Real Estate 2018 Comparisons

Last Updated January 04, 2019

Law and Practice

Authors



DLA Piper Studio Legale Tributario Associato has a market-leading real estate offering: an international multi-disciplinary team of lawyers that can serve client needs globally across the real estate sector. It has over 500 real estate lawyers operating in more than 40 countries around the world and is able to serve clients in key real estate markets, with strongly established teams in Europe, Asia Pacific, the Middle East, Africa and the Americas. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, the team offers the following services: financing, acquisitions and disposals, asset management, construction, cross-border investment, development, fund formation, joint ventures, leasing, litigation, planning, zoning and environmental issues, public-private partnerships, REITs, restructuring and tax. Lawyers work alongside investors, lenders, developers and managers on every aspect of their real estate activities. They advise on matters ranging from fund formation and establishing investment platforms for clients moving into new markets for the first time to cross-border portfolio acquisitions and restructuring loan facilities secured on assets in multiple jurisdictions.

The main sources of real estate civil law are the Italian Civil Code, Law No 392/1878 (the Tenancy Law) for commercial leases, and Law No 431/1998 for residential leases. As regards zoning law, on the other hand, the main sources are primarily the Constitution, several national laws and a variety of regional laws (it should be kept in mind that certain areas, such as trade, are allocated by the constitution to the exclusive competence of the Italian regions).

The Italian real estate market has been particularly hectic over the past 12 months. Together with traditional foreign investors (American and European private equity players and asset managers), new Middle Eastern investors have also started to show interest in the Italian market. The most significant deals have been the acquisition of the "ex Falck" area (in the outskirts of Milan) by the Saudi group Fawaz Al Hokair, which will develop a major retail and leisure hub; the acquisition of the retail platform of the major Italian railway stations (with a value of approximately EUR1 billion) by a joint venture set up between the Borletti Group, French investor Antin and asset manager Icamap; and the set up by IDeAFimit of a new alternative investment fund composed of six real estate properties contributed by the Milano 90 Group in the context of the reorganisation of the latter. It should be noted that the Italian NLP market is picking up significantly, increasing in size since 2014-15.

The major issue affecting Italian real estate which has jeopardised many investments in the past, especially by opportunistic investors, is the rules setting forth foreclosure proceedings in Italy, as well as the severe length of the average court proceeding. The current Italian government has declared that the latter issue is at the top of its agenda, but it is not possible to predict whether an actual significant reform to speed up judicial proceedings will be implemented in the coming months. As regards the reform of foreclosure proceedings, there are many projects under scrutiny by the government but there is currently no clear agenda setting out if and when the general overhaul will be introduced.

In order to address the issue relating to the length of foreclosure proceedings, banks and financial institutions have been provided with the right, previously forbidden by law, to incorporate in a loan a provision whereby the real estate mortgaged collateral is automatically transferred to the lender in case of material breach by the borrower (so-called pattomarciano). Thus, under particular conditions the lender is entitled to sell the collateral privately and out-of-court, without bearing the slowness of a sale in the context of a foreclosure.

Property rights under Italian law include the following:

  • absolute freehold or full ownership (pienaproprietà), which is the right to fully and exclusively enjoy and dispose of the property;
  • right to build or surface right (diritto di superficie), which is the right to build and maintain a building on or underneath a third party's property, granted for a specific period of time. When this expires, the landowner (nudoproprietario) becomes the legal owner of the building. It is also possible to sell the title to a building without owning the title to the underlying land (if the seller is a public authority, the sale will be for a maximum 99-year term);
  • beneficial interest (diritto di usufrutto), which is the right to enjoy a third party's real estate for a specific period of time. This cannot be longer than the lifetime of the beneficiary if they are an individual, or more than 30 years if the beneficiary is a legal entity. The beneficiary can use the real estate in the same way as an owner, including having the right to collect interest or to grant leases, provided the original use is maintained;
  • right of use (dirittod'uso e di abitazione), which is the right to use real estate in order to meet the needs of the person holding the right and those of their immediate family; and
  • long lease (diritto di enfiteusi), which is the right to enjoy a property owned by a third party with faculties similar to those granted to the full owner. The leaseholder shall pay rent to the bare owner, shall enhance the property and is granted the right to become the full owner by paying a certain amount. This right – which is rare in common practice – may be perpetual and its duration shall not be shorter than 20 years.

Property rights, including the right of full ownership on real estate, may be co-owned by two or more persons, companies and/or other legal entities.

Co-ownership also exists in the form of condominiums, which usually relates to housing but also sometimes to shopping malls, where different units in the same building and/or different buildings in the same real estate complex are owned by different owners but some of the areas and services are used by the owners collectively.

The transfer of title to real estate is generally governed by the Italian Civil Code, with supplementary provisions relating to town planning, building, cadastral compliance, notarial laws and taxation. The general legal regime for the transfer of title is the same, irrespective of the property's use. Shorelines, beaches and waterways (such as harbours, waterfalls, lakes, rivers and other stretches of water defined as 'public' by the applicable law) are part of the natural domain (demanio naturale), and title to these assets cannot be transferred.

The deed of transfer must be made in writing and authenticated by a public notary in order to be filed in the Real Estate Register (Conservatoria dei Registri Immobiliari). The transfer of title is effective immediately upon the signing of the sale agreement. Preliminary contracts must take the same form as the final deed of transfer, and therefore must also be in writing. Moreover, if the parties intend to file the preliminary contract in the Real Estate Register (for further details see below) such a contract also needs to be authenticated by a public notary.

Real estate is registered in the Cadastre Register, which is held by the municipality in which the property is located and consists of the Land Cadastre, in which undeveloped land is recorded, and the Building Cadastre, in which buildings are recorded. Both land and buildings must be registered and are then attributed a "cadastral income." The Building Cadastre distinguishes between buildings according to their planning designation and use (such as office space, residential property, warehouses, parking lots, shops, etc) and attributes a value to them, known as the cadastral income, which forms the basis for calculating the municipal property tax (IMU). Cadastral income can be subject to review by the relevant authority.

Although it is not a requirement for the validity of a transfer, deeds are usually filed with the Real Estate Register held by each municipality, in order to prevent possible conflicts with future buyers and third parties. The register records information relating to the property, including sales and purchases; mortgages; easements and rights of use; as well as any pending disputes. Even preliminary agreements relating to an existing property or to a property under construction can be registered in order to protect the buyer from any subsequent filing of third parties' rights or a second sale of the same asset. This protection stops one year after the completion date specified in the preliminary agreement and, in any event, three years after the registration of the preliminary agreement. The Real Estate Register is accessible to the general public.

