliminary Contracts
should take place, both by the purchaser
and the vendor. The two original signed
contracts should then be exchanged. At
the same time a cheque (Assegno) or a
banker's draft (Assegno circolare) for
the deposit will be handed over to the
vendor, finalizing the formalities of
this stage of the transaction.
Where a substantial time is likely to
lapse between exchange of contracts and
completion of the sale, it may be
necessary to protect the buyer’s
interest in the Italian property, by
"registering" (Trascrivere) the
Compromesso. This will prevent the
multiple disposal of the same Italian
real estate to several prospective
buyers, by fraudulent vendors aiming to
collect several legal deposits for the
same Italian property, and then
disappearing.
In practice, a copy of the "Compromesso"
will have to be lodged with the local
Registration Tax Office, and a small tax
paid. The benefit of this procedure is
that any other (subsequent) prospective
buyer on effecting ordinary searches
against the particular property will be
informed of the pre-existing, pending
agreement to sell / buy the same to the
first buyer.
Under Italian law, the first prospective
buyer to register his / her Compromesso
will effectively acquire a good right to
complete the purchase of the same
property, also against third parties.
Registration of the Compromesso with the
local tax authorities will usually
prevent declaring a lower value of the
property in the Title Deed (Rogito), an
illegal practice very common in Italy,
as the Italian tax authorities will
receive a copy of the preliminary
contract which should state the
contractual price.
This, in turn will mean that the full
amount of Italian Registration Tax (Imposta
di Registro) will be payable by the
buyer on the transaction (Italian
Registration Tax and associated minor
taxes is payable at a flat rate (either
10% or 17%) on the value stated in the
Title Deeds of the property being
acquired). There are, however perfectly
legal exceptions to this rule and for
this purpose please refer to para 5
below.
3) (v) Farming pre-emption rights
Particular care should be taken in
acquiring an Italian “villa” or even
Italian land with reference to any
statutory farming pre-emption rights (Prelazione
agraria) of tenants on the property and
of the immediate neighbours in
agricultural areas. Old and complex
Italian legislation entitles farmers,
tenants and neighbours to be notified of
a proposed sale of Italian real estate
to third parties, and to have a priority
in buying agricultural land offered for
sale, in their immediate neighbourhood.
The local Italian surveyor should, as
part of his searches and enquiries,
before exchange of contract have
informed the Italian lawyers acting for
the buyer of any applicable farming
pre-emption rights and any other
unregistered third parties' rights, and
immediately before or if impossible,
after exchange of contracts, it will be
necessary for the vendor to serve a copy
of the contract on all parties having
pre-emption rights, so that a decision
can be made by the person entitled
within the statutory term (usually 30
days).
This is something which the seller must
do under Italian law, however the buyer
has a primary interest in ensuring full
compliance with this legislation, as any
breach of such Italian statutory farming
pre-emption rights may result in the
local tenant / neighbour who has not
been duly notified, clawing the Italian
real estate back from the foreign buyer
for up to a year after completion of the
sale, thus leaving the unwitting buyer
only with a legal claim against the
seller.
4) - CONTRACTS FOR BUILDINGS UNDER
CONSTRUCTION. -
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At the end of July 2005 a new raft of
legislation has come into force in Italy
to protect buyers of residential
properties sold whilst still under
construction, or "off plan".
The wrong this legislation is intended
to remedy is basically the case of the
innocent buyer who exchanges contracts
and pays a substantial legal deposit on
an Italian home still to be built /
being built, only to subsequently find,
before completion of his acquisition,
that his vendor / builder has become
insolvent / has been adjudged bankrupt /
or even worse, has disappeared.
Typically there will be banks and other
financial institutions who have lent
funds to the vendor / builder which have
taken security / charges over the very
same Italian real estate. In such a
scenario, our innocent buyer could find
that his prospective Italian home will
be sold by the banks or that the trustee
in bankruptcy and the vendor / builder
will not complete / sell the property,
and any funds previously paid are not
refunded.
