Real estate in Italy - brief regulatory framework

In order to help you to achieve your dream of relocating to Italy, on a permanent or temporary basis, please find below a Q&A document aimed at briefly introducing you to key aspects to be evaluated during the purchase of a property in Italy. This document does not constitute legal advice and is provided for your information only.

Q: Why the engagement of an Italian lawyer is important if I want to buy a property in Italy?  

A: As the Italian legal system is highly regulated, real estate transactions usually involve specific administrative, environmental (national and local) as well as tax provisions which may have a significant impact on the transaction. Your lawyer must be able to provide you with a perfect understanding of all legal aspects involved in the potential transaction since the preliminary assessment of the investment. Basically, although it may seem pretty obvious, your legal consultant shall be able to communicate directly with you in English without the intermediation of third party and make you comfortable during the whole transaction since the first approach with the potential seller (or real estate broker) until the closing of the transaction.

Q: What kind of activities a qualified Italian lawyer must provide if I decide to evaluate the purchase of a property in Italy?
 

A: First of all, according to your instructions, your legal consultant shall deal on your behalf with the potential seller and the real estate broker through the request of all preliminary data and information relevant to the property that you are interested to buy. Needless to say that if the provided package of documents and information is not complete, your legal consultant shall perform independent activities in order to evaluate if possible legal risks, existing or potential, may affect the transaction. 

By way of example only, your legal consultant shall collect all documents aimed at proving that no encumbrances or third party rights exist on the property, the property does not fall under particular provisions pursuant to a local zoning plan which can forbid you to build, pending or potential litigations relevant to the property do not exist, environmental law has been duly complied with as well as taxes connected to the property have been duly paid by the owner. Having said that, only an Italian qualified lawyer is able to perform such assessment and, as a consequence, negotiate and draft the necessary and appropriate representations and warranties as well as the requested indemnification clauses necessary to protect your investment.

Q: Can the activity of an Italian Notary replace the role of an Italian lawyer and guarantee the positive outcome of the transaction?

A: Without prejudice to the above, according to the Italian law the purchase and sale of a property shall occur with the mandatory assistance of an Italian Notary. The Notary, acting as public official of the Italian Republic and independent subject between the buyer and seller, grants the formal correctness of the transaction (by way of example, the Notary attests that the seller is in attendance to sign the notarial deed).

Q: Can I directly buy a property in my own name? Am I entitled to buy the asset through a special purpose company vehicle? 

A: Depending upon specific characteristics and a prior evaluation relevant to personal, privacy and tax convenience, if you are an individual you are entitled to buy a property on your own name, jointly with other individuals or other legal entities, in the name of your children as well as in name of somebody who will eventually inherit the asset from them. In addition to the above, in light of potential reasons connected to limitation of liability, privacy and tax aspects, you can buy the asset through a dedicated special purpose company vehicle regulated under the Italian law or foreigner legal system already existing or to be newly incorporated.

Q: What is the first step to do if I am sure to buy a property?
 

A: Once all necessary and appropriate activities for the positive assessment of the investment have been duly completed (by way of example, you have planned the best tax structure, the obtaining of financial resources is secured as well as the outcome of the preliminary due diligence process performed by your legal consultant is positive), you have the clear overview in order to submit an offer to the potential seller for the purchase of the property.

Q: Can you explain the effects of the offer above? 

A: Under the Italian real estate market it is customary that a potential buyer submits an offer (offerta ferma e irrevocabile) aimed at taking the property off the market for a limited period of time. The offer will establish the limited period within which it must be accepted by the potential seller as well as the key terms and conditions which will be encapsulated in the preliminary agreement (by way of example, a condition precedent represented by the prior obtainment of a mortgage or the issuance of a specific authorization from the competent public administration to perform particular variations to the property).

Q: What happens if the potential seller fails to accept the offer?

A: If on one side the submitted offer binds the potential buyer for the limited period contained therein, on the other  side the potential seller is not legally bound until the offer is duly accepted. Therefore, in case the offer is not accepted by the potential seller, it will not produce any binding effect towards the latter.

Q: What happens if the offer is accepted by the potential seller?

A: In case the potential seller accepts the offer mentioned above, both parties have duly entered into a binding agreement that is customary to be encapsulated into a  preliminary contract for the purchase of the property. In detail the preliminary contract, inter alia, shall correctly identify the potential buyer and seller, the cadastral data of the property and its extension, the price as well as the timing for payment of the relevant instalments, the amount of deposit, the right of the buyer to appoint a third individual/company as party executing the final notarial deed, the conditions precedent under which the obligation to enter into the final notarial deed are subject to, the term for the execution of the notarial deed, an appropriate package of representations and warranties provided by the potential seller with reference to the property as well as indemnification clauses able to protect the potential buyer in case the potential seller breaches the provisions under the preliminary contract.

Q: Do I have to pay a deposit to enter into a preliminary agreement?  
 

A: It is customary that, at the same time on which the preliminary contract is executed, the potential buyer pays a deposit usually ranging between 10% up to 15% of the final price.

Q: What happens if the potential seller fails to enter into the notarial deed?

A: If one of the conditions precedent under the preliminary contract is not met, the potential buyer is entitled to obtain the repayment of the deposit already paid. If the potential buyer fails to enter into the notarial deed for the purchase of the property due to reasons not connected to the occurrence of the provided conditions precedent, the  amount paid as deposit will be retained by the potential seller. In case the potential seller fails to enter into the notarial deed, an amount equal to the double of the deposit paid by the potential buyer shall be paid by the potential seller.

Q: What happens if the conditions precedent are met and both parties decide to duly complete the purchase and sale of the property? 

A: Once all conditions precedent are met and both parties decide to complete the transaction, as a final step, a Notary shall be appointed to draft the deed for the sale and purchase of the property. The notarial deed shall have no novative effect therefore all key terms and conditions (representations and warranties, indemnification clauses, price and terms of payment) set forth under the preliminary agreement shall be duly repeated in the notarial deed. It is customary the Notary is appointed by the potential buyer as such party shall pay the relevant fees. The final payment that will occur at the date of the notarial deed will include the balance to be paid to the seller, notarial fees and taxes arising from the completion of the purchase.

Q: Can you provide me with a brief overview of tax obligations and duties applicable if I buy a property in Italy? 

A: The applicable tax regime (registration tax “imposta di registro” and VAT “Iva”) changes on the basis of the characteristics of the seller, individual or company, as well as the nature of the property sold. The sale and purchase, inter alia, is subject to mortgage tax “imposta ipotecaria” and cadastral tax “imposta catastale” due to the registration of the transaction into the Italian dedicated Property Registers.

Q: Can you provide me with an example of taxes above? 

A: If the seller is an entity operating in the real estate sector (real estate companies or construction companies), the purchase price agreed in the notarial deed is charged with (1) VAT (whose percentage depends on the nature of the property sold); (2) fixed amount of 168,00 Euros as registration tax; (3) other taxes. If the seller is an individual or a company not operating in the real estate sector, taxes to be paid are calculated on the basis of different percentages.

Q: Do I have to pay taxes if I own a property in Italy?
 

A: Additional taxes may apply if you own a property in Italy (by way of example the municipal tax on real estate “IMU” as well as local tax for collection of garbage “TARSU”). In addition to the above, please note that non Italian residents shall pay taxes on the basis of income arising from properties located in Italy (by way of example, rental income).