Foreign insurance companies have only recently started to offer title insurance in Italy, but this is still not common practice. Normally, public notaries carry out a search on title in the Real Estate Register. The notary's report is usually part of the legal due diligence and includes an investigation into the existence of any third party rights as well as the seller's title to the property.

The parties to a transaction usually enter into an agreement such as a letter of intent or a head of terms, providing the potential buyer with an exclusivity period in which to carry out due diligence.

Due diligence is undertaken in relation to technical, commercial and legal issues by the purchaser's professional advisers on, inter alia, title; building permits; leases; contracts relating to the property; and corporate documentation regarding the target company (in case of a share deal). A notarial report listing the transfers of title over the past 20 years (the term relevant for adverse possession) and any in rem prejudicial filings (eg, mortgages, lawsuits affecting the property, easements, and obligations stemming from zoning instruments) is necessary to obtain legal evidence on the actual title to the property and relevant encumbrances.

Upon completion of due diligence, assuming the results are satisfactory, the parties negotiate the terms and conditions of the transaction. Often, the parties agree to enter into a preliminary agreement specifying certain conditions and/or pre-closing covenants which must be fulfilled prior to the completion of the transaction and the signing of the final deed.

According to statutory law, the seller guarantees that it has the title to the real estate property, and that the property is free from any third-party rights and any defects that might prevent the agreed use of the property or have a negative impact on its value. Moreover, the seller has to declare: i) that the factual cadastral situation of the asset is aligned with the one registered with the relevant Cadastre; ii) the list of the building titles for works performed after 1 September 1967; and iii) whether it used a real estate broker. Such declarations are mandatory inclusions in a notarial deed of conveyance.

Traditionally, the rules applicable to the defects warranty set out in the Italian Civil Code (eg, the warranty that the property was free from defects) were deemed applicable in case of breaches of the representations and warranties included in a sale and purchase agreement. Such rules set forth that the buyer has to notify the seller of any breach of the warranties within eight days of the relevant discovery. A one-year statute of limitations applies from the date the buyer takes possession of the property. Such provisions may lead to the termination of the purchase agreement and to a full refund of the purchase price.

According to current market practice, the parties include additional representations and warranties (limited, as the case may be, by the knowledge acquired by the buyer during the due diligence process) and agree to depart expressly from the set of rules included in the Italian Civil Code in relation to warranty defects.

Contractual remedies have been introduced envisaging either special indemnities to remedy breaches already in place or loss indemnification procedures in the event of misrepresentations. This indemnification structure is aimed at preventing the termination of a sale and purchase agreement once the transfer of title has been consummated.

The parties also agree to have longer final time limits to lodge a claim and to activate a claim in a sale and purchase agreement.

Warranty and indemnity policies are still non-customary but their use has increased significantly in the past few years, in particular as collateral used by Real Estate Investment Funds (REIFs) which term is about to expire.

In addition to civil law matters regarding, inter alia, the verification of the seller's title, lease agreements (which under Italian law remain in place until the transfer of title), the existence of possible encumbrances over the property and the existence of a condominium or of a consortium with reference to the property, the following matters of public law should be verified by the buyer:

  • the zoning and town planning provisions: the general master plan (Piano Regolatore Generale) and the related implementation rules (NormeTecniche di Attuazione, NTA) show the permitted use of the area in which the property is located;
  • building permits and licences: the buyer should ensure that the structure of the property complies with the original building permits (in particular the designs and plans attached to the permits) and that any building work has been carried out with the necessary prior authorisations (building permits and declarations of commencement of works);
  • fitness for use: all properties require a certificate (certificato di agibilità) confirming that certain health and safety requirements have been met;
  • fire-prevention provisions: certain structures (for example, offices with more than a specified number of employees, parking spaces covering more than a specified area, storage and archive buildings, heating plants and buildings in which particular activities are carried out) are subject to fire prevention regulations; and
  • trade licences, if any (the rules applicable to retail activities vary from region to region).

If the parties agree to transfer not only the property but also the corporate vehicle owning such property, all the other corporate, contractual and tax aspects of the target company need to be reviewed.

Labour law issues are seldom relevant since property companies do not ordinarily have employment agreements in place.

Under Italian law, a buyer is responsible for the necessary remediation and safety work, even if the person who originally caused the contamination and soil pollution is liable to pay damages. The authorities may, at their discretion, require either party to carry out remedial measures.

However, if the owner/occupier is required to do this then they can make a claim against the party that actually caused the contamination, unless this is otherwise agreed in the sale and purchase agreement.

The general master plan and town planning rules, as well as local laws, provide a description of permitted uses in different areas of a city. In order to determine the permitted use of a property, a town planning designation certificate (certificato di destinazione urbanistica) can be requested from the municipality. Developers normally enter into development agreements with the relevant public authorities, under which  they will usually undertake to carry out certain public works, such as providing roads, parking spaces, green areas etc.

Expropriation is possible but only where specific permission is granted in accordance with the law, as set forth in the Presidential Decree of 8 June 2001 No 327. In general, expropriation is only allowed if it is in the public interest. In such cases, the state must pay compensation to the parties involved.

The sale of commercial property between two VAT entities is generally exempt from VAT, except in the following cases:

  • where a seller is the developer of a new property, or is the company that carried out renovation works, and the sale occurs within five years of the completion of the property; or
  • where a seller opts, in the sale and purchase agreement, to apply VAT at 22% to the sale and purchase.

For all sales subject to VAT, two different and alternative mechanisms may apply:

  • the ordinary regime, which requires a seller to issue an invoice charging VAT, applies where the seller is the developer or the renovating company; or
  • the reverse charge mechanism, which applies when a seller opts in the sale and purchase deed for VAT to apply. Under the reverse charge regime, the seller issues an invoice without VAT. The buyer then "writes" into that invoice the rate and amount of the applicable VAT and registers it in both its input and output VAT registers. The result is a VAT-neutral transaction.

Both, in case the sale and purchase are subject to VAT and in case they are exempt, cadastral tax at a rate of 1%, mortgage tax at a rate of 3%, and registration tax of EUR200 are payable. Mortgage and cadastral taxes are reduced to an overall 2% if one of the parties is an Italian real estate investment fund. VAT can often be recovered, although this can take up to two years.

