TABLE OF CONTENTS
If you are a resident abroad, either as an Italian citizen who has moved to live abroad or as a foreign resident making an investment in Italy, and you want to buy a house in Italy, how do you go about it?
Our expatriate lawyer provides a clear and useful guide to help you understand the steps involved in buying and selling and the things to look out for to avoid mistakes or problems.
In this guide, we will highlight some key steps and emphasize the importance of carefully reviewing all clauses in the contracts you are going to sign, especially if you are a foreign citizen unfamiliar with Italian legal terminology and laws.
First and foremost, Italy imposes no restrictions on foreign European citizens or citizens of European Free Trade Association (EFTA) countries such as Icelanders or Norwegians who decide to buy a house. However, there are restrictions for citizens of countries that do not reciprocate, i.e., those that do not allow Italian citizens to buy property in their country.
Buying property is a financially demanding act, often one of the most challenging in a person’s life. Any mistakes, carelessness, or commitments made without understanding the relevant obligations and legal consequences can lead to significant complications. Therefore, it is crucial to proceed with caution and, if necessary, seek the assistance of a professional advisor.
There are several steps to follow when buying property in Italy.
Often, transactions are not directly with the owner but involve intermediaries, such as real estate agencies, which may lack the necessary independence, qualifications, or expertise to provide adequate technical and legal support.
Before signing any binding documents for a property of interest, it is advisable to pay attention to the property’s conditions, both structurally and in terms of documentation, such as building permits and habitability, with the assistance of a technical expert. Legal considerations, such as the presence of mortgages or other encumbrances, should be assessed with the help of a legal professional.
For example, you should verify the property’s origin deed to understand the ownership, technical documentation, cadastral records, and check for any outstanding condominium fees, as well as the certificates of habitability and energy performance.
When signing the offer, it becomes irrevocable and binding, and changing your mind can have consequences, such as the loss of any deposits, unless there are specific circumstances like fraud, undisclosed defects, or breaches that allow you to resolve or annul the contract judicially.
Generally, agencies, after showing you properties and finding a suitable solution, may request the interested party to sign an Irrevocable Offer to Purchase to secure the property.
The agreement specifies the price, the date for the potential preliminary contract, the date for the notarial deed, and the validity of the offer.
The buyer usually needs to pay a deposit at the time of signing, often via a check held by the agency.
The offer can only be revoked before the other party accepts, but there may be compensation or fees involved.
I also recommend paying attention to the clause in the contract on the agency commission to be paid, which is often due even without the contract being concluded.
When the owner accepts the proposal, he can cash the cheque and a contractual obligation already arises between the two parties to buy and sell because the forms submitted by the agencies often include the clause that the seller’s acceptance of the proposal counts as the conclusion of a preliminary contract.
The Preliminary Contract of Sale, also known as the Compromise, details the agreement’s terms, including the cadastral data of the property, permits, agreed-upon price and payment terms, the property’s condition, and its freedom from mortgages and loans, deadlines for the conclusion of the deed, any specific agreements.
The contract creates an obligation for both parties to conclude a subsequent sales contract.
If either party no longer wishes to finalize the deal, legal action can be initiated to obtain a court order for the property’s transfer, subject to payment of the price.
It is common to pay a portion of the price at the time of signing as a “confirmatory deposit.”
This binds the two parties, buyer and seller, even if they no longer wish to proceed to sign the final deed: if it is the seller who wants to back out of the sale, he must pay the buyer double the deposit, whereas if it is the buyer who no longer wishes to conclude, he loses the deposit paid.
The right to apply to the court to enforce the contract also remains.
The proposal and the preliminary purchase agreement are not compulsory acts required by law nor do they necessarily require the assistance of a notary public but, in general, they are required in practice to block the property so that other possible purchasers cannot take over, to ensure that the parties cannot change their minds and to give concreteness and certainty to the agreements, while waiting for the months necessary to arrive at the notarial deed.
Special attention should be given to the clauses in the preliminary contract, especially the advisability of including suspensive clauses for the obligation to finalize the sale.
For example, if a mortgage is required, it is advisable to include a clause making the obligation to finalize the sale conditional on mortgage approval. It is also advisable to make the final contract contingent on necessary checks on the property and specify that the buyer is not obligated to proceed if the inspections reveal irregularities in urban planning or cadastral matters.
The final and mandatory phase is the signing of the definitive sales contract through a notarial deed. At this point, actual ownership rights and obligations are transferred. The buyer chooses the notary, who is responsible for paying the professional’s fees and legal taxes.
