RESERVING YOUR PROPERTY (RESERVATION “OPTION” CONTRACT)
Once you have found a property you wish to buy, it is essential for you to sign an offer of purchase with the seller and pay a reservation deposit of between 3.000 € and 5.000 €. This contract (is like the “option” contract in the U.K. and Ireland) is proof that the property is off the market, and you are in a position to buy it.
Once the property is reserved in your name with an offer of purchase, we usually have between 15 and 30 days to gather information on the property regarding land register and legal issues. This is necessary in order to verify whether the title deeds for the property are satisfactory, and whether the person selling the property is authorised to transfer their ownership. We also carry out an exhaustive check in order to guarantee that the property is also free from any pending charges, mortgages or debts. If there are any pending charges on the property, we will take the appropriate measures to ensure it is completely settled before the legal ownership of the property is transferred to the buyer.
If you are buying a plot of land, a survey of the land can be carried out, in order to obtain its exact measurements and to identify its borders. This study will include details on whether the land has been classed as buildable, on its access points and on its surface. Likewise, it will provide information on the different building possibilities and on the buildable area, including a detailed plan that will form part of your final title deed.
If we are dealing with properties in a building phase (off-plan), we will ensure that the developer meets all appropriate legal requirements: building licence (with a detailed check made in the architectural department of the adequate municipality) and land survey (making sure that the work is taking place on regulated land).
Should our checks unveil any legal obstacles which affect the buying process, our firm will advise you in writing not to continue with the process.
In any case, and as part of our process, we will run checks on the reputation and solvency of the builders/developers, obtaining references that the property will be built (or was completed) and handed over in the terms and conditions stated.
PRELIMINARY SALE AGREEMENT (Compromesso)
Once the checks on the property have been made, and after guaranteeing that the legal situation of the property allows the sale to take place, you can sign the so-called ‘Compromesso’.
The ‘Compromesso’ is an important document containing information on the buyer and the seller, the description of the property, the price of the sale, the method of payment, the date the contract is formalised, the date you take possession of the property, etc.
Once both parties have signed the Compromesso and the deposit has been paid, the contract becomes a legally binding document.
In fact, according to art. 2932 of the Italian Civil Code, it is enforceable through a judicial order should one of the parties decide not to fulfil his own obligations.
Along with the signing of the preliminary sale agreement, the buyer shall pay the above mentioned deposit (also called ‘caparra confirmatoria’), usually in the region of 30 – 40%.
Such a sum will be obviously deducted from the total price but, should the buyer decide not to complete the purchase, it will be legally retained by the developer as a compensation.
Anyway, it is important to clarify that the preliminary sale agreement has not the purpose to transfer the property, but only to create a reciprocal obligation between buyer and vendor.
The property, of course, will be transferred at the signing of the title deed.
However, the amount payable as deposit at this stage and the structure of payments until completion varies, depending on the developer.
The guarantee of fidejussione:
In accordance with the legislative decree 122/2005 regulating the Dispositions for overseeing the real estate rights of buyers acquiring real estate assets under construction, the developer/vendor is obliged to guarantee the amounts being paid in advance by virtue of the so-called fidejussione (bank bond - insurance), that is provided either by a bank or a financial/insurance entity.
SIGNING OF TITLE DEEDS (Rogito)
The property sale process is finalised before a Notary, with the buyer and seller signing the Deed of Sale. The Notary is a public official. His or her duty consists in identifying the buyer and the seller, and ensuring that all legal requirements have been met, that the amount due to be paid has been settled and that all the payments have been tracked.
If you are unavailable during finalising of the deeds, we can take care of it by means of a power of attorney, which means we can carry out all necessary procedures in your name. In fact, and for our client’s peace of mind, it is common practice at our company to have a valid power of attorney at the beginning of all buying and/or selling operations.
Consider also that foreign buyers who do not speak Italian may appoint a translator who will be before the Notary having translated in advance the content of the contract and the will of the parties; in this case, the parties are allowed to sign the deed of sale on their own.
Generally speaking, note that according to Italian Law, only those parties who have an accurate knowledge of the Italian language are allowed to sign the deed of sale in person, because it is mandatory for every part to fully understand the legal implications arising from the contract.
Taking possession and handing over of keys
Immediately after the deeds have been signed, the buyer is handed the property keys, and can take possession of the property.
Final title deeds and property registration
The property registration procedure entails the payment of all the taxes applicable to the property and the obtention of the final register stamp for the Title Deeds, which guarantees the transfer of the property. This procedure is an important step, and takes place just after you have taken possession of your property.
Once the Property Register has returned the Title Deeds, we will arrange the best time for you to collect it from our offices, together with the rest of the documents you must keep.
BASIC NECESARY FORMALITIES
There are various basic formalities you must take into account when completing your property purchase process in Italy:
POWER OF ATTORNEY
To be your legal representative in Italy it is essential that you sign a Power of Attorney on our behalf. With this Power, we should be able to sign contracts, Deeds and all kind of relevant documentation related to your purchase process. We will draft the Power of Attorney that could be signed, at your convenience, either in Italy or through our London office. If you live in the U.K., our London office we will be able to make the necessary arrangements for you to obtain the Power at the closest Notary’s office to your home; this would include the subsequent Apostille of The Hague with which the Power has to be stamped to be valid in Italy. We will take care of everything.
ITALIAN BANK ACCOUNT
It is essential to have an account in an Italian bank in order to contract utility services and to pay them by direct debit. We will take care of opening a bank account for you in Italy.