In the case of residential properties, the sale between two VAT entities is ordinarily VAT exempt, unless:

  • a seller is the developer of a new property, or is the company that carried out renovation works, and the sale occurs within five years of the completion of the property; or
  • even after five years from the completion of the abovementioned works, the sale is carried out by the company who built/renovated the property, and the seller opts, in the sale and purchase agreement, to apply VAT. VAT in this case would be applied under the reverse charge mechanism.

VAT on residential buildings is applied at a rate of 10% (22% in case of luxury buildings).

If the sale is exempt from VAT, registration tax is payable at a rate of 9%, and cadastral and mortgage taxes are payable at fixed rates of EUR50 each. Otherwise, registration tax, mortgage and cadastral taxes are applied at the fixed amount of EUR200 each.

Both in case of residential and non-residential properties, each side will normally pay its own legal costs. Property transfer tax, notary fees and the legal costs for the implementation of the sale and purchase agreement are usually paid by the buyer, with the exception of any legal costs incurred in connection with the cancellation of existing encumbrances on the property, which are paid by the seller. Agency fees are usually between 1% and 3% of the property value. Unless otherwise agreed between the parties, the estate agent can claim its total fee from both parties (except where the payment has already been declared in the transfer deed).

In case of a share deal the transaction is out of the scope for VAT and registration tax is payable at the fixed amount of EUR200, regardless of the percentage of ownership acquired. No stamp duty is payable. Financial transaction tax (Tobin Tax) applies in the case of a purchase of shares in an Italian resident joint stock company, even if the purchaser and the seller are not Italian residents; the tax is levied at a rate of 0.2% on the agreed price. No Tobin Tax is due on the purchase of quotas in an Srl (limited liability company).

There are no restrictions on foreigners investing in real estate in Italy. However, where an investment is carried out by way of the purchase of shares in a corporate vehicle, certain restrictions may be imposed by the Foreign Ministry (Ministerodegli Esteri). Furthermore, the issuance of a tax code may be necessary for physical persons having foreign citizenship and intending to set up a legal entity. The tax code will also be necessary if the person is vested with the office of a director of an Italian legal entity.

Acquisitions of commercial real estate in Italy are generally financed by means of bank loans granted for the specific purpose of purchasing the property (asset deal transaction), or purchasing shares of the company owning the property (share deal transaction).

The Italian government has also tried to encourage overseas investments in the real estate market through the enactment of the so-called “Decreto Sblocca Italia” (Law Decree 133/2014), which simplifies the regulation of real estate investment trusts (società di investimento immobiliare quotate, so-called SIIQs), but the new regulation has not yet had any material effect.

Similarly, the same decree has introduced new regulations aimed at removing barriers for foreign funds and insurance companies looking to invest in loans in Italy. Due to some delays in the issuance of implementing provisions, the new regulations have had very little impact to date. In particular, insofar as insurance companies are concerned, the Italian supervising entity has issued rules providing certain limitations which seem to keep foreign institutions out of the Italian lending market.

Italian real estate finance transactions are guaranteed by an extensive security package that covers all the assets and receivables of a borrower and particularly all values related to a property, such as the mortgage over the property; assignment of rental receivables in connection with the property; pledge over the borrower's share (or quota in limited liability companies); pledge over bank accounts owned by the borrower; assignment of receivables arising from commercial agreement; and a loss payee clause over insurance policies. Depending on the nature and bankability of the deal, the stakeholder/investor is sometimes required to perform certain undertakings or to provide equity support.

Pursuant to the Italian Banking Act and Decree No 53/2015, the granting of all forms of loans on a professional basis to the public (both clients and non-clients) - including loans over real estate - is reserved for certain qualifying entities. If foreign lenders qualify as banks, they are entitled to perform lending activities in Italy, both on a "freedom to provide services" basis and through a permanent establishment, subject to a specific notification procedure with the competent supervisory authority of their home member state and the Bank of Italy (if an EU bank), or subject to authorisation from the Bank of Italy (for non-EU banks).

Foreign entities other than banks can carry out lending activities in Italy through a permanent establishment (authorised by the Bank of Italy) or, in cases of mutual recognition, when the notification procedure has been started with the home member state authority and if the controlling shareholding is held by one or more (foreign) banks.

Please also consider that lending activity in Italy could also be performed (under certain conditions and restrictions) by entities other than financial intermediaries, such as insurance companies, alternative investment funds (including credit funds and debt funds) and securitisation vehicles.

If the lending activity is carried out by foreign lenders in compliance with such authorisation/notification requirements, no further regulatory constraints apply to repayments made to them.

Without prejudice to the above, it should be noted that, according to Italian laws and regulations, lending activity falls within the scope of the abovementioned reserve when it is carried out on a professional basis; this requirement is triggered when the activity is potentially expected to be carried out on an organised basis. Accordingly, this requirement is not triggered when the lending activity is a one-off transaction.

However, please consider that, on the basis of the criminal courts' interpretations, lending activities are not allowed for non-qualifying entities if only one transaction is entered into by a company equipped with an organisation potentially capable of exercising the relevant activity more than once. Such an organisation could be deemed as existing per se in case of financial institutions. Please consider that the Italian authorities apply the principle of prevalence of substance over form.

In relation to mortgages to be established over real estate assets, the following fees and taxes are payable:

  • notaries' fees are payable in fairly substantial amounts in respect of any security document executed as a notarial deed, and such fees vary in proportion to the amount secured;
  • nominal stamp duty (usually at a rate of EUR16 per foolscap sheet);
  • registration tax:
    1. of EUR200 if the grantor is securing its own obligations or the mortgage is required by law; or
    2. equal to 0.5% of the secured amount, if securing third-party obligations (if the borrower is granting his own obligation, no registration tax is due);
  • mortgage tax is payable at 2% of the secured amount, provided that:
    1. the loan has an original contractual duration of at least 18 months;
    2. the loan is granted by EU-incorporated banks, Italian branches of EU-incorporated banks or Italian banks;
    3. the facility agreement is executed in Italy;
    4. the lender opts for the application of the substitute tax provided for under Article 15 of Presidential Decree No 601/73; and
    5. no payment is due for registration taxes, mortgages and cadastral taxes, stamp duties, governmental duties and all the other taxes and duties (other than income tax and withholding taxes) related to the loan and deeds connected to it (especially any guarantee).