Leaving aside the technicalities and
complex definitions, this new
legislation provides that when an
Italian house / flat is sold before
being actually built / completed (off
plan) or while it is still being built,
the vendor / builder must deliver to the
buyer:
a) a bank guarantee (Fideiussione)
covering all the sums paid before
completion of the sale and delivery of
the Italian real estate, upon exchange
of contracts (Compromesso stage). This
bank guarantee must provide for the bank
/ guarantor to refund the buyer, in case
of insolvency of the vendor / builder,
within 30 days of request and upon
delivery of all the required
documentation evidencing the sums paid
the vendor / builder, and
b) a 10 year insurance policy (Polizza
assicurativa indennitaria) for all
latent defects of the house /
consequential damages caused by its
total or partial collapse, including
third party damages. This insurance
policy will be due upon completion of
the acquisition (Rogito stage).
In addition this new Italian legislation
now provides that a long list of
detailed information and technical
documentation has to be included and
expressly listed into any Preliminary
Contract (Compromesso) for the sale of
an Italian house / flat under
construction such as:
- a detailed list of all planning
permissions
- a full set of specifications of the
building being sold
- a full list of all amounts and dates
of any payment due
- full details of the bank guarantee
(mentioned above)
- full measurements and maps of the
building being sold
- full list of deadlines to complete
constructions etc.
Very useful additional buyer's
protection is also provided by this
recent legislation. Where the Italian
house / flat under construction was
delivered to the buyer, who took
possession before both completion of the
sale and the insolvency of the vendor /
builder, then whether or not an
application for refund under the bank
guarantee is made, the buyer may also be
entitled to an overriding right (Diritto
di prelazione) to acquire the property.
This right will enable the unfortunate
buyer, to acquire the house / flat still
under construction from the trustee in
bankruptcy of the vendor, with priority
over any other third party.
In addition where the Italian house /
flat under construction is to be used as
the main residence of the buyer or a
member of his family within 12 months of
completion, provided a fair market price
has been paid, it will no longer be
possible for the trustee in bankruptcy
of the vendor / builder to claim it back
(Revocatoria fallimentare) / repossess
the Italian home.
Finally this legislation provides for
the setting up of a compensation fund (Fondo
di solidarieta` per gli acquirenti di
beni immobili da costruire) to be
financed with a levy on local builders,
aiming to compensate buyers who for any
reason have lost their Italian home
following the insolvency of their vendor
/ builder. Although the funds available
are likely to be limited at least in the
near future, this fund is useful
additional protection for innocent
buyers.
With these innovations, the drafting of
a preliminary contract (Compromesso) has
become very complex, and the assistance
of qualified Italian lawyers and a local
surveyor is recommended.
This legislation will also discourage
the illegal (but very frequent) practice
of declaring a lower price in Italian
Deeds of Sale (Rogito) in order to
reduce Italian taxes payable on
completion. Considering the risk of
losing the protection of these new
provisions, it will be in the buyers`
interest to comply with the relevant
legislation, and to declare the correct
amount.
5) PRE-COMPLETION FORMALITIES, THE DEED
OF SALE (ROGITO) -
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After exchange of contracts and before
completion the parties and their
advisers are usually involved in
organizing the documentation and the
funds required to complete the
acquisition, finalizing matters already
negotiated before exchange of contracts,
remedying any breaches of land registry,
planning or building regulations and
submitting all the required
documentation to the notary selected by
the buyer.
5) (i) Duties and tasks of the
parties, before completion
Whereas the vendor should produce his
Title Deeds (Purchase Deed, or the
Italian Inheritance Tax Return duly
lodged with the Authorities, relating to
the property), all relevant planning and
building licences / certificates and all
other required information /
documentation, the buyer should organize
a Power of Attorney (Procura) or an
interpreter / translator and Italian Tax
Code Number (Codice Fiscale) for all the
persons (buyers) involved, and the
availability of the funds required to
complete.
A Power of Attorney is required when the
buyer is not going to attend to the
completion formalities of the acquisiton
of real estate in person, and wishes to
enable someone else to attend and sign
on his behalf. A Procura may also be
legally required if the foreign buyer is
not fluent in Italian, and therefore
will not, normally be allowed by the
notary to sign the completion documents,
because he cannot readily understand
them. In either case, through a "Procura"
a third party fluent in Italian should
be empowered to sign for and on behalf
of the foreign buyer the completion
documents.
Where the notary appointed consents, it
is possible to avoid the Procura, and
instead, formally translate into English
or any other language of the buyer(s)
the whole Italian title deed (Rogito).