TAX IDENTITY NUMBER (Codice fiscale)
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 either from the local tax office (Agenzia delle Entrate) or any Italian Consulate abroad.
It is required to go to completion, to obtain the mortgage, to open an Italian bank account and to become Italian resident.
It is advisable that you make a will for your property in Italy. Besides Italy, the will can be signed in your country in front of a local notary –afterwards it will be necessary to obtain the corresponding Apostille of the Hague so that is valid in Italy.
TAXES IN ITALY
The purchase of a property in Italy as a non resident, and being a resident there, involves a series of fiscal obligations which must be met:
TAXES AND EXPENSES RELATED TO THE ACQUISITION OF REAL ESTATE
All the taxes due for the purchase will be collected by the notary on the behalf of the State at the signing of the deed of sale but (in case of purchasing of new developments) the
IMPOSTA SUL VALORE AGGIUNTO (V.A.T).
VAT is applicable for the purchase of brand new properties. Usually, the applicable rate is a 10% of the purchase price, except in the case of villas and luxury properties. The categorisation of ‘luxury property’ is very restrictive and their requisites are legally evaluated. For these few cases, the applicable rate would be a 20% of the purchase price.
This tax is not applicable in re-sales.
Note that if the buyer intends to transfer his residency in Italy and that property is the first one in the country, IVA (VAT) due is just 4%, even though in this case the buyer should get the residency within 18 months.
However, consider also that there is a penalty that is due if you do not succeed with residency application and do not pay the outstanding 6%.
IMPOSTA DI REGISTRO (REGISTRATION TAX)
For real estate transactions already subject to VAT, there is a fixed registration tax of 168 €.
For purchase transactions of properties that have already been subject to a previous transmission or sold by a party not subject to VAT, the applicable registration tax is 7% of the purchase price.
Note that if the buyer intends to transfer his residency in Italy and that property is the first one in the country, the applicable registration tax due is just 3%.
However, consider also that there is a penalty that is due if you do not succeed with residency application and do not pay the outstanding 4%.
IMPOSTA IPOTECARIA (ESTATE TRANSFER TAX)
For real estate transactions already subject to VAT, there is a fixed tax of 168 €.
Such a tax is due regardless of the fact wheter the property has been purchased through a mortgage.
For purchase transactions of properties that had already been subject to a previous transmission (resales), the applicable tax is 2% of the purchase price.
IMPOSTA CATASTALE (TAX FOR INVENTORY AND ASSESSMENT OF REAL PROPERTY)
For real estate transactions already subject to VAT, there is a fixed tax of 168 €.
?For purchase transactions of properties that had already been subject to a previous transmission, the applicable tax is 1% of the purchase price.
At the end of the purchase process, notary fees have to be considered.
They are set out by the National Counsel of Notaries in relation to the value of the property.
They may be calculated approximately in the region of 2,5% of the purchase price.
TAXES RELATED TO THE PROPERTY
There is no wealth tax in Italy.
ICI (LOCAL TAX)
This is the main local property tax affecting owners of properties in Italy, unless the owner is resident in Italy and that property is his own first one.
The amount of the tax is calculated by reference to the "rendita catastale" (official value of the property) registered in respect of all properties in Italy.
The official values were, until recently, 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, and will usually be between 0.4% - 0.9% of the estimated value of the property fixed by government tables.
The actual rate is set out by the Local Municipalities depending on the size of the property, location, class and category.
ICI is paid in two instalments in June and December.
CAPITAL GAIN TAX – REAL ESTATE (plusvalenza da cessione terreno o fabbricato)
Since 2002 no more capital gain tax exists in Italy, if the owner sells after five years’ ownership.
In case the owner sells prior to five years there will be a charge (20%) to be paid to the notary at the signing of the deeds through which the property is resold.
INCOME TAX - IMPOSTA SUL REDDITO DELLE PERSONE FISICHE (IRPEF)
Residents of Italy are subject to income tax on their worldwide income, whilst non residents are subject to income tax only on income arising in Italy, e.g. rental income from a property in Italy.
A person not resident in Italy for tax purposes must still make an annual declaration of any Italian income.
The 2006 income tax rates are:) Tax Base (EUR)
33% 26,001 - 33,000
39% 33,001 - 100,000
43% 100,001 and over
You do not need to file a tax declaration if you have no income in Italy.
If you are resident in Italy, certain relief is available depending on the composition of the family, and the level of your income.
Note that it is possible to set off certain expenses against personal income (eg. Repairs, management expenses, local taxes etc.).
The Italian income has also to be declared to the country where the buyer lives.
The total of annual rental income, as indicated on the rental agreement, is considered as profit on real estate properties for the owner, and is part of the owner’s tax base.
To be more accurate, the rental income is considered to be a profit and the tax is applied on the highest of the following amounts:
- Cadastral value of the real estate, increased by 5%.
- Rental amount, reduced by 15% (or by 25% for properties located in the centre of Venice, Giudecca, Murano and Burano).
GIFT AND INHERITANCE TAX
Spouses and next relatives are charged a 4% of the value, just over € 1.000.000; within € 1.000.000 no gift and inheritance taxes for Spouses and next relatives. For other relatives to the limit of the fourth line of relationship the tax is 6% of value with an exemption of € 100.000. Where the beneficiary is not related to the donor, gift and inheritance tax will be 8% of value with no exemptions.