In actuality, the "substitute tax" is an umbrella tax currently at a rate of 0.25% (for business entities) of the principal amount of the loan, which works as a tax benefit in the presence of a mortgage since it excludes the application of all the other indirect taxes (and mainly the 2% mortgage tax ordinarily applicable). For said reasons, in the presence of a mortgage, banks usually opt for the application of the substitute tax if all the conditions are met.

The amount of the substitute tax is typically retained by the bank from the relevant drawn amount.

Any entity must comply with the provisions of the Italian Civil Code in order to grant valid security over its real estate assets.

It must be taken into account that, for instance, in case security is granted by an entity belonging to the same company group as the borrower, the granting of such security has to be justified by an actual interest of the grantor which might be the ultimate corporate benefit of its group.

More specifically, to the extent that the relevant securities or guarantees are provided by a group company, such company must itself have a specific and economic interest in securing the financial obligations of the guaranteed group company; in addition, the granting of such security should not have a negative impact on the net worth of the guarantor.

The existence of a corporate benefit is ultimately a purely business decision and, as such, is an issue for the company’s directors to resolve. There is no objective evaluation that certifies the existence of a corporate benefit and, therefore, it should be assessed on a case-by-case basis.

If the security is granted directly or indirectly by a joint stock company (società per azioni) to any of its shareholders or third parties to purchase its shares (so-called financial assistance), a specific procedure shall be followed. For limited liability companies (società a responsabilità limitata), financial assistance is prohibited by law under any circumstances, with such prohibition covering all kinds of financing, both direct and indirect, any refinancing of existing loans granted for acquisition purposes and, more generally, any loan, security or guarantee granted by a company for the benefit of third parties.

In case of default by a borrower, the acceleration of a loan and the enforceability of the relevant securities are regulated by the provisions of the facility agreement and the security documents; the judicial steps of, and the formalities for, the enforcement of the relevant securities is set forth under the Italian Civil Procedure Code, whose provisions are mandatorily applied.

In certain cases mandatorily provided for by the law, even secured debt ranks junior to certain categories of indebtedness (eg, certain taxes).

In general, the subordination of a debt is contractual: loan agreements usually provide forparipassu covenants. Insofar as the enforcement of security is concerned, under Italian law the holder of a first ranking, duly registered security benefits from priority rights, which are opposable to other creditors. However, such priority applies in case of the enforcement of the security - something which, in the absence of inter-creditor agreements, may not depend upon the initiative of the secured creditors as any creditor is entitled to attach the assets of a debtor.

In a bankruptcy scenario, the secured debt keeps its priority but the enforcement of the security is no longer available (and enforcements in process are interrupted) as the sale process is managed by the receiver in accordance with the rules set forth by the bankruptcy law. In addition, certain receivables that arise during, or by reason of, the bankruptcy procedure (eg, costs of the procedure) are pre-deductible and the debtor's liquidity is therefore used primarily for the payment of the relevant debt.

Under Italian law (Legislative Decree No 152/2006), the entity liable for the pollution of a real estate property is the polluter.

The owner of the property who is not responsible for the pollution can perform the remediation activities as an "interested party."

If no one bears the cost of the activities of the remediation, the public authority intervenes in the process.

The lender holding or enforcing security over real estate should be involved in the remediation procedure only if it coincides with one of the above-mentioned entities.

Depending on the timing, size and nature of the security interest, security constituted over a debtor's assets may be void in case of bankruptcy. Voidance must be declared by a court decision, upon the initiative of the receiver, who must file a specific demand.

In particular, pledges and mortgages granted respectively in the year preceding a bankruptcy declaration to secure unexpired debts, and in the six months preceding a bankruptcy declaration to secure expired debts, are subject to claw-back unless the secured creditor proves that it was not aware of the insolvency status of the debtor at the time of the granting of the security.

The granting of security in violation of the rules provided for by the Italian bankruptcy law may also imply liabilities of the secured creditor to the extent criminal aspects arise in relation to the bankruptcy procedure.

Strategic planning and zoning is ruled by the general principles established by state laws and moreover by regional laws which, in compliance with the mentioned national principles, establish detailed legislative provisions to be fulfilled in the relevant region. According to these national and regional laws, local authorities establish their strategic plans and therefore their zoning schemes.

The design and method of construction of new buildings and the refurbishment of existing buildings is also governed by different national, regional and local laws and regulations, depending on the specific technical matter and through increasing levels of technical specification.

The building titles are issued or, in case of notices of commencement of building works, received and checked by the competent municipalities. If the real estate asset concerned is subject to a cultural or landscape lien, the issuance of a building title may require prior approval of the project from the authority responsible for the preservation of the lien. In order to obtain a building title, the project has to fulfil legal provisions regarding many different matters, such as zoning, fire prevention, legal distances, and health and hygiene issues.

Except where the zoning schemes provide for the prior approval of an implementation plan, the execution of new construction or refurbishment building works only requires obtaining a building title. Depending on the category in which the project is classified (new construction, major refurbishment or minor refurbishment) and on the applicable regional regulations, the title is issued by the competent municipality following the technical analysis of a dossier filed by the interested party, or is directly filed by the interested party and simply received and checked by the competent municipality. Third parties with a specific interest that deserves protection may participate in the administrative process, highlighting possible breaches of the applicable laws and/or regulations to the municipality.

Third parties with a specific interest that deserves protection may file a lawsuit before the competent Administrative Court asking for an annulment of the building title in light of possible breaches of the applicable laws and/or regulations.

In some cases, the issuance or the filing of a building title must be preceded by the approval of an implementation plan. Within this plan, the operator is required to sign a town planning agreement which regulates the obligations regarding the implementation of the related public infrastructure works and is necessary to support the execution of the private building project.

National and regional legislation, in line with the principles laid down by the European Commission, tends to discourage free land consumption and to encourage redevelopment processes and urban regenerations. In this perspective, by way of example, the regulations provide for the reduction of the urbanisation fees that must be paid in order to execute the refurbishment of existing buildings or related to the redevelopment of abandoned industrial areas. Local town planning schemes are progressively reducing the possibility to build new construction outside the existing urban areas.

Three types of corporate vehicle are mainly used for investments in real estate in Italy:

  • the società a responsabilità limitata (Srl);
  • the società a responsabilità limitata semplificata (Srls), which was introduced in January 2012 and significantly reformed in the summer of 2013; and
  • the società per azioni (SpA).