This will require the appointment of an
interpreter / translator, but will
enable the foreign buyer to sign the
Deed of Sale (Rogito) personally. Not
all Italian notaries consent to this
procedure, so that one of the tasks of
the Italian lawyers acting for the buyer
will be to check with his client first
(the foreign buyer) and then with the
notary if this particular proposed
procedure is required and it is possible
in the particular circumstances.
An Italian Tax Code number (Codice
Fiscale) is required to enable the
notary to deal with all the
post-completion formalities, and to
comply with the various requirements of
Italian tax law applicable to the owners
of Italian real estate. Usually it can
readily be obtained by applying to the
local tax office in person, or by a
third party, with a copy of the
applicant's passport. In the case of
individuals, the Codice Fiscale is a
combination of sixteen letters and
numbers. Usually the tax office issues a
card or a passbook with all the relevant
details.
Under new legislation issued in August
2006, all parties have the legal duty to
provide to the notary the following
information, which will be repeated in
the Sale Deed, as a solemn affirmation
under oath (Dichiarazione sostitutiva di
atto di notorieta`):
i ) - the exact amount of the sale price
and exactly how and when such sale price
has actually been paid or will be paid,
ii) - whether an estate agent has been
appointed by either party, and if so his
/ her full personal details
iii) -
where an estate agent was appointed, how
much commission has been paid / will be
paid and exactly how and when such
payment was / will be effected, the
Italian tax code (Codice fiscale) and
VAT number (Partita IVA) of such estate
agent.
Where these information are omitted, or
are in any way incorrect or incomplete,
the parties to the transaction (and this
includes the foreign buyer) risk the
application of a much harsher form of
taxation on the sale of Italian real
estate which can make the purchase of
the Italian home much more expensive,
and fines ranging between Euro 500 and
Euro 10,000. It is therefore essential
to obtain to collect these document /
information and to get them right in the
Deed of Sale of the Italian home, and
again this is an essential task for the
Italian lawyers appointed by the foreign
buyer in this matter.
5(ii) Availability of funds on
completion
As far as the funds are concerned, the
foreign buyer should, at an early stage,
find out from the Italian notary dealing
with the completion of the acquisition
of the Italian home the svtual amount of
his fees, the Italian taxes payable, and
should calculate and make sure of the
availability of the funds payable to the
vendor (list of completion expenses and
taxes) and to the Italian estate agent.
The foreign buyer should also be aware
that in Italy it is illegal to effect
any payments in cash, for each
individual transaction, in excess of the
total sum of Euro 12,500. If possible
any payment in cash in an important
transaction such as the acquisition of
the Italian home, should be avoided.
For this reason, if payments are to be
effected by bank transfer, it is
important to timely open a bank account
with a local Italian bank, so that the
necessary funds may be legally
transferred into Italy by bank transfer,
and on the day of completion of the
acquisition, the required bankers`
drafts / building society cheques can be
issued by the Italian bank and collected
by the foreign buyer or his / her
representative, for use in the notary’s
office in a form which is both legal and
acceptable to the vendor and to the
Italian notary. Normally bankers drafts
/ building society cheques (Assegni
circolari) are organized by the buyer,
in readiness for completion. These are
special cheques issued directly by a
bank, and they are a guarantee that
funds are readily available and will be
paid on presentation.
It is also important to keep in mind
that for tax purposes, both in Italy and
elsewhere it is important to collate the
documentation / receipts showing the
exact amount paid to professionals
involved in the property acquisition (in
addition to the property’s purchase
price). Under recent legislation, which
came into force in Italy in August 2006,
professionals must now be paid either by
bank transfer, or by cheque (A/c payee
only), as it is illegal to pay
professional fees in cash in most cases.
There is a limited exemption, however
payment by bank transfer should always
be preferred, to avoid any cash payment,
as they will provide valuable additional
supporting evidence of any such
payments, in case of any dispute with
the tax authorities.
The Italian notary public (Notaio) is
the only professional entitled to
transfer legal title to Italian real
estate (apart, of course, from transfers
ordered by Court Judgments). Although
the notary is normally selected by the
buyer, he is an independent public
officer / professional charged with the
duty of drafting the Purchase Deed (Rogito)
finalizing the sale, ensuring that title
passes legally between the parties, and
registration in the Local Land Register.