To finalize the sales contract, even for foreigners, it is necessary to request and possess an Italian tax code.
The contract will be drafted in Italian, and if the foreign party does not understand the language, an interpreter’s assistance is required for translation. If the buyer cannot be present, they can delegate someone with a special power of attorney to sign on their behalf.
Before signing, the notary will read the full content of the contract, but it is advisable to have a draft in advance to carefully review all details, including names, birth dates or tax codes, property identifiers, etc. It is essential to pay attention during the notarial deed, as procedures may be completed quickly, and details may be overlooked.
A special power of attorney to delegate someone to sign on the buyer’s behalf can be granted in Italy or through a public official or consular representation in the foreign country of residence.
At the time of the deed, the buyer must pay the remaining balance of the purchase price, minus what has already been paid. Payment is generally made through cashier’s checks for fund certainty, deposited into a special dedicated bank account in the notary’s name. The notary will transfer the funds to the seller after registering and transcribing the contract in the land registers and ensuring there are no additional mortgages beyond those previously known and verified before the signing.
Transcription in the land registers serves to assert ownership transfer to everyone. If more potential buyers exist, the first to register becomes the actual owner. Even if subsequent encumbrances, foreclosures, or seizures are recorded against the seller after the sale transcription, they are ineffective against the buyer.
The seller is obligated to deliver the property or hand over the property keys.
The buyer generally incurs the following costs:
- A proportional registration tax of 9% (2% for the first home) on the cadastral value.
- A fixed mortgage tax of 50 euros or 200 for businesses.
- A fixed cadastral tax of 50 euros or 200 for businesses.
VAT is generally due when buying from a business and can vary from 4% (first home) to 10% (second home) or 22% (luxury properties). Additionally, there are notary fees, and if a mortgage is requested, there are fees for the mortgage deed.
If purchasing through a real estate agency, commissions ranging from 2% to 5% are also payable, particularly in large cities or for high-value transactions.
At the time of purchasing a home in Italy, first home benefits can be availed, allowing for reduced taxes. These benefits include:
- A 2% registration tax (instead of 9%) on the cadastral value for purchases from private individuals. Mortgage and cadastral fees are 50 euros each.
- A 4% VAT rate (instead of 10%) on the transfer price for purchases from businesses. Registration, mortgage, and cadastral fees are 200 euros each.
If the property is sold within 5 years of purchase, the benefits are forfeited, and regular taxes apply, along with a 30% surcharge. However, this provision does not apply if another property intended as the main residence is repurchased within 1 year.
To benefit from these advantages, one must:
- Not own other homes in Italy or sell them within 1 year.
- Be a resident in the municipality of purchase or move the residence within 18 months or have the workplace in the municipality.
These benefits also apply to Italian citizens registered in the AIRE living abroad. However, a citizen residing abroad who purchases property in Italy as a primary residence cannot be a resident in Italy or have the intention of moving the residence within 18 months.
The Revenue Agency has indicated that the preferential treatment can be applied to Italian citizens residing abroad, allowing them to benefit from the “first home” tax advantages without relocating their residence to Italy”.
When living abroad and registered with the AIRE but still owning property in Italy, it can no longer be considered a primary residence. For foreigners deciding to purchase property, two scenarios may arise:
- Property available when the property is not rented out.
- Rented property when the property is leased.
If the property is rented, income tax returns and relevant taxes must be filed in Italy. Even if other incomes are present, not just from renting, they must also be declared taxable in Italy.
At the lease contract signing, the taxpayer can choose the tax regime: pay ordinary income taxes according to the income bracket plus a 2% annual registration tax or opt for (till the end of 2023 and then higher) a 21% rate (10% for agreed rental contracts) under the flat-rate tax option.
In both cases, whether the property is available or rented, the owner is liable to pay IMU, a property tax due to the municipalities for second homes.
Payment of tax F24 can only be made to Italian bank accounts; otherwise, a bank transfer must be made based on the tax codes provided by the Revenue Agency.
When buying property as a foreign resident, consider the tax regulations in your country of residence, including:
- Payment of taxes on incomes earned abroad, such as rental income from the property held in Italy, taking into account double taxation agreements between the two countries to avoid dual taxation.
- Possible obligations of a declarative regime for foreign properties based on the tax laws of the country of residence.
For any needs, advice, or consultation on how to buy a house in Italy as a foreign resident, tax incentives for repatriates, Italian citizenship, residence permits in Italy, regulatory constraints, and fiscal advantages for foreign residence and AIRE registration, contact us here.