Limited partnerships (Società in accomandita semplice) which include both unlimited liability partners (soci accomandatari) and limited liability partners (soci accomandanti) have been used in the past by German funds investing in Italy but are no longer commonly established for such estate investments.

Both Srl and Srls are limited liability companies whose corporate capital is divided into quotas (with no face value) rather than shares.

SpAs are a limited liability company whose corporate capital is divided into shares with the same face value.

Società a Responsabilità Limitata (Srl)

The minimum corporate capital required to set up an Srl is fixed at EUR1. If the Srl does not have corporate capital of at least EUR10,000, however, contributions-in-kind are not permitted; cash contributions must be delivered to the directors of the company; an amount corresponding to one fifth of the net income resulting from the relevant financial statements must be allocated to a special legal reserve until the net worth of the company reaches at least EUR10,000; and such reserve may be used only for the accrual of the corporate capital or to cover losses, if any. Furthermore, the corporate capital shall be entirely paid up in case the Srl is incorporated by only one member (so-called "Srl unipersonale").

Società a Responsabilità Limitata Semplificata (Srls)

The corporate capital required to set up an Srls can be between EUR1 and EUR9,999. No corporate entity can qualify as a shareholder of an Srls.

Società Per Azioni (SpA)

The minimum corporate capital required to set up a SpA is fixed at EUR50,000.

Società a Responsabilità Limitata (Srl)

Considerable flexibility may be reflected in the by-laws of an Srl, and voting and profit rights can generally be freely allocated. The holders of the quotas into which the corporate capital is divided can appoint and remove directors, and may also have approval rights over management decisions. The directors are responsible for day-to-day business decisions. The company can be managed by either a sole director; a plurality of directors, acting jointly or severally; or by a board of directors.

The appointment of a control body or of an external auditor is mandatory if:

  • certain thresholds relating to assets, turnover and the number of employees is exceeded for two years; or
  • the Srl is required to prepare consolidated financial statements; or
  • the Srl is the controlling entity of a company which is subject to mandatory accounting control.

Unless the contrary is stated in the articles of incorporation the Srl will be audited by a sole statutory auditor.

Società a Responsabilità Limitata Semplificata (Srls)

The management of this type of company may be entrusted to external directors (eg, not necessarily quota holders). The by-laws of an Srls must comply with the template by-laws issued by the Ministry of Justice. If the quota holders intend to set up an Italian limited liability company with a corporate capital of less than EUR10,000 but with specific and tailor-made provisions in the by-laws, they must opt for an Srl.

Società Per Azioni (SpA)

It is possible to create different categories of shares with different rights. There are generally no restrictions on how voting and profit rights are allocated, and it is possible to create individual shares with multiple voting rights (with a maximum of three voting rights for each share).

An SpA can be managed in any of the following ways:

  • by a sole director or a board of directors appointed by the shareholders' meeting (the traditional system). This applies unless the company's articles of association state otherwise;
  • if the company's articles of association provide for this, the company can be managed by a supervisory board and a management board. The shareholders appoint the supervisory board, which then appoints the management board. The supervisory board comprises shareholders and the board of statutory auditors, and the shareholders retain a degree of control over the management board (the two-tier system); and
  • if the company's articles of association provide for this, the company can be managed by a board of directors appointed by a shareholders' meeting and an executive committee of the board (the one-tier system).

The appointment of statutory auditors is mandatory. The shareholders may choose to appoint a board of statutory auditors comprising either three or five permanent members, in which case two alternate members must also be appointed.

Società a Responsabilità Limitata (Srl) and Società a Responsabilità Limitata Semplificata (Srls)

Although auditors are only required when certain thresholds (relating to  turnover and the number of employees, for example) are exceeded, the total corporate and accounting costs for an Srl is normally around EUR12,000 plus the cost of internal and external auditors. Srls usually avoid having auditors in order to save compliance costs.

Società Per Azioni (SpA)

The annual corporate and accounting costs for an SpA is approximately EUR20,000 plus the costs of internal auditors (between EUR10,000 and EUR15,000) and external auditors (EUR10,000-15,000).

Italian law differentiates between property leases (locazione) and business branch leases (affitto di azienda). Property leases are used for residential or commercial premises and are governed by the general provisions of the Italian Civil Code.

In relation to non-residential leases, certain distinctions apply to hotels and other premises used for activities involving contact with public users and consumers.

Mandatory provisions regulate the landlord/tenant relationship in favour of the tenant, including provisions relating to the term of a lease; automatic renewal upon expiry; rent increases; the tenant's right to carry out activities involving contact with the public etc. Any deviation from these in the lease contract which is less favourable to the tenant is considered invalid, even if explicitly accepted by the tenant. An invalid clause, however, does not render the entire contract invalid, but is replaced by the relevant mandatory law provision.

Non-residential lease agreements (eg, for offices, retail space and hotels) providing for a yearly rent greater than EUR250,000 may not be subject to the mandatory provisions of the Tenancy Law, provided that such leases do not affect buildings with a historical value confirmed by a local administrative order. In other words, for such leases, parties are free to agree to terms which depart from the mandatory provisions of the Tenancy Law, which are generally to the benefit of the tenant. This new option applies to any lease agreement entered into after 11 November 2014. Certain rules applicable to lease agreements and established by the Italian Civil Code, however, will still apply (eg, certain rules relating to the allocation of responsibility for maintenance between the landlord and the tenant).

If the leased assets are a going concern or business branch (azienda or ramod'azienda), as defined under Italian law, the abovementioned rules of the Civil Code do not apply and the parties are free to contract as they wish.

Italian law also recognises a contract for granting free use of a premises (comodato), whereby the use of an asset can be granted free of charge for a specific purpose over a set period of time. Contracts like this are often used when a tenant needs to carry out fit-out and decorating work on the premises before the start of a lease.

The relevant energy performance certificate (APE) must be attached to any new lease agreement (whether affecting a property or a branch of a business) or sub-lease (but not to a renewal). However, in case said agreements concern only one or more units of a building it is not mandatorily required to attach the APE to the contract, nevertheless a valid APE regarding such premises must be delivered to the tenant (or to the sub-tenant, as the case may be) and specific declarations of the tenant regarding the fact that it obtained the APE and all the information regarding the energy performance of the premises shall be included in the agreement.