A notary as a public official, is under
a specific legal duty to ensure proper
payment of all Italian taxes payable on
a sale / purchase of Italian real
estate.
Usually, the balance of the agreed price
is tendered in the form of bankers
drafts (Assegni Circolari ) by the
buyer, immediately before completion. A
notary is entitled to refuse to act if
his fees and all Italian taxes due are
not so tendered, beforehand. The notary
will also, before completion, deal with
the formalities relating to the
discharge / cancellation of any existing
vendor's mortgage. For ease of reference
and to reduce costs, he usually deals
with any new mortgage application by the
buyer.
5) (iii) Taxes payable on
completion
Italian tax legislation is very complex
and subject to frequent extensive
changes. It is difficult even for
professional tax advisers to keep up to
date with all the changes and their
consequential effects. Foreign buyers
are advised to check the tax
implications of the proposed Italian
real estate acquisition well before the
date of completion of the acquisition,
with specialised professionals.
It can be dangerous to rely on the
advice / suggestions of a possibly
biased vendor or his estate agent. A
“tax saving” may be immediate, however
the consequences of a wrong decision may
be long term and very expensive. Usually
the Italian Revenue have years to revise
and reconsider Italian real estate
transactions. If any irregularity is
detected corrective assessments, fines
and interests may be levied on the
unwitting foreign buyer. In the most
extreme cases a criminal prosecution may
follow. Proceedings in the Italian tax
courts are both uncertain, expensive and
protracted in time.
This section provides only a very
general outline of the taxation of real
estate acquisition in Italy. It is not
intended to be used and it should not be
used on its own to make any decision.
The foreign buyer should not rely on the
folklore that seems to have developed
about taxes in Italy. Whatever may have
been the position in the past,
circumstances have changed in the last
few years. Specialist, detailed Italian
tax advice on the particular
circumstances is always advisable.
There are three main taxes are payable
by a buyer on the acquisition of Italian
real estate, Registration Tax (Imposta
di Registro), Stamp Duty (Imposte
ipotecarie e catastali) and Italian VAT
(IVA). Normally where Italian VAT is
charged the other taxes are reduced to a
small flat charge of Euro 168 each.
Other, different, taxes are due in Italy
while letting or even simply, just
owning and possessing an Italian home /
Italian land, over the years, which are
not dealt with in this section. On the
sale of Italian real estate the seller
may be subject to Italian capital gains
tax etc., however no tax is usually
levied in Italy on an individual selling
his property, where he has held the same
Italian real estate for more than five
years.
On the other hand the buyer of an
Italian property is subject to
Registration Tax ( Imposta di Registro )
and other minor charges. All together
these taxes are usually levied by
applying a flat rate of tax (10%) to the
contract price (actual, full sale price)
of buildings, as stated in the Purchase
Deed. A different rate (17%) applies to
agricultural land. This tax can be more
than halved (reduced to 3%) if the buyer
acquires the property in Italy as his
main residence / home (Prima casa) and
makes a formal statement in the Deed of
Sale undertaking to take up residence at
the Italian home within 18 months of the
acquisition. The buyer will also pay
reduced Italian notary's fees.
New tax legislation has come into force
in Italy in August 2006. Under this new
legislation property transactions are
now subject to different forms of
taxation depending on whether the
property in question is actually
registered for residential purposes
(Immobili abitativi) that is, it is an
Italian home or flat or, on the other
hand for commercial, professional or
industrial purposes (Immobili
strumentali). In this section I shall
only deal with the properties to be used
as Italian residence or an Italian home,
falling within the first group. I shall
not deal with commercial, professional
or industrial Italian real estate
transactions.
Given that Italian Registration Tax was
levied at a flat rate on the sale price
declared in the Deed of Sale (Rogito) it
was an established custom in Italy to
declare a lower price in the Deed of
Sale in order to reduce the exposure to
Italian taxes.
This however, apart from being illegal
exposed the buyer to serious risks.