It is possible to identify different types of commercial leases in respect of the object of the lease agreement, such as industrial, office, and retail property or hotel.

The minimum term for leases of industrial, office and retail property is six years, and nine years for a hotel. If premises are used for activities involving contact with the public, tenants are entitled to be indemnified for the loss of goodwill on termination of the lease. This amount is equal to 18 times the last monthly rent paid (21 times in the case of a hotel). If the premises are let within a year to a tenant carrying out the same or similar activities as the former tenant, a further indemnity of the same amount is payable to the former tenant. The payment of this indemnity to the tenant is a condition precedent for the surrender of the premises to the landlord. The indemnity is not due if:

  • the tenant decides not to renew the lease contract;
  • the tenant decides to exercise a break option;
  • the lease contract is terminated due to the tenant's breach of the contract; or
  • the lease contract is terminated in the context of a winding-up procedure.

If the premises are used for activities involving contact with the public, the landlord must offer the tenant the opportunity to purchase the premises on the same terms and conditions as any other potential buyer, and the tenant has the right to take a new lease of the premises once the initial lease has expired. After a 12-year period, for example six years after the first renewal of the lease (or 18 years in the case of a hotel, eg nine years after the first renewal), the landlord is free to terminate the lease and let the premises to a new tenant. The landlord is only required to pay monetary damages to the former tenant if it does not comply with these legal provisions.

A tenant is not usually allowed to sublet or to assign a lease without the landlord's prior consent. However, if the lease is assigned or the premises are sublet to a third party as part of an ongoing business carried on by the tenant at the premises, the tenant may sublet or assign the lease without the landlord's consent.

All of these provisions protecting the tenant are mandatory.

Retail leases – particularly the leases for property within shopping centres – may have turnover rents where all or part of the rent is determined by the store's profits.

Retail tenants may also be subject to obligations which exist for the benefit of the shopping centre as a whole, such as an obligation to open and trade during specified hours and to contribute towards marketing the centre.

Although the landlord will maintain the structure and exterior of the premises, a retail tenant may be given the right to maintain its own shop front in its usual trading style.

The terms of a property lease (such as length of the lease term, indexation of the rent, renewal of the property lease agreement, withdrawal right of the tenant etc) are governed by the mandatory provision of the Tenancy Law.

In any case, as stated above, non-residential lease agreements (eg, for offices, retail space and hotels) providing for a yearly rent greater than EUR250,000 may not be subject to the mandatory provisions of the Tenancy Law, provided that such leases do not affect buildings with a historical value confirmed by a local administrative order. In other words, for such leases, parties are free to agree to terms that differ from the mandatory provisions of the Tenancy Law, which are generally to the benefit of the tenant. This new option applies to any lease agreements entered into after 11 November 2014. Certain rules applicable to lease agreements and established by the Italian Civil Code, however, will still apply for example, certain rules relating to the allocation of responsibility for maintenance between the landlord and the tenant).

Furthermore, if the leased assets are a going concern or business branch (azienda or ramo d'azienda), as defined under Italian law, the above-mentioned rules of the Civil Code do not apply and the parties are free to contract as they wish.

Length of Lease Term

The Tenancy Law provides for a minimum term of six years for commercial leases (except where the activity to be carried out in the premises is temporary) and nine years for hotel leases. For residential leases, the minimum term fixed by law is four years, except when the lease is agreed in order to satisfy temporary needs or in relation to tourism activities. Parties are free to agree to longer leases, but if a lease term is less than the legal minimum this is regarded as void and the term is automatically fixed by law.

When the initial period of a lease expires, the contract is automatically renewed on the same terms and conditions for another term unless either party gives notice not to renew at least 12 months (or 18 months in the case of hotels) before the end of the initial term.

When the initial period of a lease expires, a tenant is free to decide not to renew the lease but the landlord can only refuse to renew in very limited circumstances, such as an intention to use the premises itself, to demolish and rebuild, or to refurbish the building in order to comply with certain regulations. Tenants can therefore usually rely on the renewal of the lease after the initial term. At the end of the second term there are no restrictions on the landlord's right to refuse a renewal.

It is not possible to enter into a lease contract with a term of more than 30 years.

In relation to business branch leases, parties are free to negotiate the terms of a lease. In general, business branch leases do not provide for an automatic renewal at the end of the term stated in the contract.

Maintenance and Repair of the Real Estate Actually Occupied by the Tenant

The Italian Civil Code distinguishes between ordinary and extraordinary maintenance. Generally, a tenant is responsible for minor repairs and ordinary maintenance, while a landlord is responsible for extraordinary maintenance, unless otherwise set out in the contract (the landlord must remain responsible for extraordinary repairs in the case of residential leases and in general for extraordinary maintenance of structural parts of the premises).

Frequency of Rent Payments

The frequency of rent payments is freely negotiable between the parties. According to standard market practice, rent is paid by a tenant in monthly or quarterly instalments.

Italian law provides for rents to be adjusted annually by a maximum of 75% of the variation in the National Institute of Statistics (ISTAT) index (a measure of consumer price inflation) for non-residential leases although 100% of the variation may be applied – if agreed by the parties – to non-residential leases that have an initial term that exceeds the minimum term provided for by law – eg six years for commercial leases and nine years for hotel leases – or where the yearly rent exceeds EUR250,000); and by a maximum of 100% of the variation in the ISTAT index for residential leases. In a business branch lease (eg a lease with a contractually agreed term entered into for the purposes of a standalone business such as the operation of a retail unit within a shopping centre), the parties are free to agree to the percentage of variation of the ISTAT index – or other kinds of indexes – to be applied, and usually agree on annual rent adjustments based on 100% variation in the ISTAT index.

In the case of an initial reduced rent, the ISTAT adjustment usually starts from the year in which full ordinary rent first becomes payable.

Turnover rents and stepped rents (where rent changes over time to reflect increasing benefits for the tenant or the investment made by the tenant in the premises) are also permitted.

It is currently advisable to specify in a lease contract the express reasons for any rent increase, to clarify that increases are not sought in order to compensate for losses due to inflation, since this is done through application of the ISTAT index variation to the contractually agreed rent (which, as indicated above, is subject to mandatory limitations set forth in the Tenancy Law).

Non-residential leases are exempt from VAT, unless a landlord opts for the VAT regime to apply and states this explicitly in the contract. The applicable rate of VAT is 22%.

Italian law stipulates the services which can be charged to a tenant. The general principle is that tenants can be charged for the full cost of anything done for their benefit, while anything done partly or solely for the benefit of a landlord must be partly or entirely paid for by the landlord. It is advisable to define in the contract what kind of expenses are to be charged to the tenant. 

Registration tax (imposta di registro) is payable on the signing of a lease contract and is charged at 1% of the total anticipated rent for the duration of the lease, or 1% of the annual rent if it is to be paid on an annual basis. The law provides for payment of registration tax to be split equally between the parties, while any other expenses, stamp duties or taxes related to the lease are normally paid by the tenant.

This does not apply for business branch leases where registration tax is usually paid by the tenant.

If the landlord and the tenant enter into an agreement amending an existing lease which only reduces the current rent, the registration of the amendment agreement will not be subject to the payment of any registration tax or stamp duty.

Generally, a landlord is obliged to ensure that the premises remains fit for its normal and agreed use. In a building with multiple tenants, the landlord is responsible for repairing and maintaining the common areas and the structure. Each tenant is responsible for the maintenance of the interior of its individual unit, excluding structural and external repairs.

Expenses for any common services provided by the landlord are paid by tenants in proportion to the size of their units relative to the total rentable area of the property.

The costs of utilities is usually paid by tenants on the basis of their specific usage and requirements.

Many leases contain a clause requiring a tenant to take out an insurance policy covering any damage caused to third parties or to the property as a result of their activities on the premises. The insurance policy for the building itself is usually taken out by the landlord.

Leases usually specify the permitted use of a premises and a tenant is not entitled to modify this. The use may also be restricted by planning laws which have been approved by the planning authority.

The parties to a lease agreement are entitled to agree on the preferred tenant’s works regime. It is generally provided that a tenant may alter or improve the real estate with the prior consent of the landlord; in such a case the tenant may also be entitled to be compensated for such improvements. Leases usually also provide that the landlord can require the tenant to remove any additions and improvements at its own cost at the end of the lease.

Lease agreements are generally divided into non-residential leases (eg for offices, retail space, hotels etc), which are mainly governed by Law No 392/1978 (the Tenancy Law); and residential leases, which are mainly governed by Law No 431/1998. General provisions of the Italian Civil Code apply to both categories.

According to the Italian Insolvency Act, a landlord may not terminate a lease agreement due to a tenant's insolvency. A specific procedure set out under the Italian Insolvency Act applies instead.

A lease agreement may contain penalty clauses and guarantees in favour of a landlord in order to protect against a tenant's default to comply with its obligations. The Tenancy Law sets out certain limitations to cash deposits (up to three monthly rent instalments), while bank guarantees may cover higher amounts.

A tenant is not entitled to continue occupying a real estate after the expiry or termination of a commercial lease, and the landlord may obtain a court order to recover possession if the real estate is not vacated on time. Moreover, the latter may apply for an indemnity for the occupation of the premises (in the absence of a lease agreement currently in place), and further penalty clauses may be provided under the lease agreement.

According to market practice, leases usually contain specific termination clauses setting out conditions which, if breached by a tenant, would allow a landlord to regard the lease as terminated (such as the failure to pay one or more rent instalments, failure to provide the agreed security, breach of the consented use etc). Termination clauses in favour of the tenant are not as common and depend on its bargaining force - if granted, they usually stem from the landlord's failure to perform certain maintenance works.

If a tenant defaults and does not return the premises once the lease contract expires or is terminated, the landlord can obtain a court order to recover possession, but the eviction procedure can take several months.

Local authorities have certain rights to acquire property on a compulsory basis and this includes property held under leases. These powers can only be exercised on certain grounds, such as to enable new developments. A tenant receives the market value of its interest in the property and may also be entitled to further compensation.

The price for a construction project can be agreed by the parties using different mechanisms. In particular, the price can either be:

  • fixed in advance by the parties when the contract is executed, if the price is intended to be a fixed lump sum which refers to the entire work (so-called turnkey agreement);
  • determined on the basis of separate prices for certain parts of the works. The total cost is therefore only determined on completion of the works (by multiplying the price for the separate parts of work by the number of parts actually completed); or
  • agreed on a "costs plus fee" basis, where the constructor is paid based on the duly evidenced costs borne in connection with the realisation of the project in addition to a pre-agreed fee.

The responsibility for the design of a given project usually lies with the designer appointed by the principal. It cannot be excluded, however, that the ensuing liability remains with a contractor because it has also been entrusted with the design phase.

The principal usually manages the construction risk of a project development (such as the increase of relevant costs) by obtaining proper representations and warranties from a contractor in relation to the feasibility of the project as the terms and conditions set out in the construction contract. Customarily, construction contracts provide for performance bonds and/or retainers over the advanced payments of the consideration (which shall be paid only upon positive completion of the testing process) and do not include waivers to damages possibly suffered by the principal. Insurance policies are usually entered into by the constructor to protect certain risks during the execution of the works.

An owner is entitled to penalties in the event that the milestones or completion dates agreed in the construction contract are not met. It may be agreed that if the intermediate milestones are not met but nonetheless the completion date is positively achieved, the principal will have to return any penalty paid by the contractor in relation to the missed milestones.

Broadly speaking, there are two main categories of sureties related to construction projects: guarantees related to the development phase (eg, performance bonds), and legal guarantees over the defects of the realised work once it has been completed and positively tested. The contractor's obligation deriving from the aforementioned legal guarantees for defects may also be secured by performance bonds.

Customarily, contractors and/or designers are entrusted to perform their activities in relation to a real estate property which is owned in actuality by the principal and therefore the latter is the only subject entitled to use the property as collateral. With specific reference to the design, if the principal fails to fulfil its payment obligation vis-à-vis the designer, the latter retains the economic rights to exploit its intellectual property output.

According to the specific features and characteristics of a property, a property may be inhabited and used only once a fit-for-use certificate and a fire-prevention certificate have been provided.

The sale of commercial properties between two VAT entities is generally exempt from VAT, except in the following cases:

  • where a seller is the developer of a new property or is the company which carried out renovation works, and the sale occurs within five years of the completion of the property; or
  • where a seller opts, in the sale and purchase agreement, to apply VAT at a 22% rate to the sale and purchase.