Because of this malpractice, and to
avoid continual strife in the tax courts
over the declared / taxable price of
Italian properties, legislation was
introduced in Italy in January 2006
stating that, in the case of residential
properties (as defined above) provided
the actual, true, commercial value is
clearly stated in the Deed of Sale
(Rogito), Italian Registration Tax must
be levied on a different, notional
value, the land registry value (Valore
catastale) of the same Italian real
estate. This new legislation has brought
to an end a malpractice which had lasted
for decades and shrouded the Italian
property market in a veil of secrecy.
This land registry value (Valore
catastale) is a notional value which can
be calculated by considering the
coefficients and other data appearing
next to the title of the particular
Italian real estate at the local land
registry, and it is frequently only a
fraction of the commercial value of the
property in question. Thus provided the
full commercial value of the Italian
home is correctly stated in the Deed of
Sale, it is now perfectly legal and
acceptable to pay tax on a different,
notional and frequently lower value in
Italy. This has now resulted in a
totally legal and financially
substantial tax saving for the buyer of
Italian residential properties.
This legislation has been further
amended with additional rules. This
substantial benefit (taxation on the
basis of the land registry value (Valore
catastale) of Italian real estate, in
the case of residential properties) is
now further restricted in so far as it
will apply only if both the buyer and
the vendor are acting in the sale in
their private capacity, as private
individuals and not as limited companies
or other corporate bodies, where the
overall, usual rules (including the full
rates of tax) will continue to apply.
Under the August 2006 new legislation,
different rules will apply to a sale of
Italian homes / flats, where the vendor
is a company or a commercial
entrepreneur.
In this case Italian VAT (IVA - Imposta
Valore Aggiunto) may also be due by the
buyer on the particular sale. The
legislation on this point is very
complex, but for the purposes of this
section and as a general outline only it
can be summarized as follows:
- Where the vendor company / commercial
entrepreneur sells the newly built /
restored Italian home / flat WITHIN 4
years of completion of the works, the
following taxes will be payable:
i) IVA will be due at the alternative
rates of 4%, or 10% or 20%, and
ii) Italian Registration Tax and Italian
Stamp Duty will also be payable but will
be limited to a small fixed amount.
- Where the vendor company / commercial
entrepreneur sells the newly built /
restored Italian home / flat AFTER 4
years from completion of the works, the
following taxes will be payable:
i) No IVA should be charged (IVA
esente), however Italian Registration
Tax and Italian Stamp Duty will be
payable.
Where the sale is subject to IVA this
tax must be paid on the actual, full
commercial value of the Italian home /
Italian flat.
The local Italian Tax Office has several
years from the date of completion of the
acquisition of the Italian home to take
corrective action against both parties
to the sale, where the correct and full
sale price is not declared the correct
taxes are not charged and the relevant
amount of tax is not paid. Substantial
fines may also levied.
The legislation introduced in August
2006 and later amended also provides
that in some cases, the notarial fees
chargeable on a sale should be reduced
by 30%.
As already mentioned, completion of the
acquisition normally takes place in the
notary's office. Whereas the buyer or
his / her attorney will sign and pay the
balance of the agreed price by
delivering the Assegni Circolari, the
vendor will agree to convey the Italian
real estate by signing and delivering
the same Title Deed (Rogito).
6) - POST-COMPLETION FORMALITIES
-
Return to Index
The main formality here, after actual
completion of the sale of the Italian
home is the registration of the new
Title Deed with the Authorities so that
the new buyer is registered as the new
owner at the local land registry, and
the payment of any Italian taxes due.
This is the specific duty of the notary
who celebrated the completion of the
acquisition of the Italian real estate.
Once the purchase has been completed in
the notary' office, the foreign buyer
will mainly be interested in obtaining a
certified copy of the Purchase Deed, as
lodged with the official records of the
Italian notary appointed. A sealed,
certified copy of the Purchase Deed
(Rogito) is usually available for
collection from the notary's office
within two - three months from the date
of actual completion, after all taxes
have been paid.
Formal notice of the sale should be
given by the vendor to the local police
authorities (Questura), by using a form
usually supplied by the notary.
Finally, it will be necessary to arrange
for new contracts (Volturazione delle
utenze) with the main utilities (power,
water, gas, telephone, etc.), and where
the property is in a block of flats, to
inform the condominium manager
(Amministratore del condominio) of the
transfer of the flat to the foreign
buyer.
The foreign buyer will then be able to
enjoy his / her newly acquired Italian
home / flat.
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