In the first case, VAT is due under the ordinary regime, which requires the seller to issue an invoice charging VAT. If the seller opts for VAT application, the reverse charge mechanism applies. VAT can often be recovered, although this can take up to two years.

Under the reverse charge regime, the seller issues an invoice without VAT. The buyer then writes into that invoice the rate and amount of the applicable VAT and registers it in both its input and output VAT registers. The result is a VAT-neutral transaction.

If the sale and purchase are within the scope of VAT (either taxable or exempt), cadastral tax at a rate of 1%; mortgage tax at a rate of 3%; and registration tax of EUR200 are payable. Mortgage and cadastral taxes are reduced to an overall 2% if one of the parties is an Italian real estate investment fund.

In the case of residential properties, the sale between two VAT entities is ordinarily VAT exempt, unless:

  • a seller is the developer of a new property, or is the company that carried out renovation works, and the sale occurs within five years of the completion of the property; or
  • even after five years from the completion of the above-mentioned works, the sale is carried out by the company who built/renovated the property and a seller opts, in the sale and purchase agreement, to apply VAT. VAT in this case would be applied under the reverse charge mechanism.

VAT on residential buildings is applied at a rate of 10% (22% in the case of luxury buildings).

If the sale of a residential building is exempt from VAT, registration tax is payable at a rate of 9%, while cadastral and mortgage tax are payable at fixed rates of EUR50 each. Registration tax, mortgage and cadastral taxes are applied at the fixed amount of EUR200 each in case the sale is subject to VAT.

Each side will normally pay its own legal costs. Property transfer tax, notary fees and the legal costs for the implementation of a sale and purchase agreement are usually paid by a buyer, with the exception of any legal costs incurred in connection with the cancellation of existing encumbrances on the property, which are paid by the seller.

Agency fees are usually between 1% and 3% of the property value. Unless otherwise agreed between the parties, the estate agent can claim its total fee from both parties (except where the payment has already been declared in the transfer deed). Please bear in mind that the presence of agents and brokers needs to be declared in the notarial deeds of conveyance.

For acquisitions of commercial properties by real estate investment funds and SIIQs, the rates of cadastral tax and mortgage tax are halved to 0.5% and 1.5% respectively.

The contribution to real estate investment funds and SIIQs of a plurality of real estate properties mainly leased is out of the scope of VAT and subject to fixed cadastral, mortgage and stamp duty.

Any owner with an interest in immovable property located in an Italian municipality is subject to a municipal tax, composed of two sub-taxes: the unified municipal tax (imposta municipale propria, IMU) and the tax for communal services.

The municipal tax on immovable property is levied on the possession of immovable property (buildings, development land, rural land) located in Italy. The IMU is generally levied at a rate of 0.76%, but the municipality in which the immovable property is located may increase or decrease the rate. The taxable base is determined by multiplying the value of the land according to the immovable property registry by certain coefficients (often sensibly lower than the market value). Italian corporate vehicles and Italian partnership may deduct 20% of the IMU paid on instrumental immovable properties from the corporate income tax base. IMU is not deductible for IRAP purposes.

The tax for communal services is composed of the communal services tax (tassa per i servizi indivisibili, TASI) and the waste or garbage tax (tassa sui rifiuti, TARI).

TASI is a tax applied for the purpose of paying the indivisible services provided by the municipality (public illumination, road maintenance, municipal registers, public security etc), and is due by both a landlord and tenant (the municipality decides the portion to be paid by the tenant, within a range of 10-30%). TASI is applied on the same taxable basis as IMU. Generally, each municipality is authorised to set the TASI tax rate (ordinary rate of 0.1%). 

TARI is applied on the basis of the square metres of real estate properties and, for residential buildings, on the number of people living in the properties or, for industrial or commercial buildings, on the basis of the activities carried out in the properties. The TARI tax rate is decided by the municipality. TARI is paid by the landlord or by the tenants, if the property is leased to third parties.

An investor may derive income from letting property, either directly or by means of dividends or distributions made by a corporate vehicle or fund. Tax on rental income may vary substantially, depending on the structure of the investment. There are five main options in this regard:

  • Where the property is held by an Italian corporate vehicle, if the real estate is leased to tenants, any rental income generated is subject to corporate tax (IRES) at a rate of 24% and regional tax (IRAP) at the ordinary rate of 3.9% (that can be increased depending upon the region in which the legal seat is located).
  • Taxable income for IRES purposes is the net revenue after the deduction of costs, as shown in the annual profit and loss account. With some minor exceptions, all costs relating to the activities of a company can be deducted, including interest (as long as this exceeds interest receivable), up to an amount equal to 30% of EBITDA, unless interest is due on loans that are secured by mortgages over real estate for 'letting' is not subject to the 30% threshold and is therefore fully deductible.
  • Depreciation of property is deductible to the extent allowed by law. In certain circumstances, taxable income can be mitigated for IRES purposes by using appropriate leverage. 
  • The income subject to IRAP is the amount of revenue after the deduction of costs, as shown in the annual profit and loss account. However, not all costs related to the company's activities can be deducted, including interest payments, the cost of employees and IRES payments.
  • The taxation of dividends distributed to shareholders depends on the nature of a shareholder. The dividends effectively distributed by a company in favour of a foreign natural person are generally subject to a withholding tax of 26%, with the right to request a tax refund equal to 11/26 (42.307%) if a definitive tax has been applied on the same income abroad.

On the other hand, the dividends distributed by a company to another company are generally subject to a withholding tax of 1.2%.

An Italian partnership is a transparent entity for tax purposes. Consequently, income deriving from investments is taxed at the level of individual partners, even if this is not distributed as dividends.

In the case of non-resident partners, the income is taxed as business income at the level of the partner at a rate of 24%.

IRAP at the ordinary rate of 3.9% applies at the level of the partnership. The income and allowable deductions for the purposes of IRAP are the same as for corporate vehicles.

In the case of investment without a permanent establishment in Italy (please note that, in contrast to the position in some countries, owning Italian real estate does not automatically give rise to a permanent establishment in Italy), the income derived from letting property is subject to IRES payable at a rate of 24%. 95% of the gross income derived from letting is taxable and no depreciation or other costs can be deducted.

Interest on loans secured on a property is not deductible for tax purposes.

Italian real estate investment funds are not subject to IRES or IRAP.

SIIQs are not subject to IRES and IRAP on income from letting property, or on the dividends paid by another SIIQ, if those dividends relate to letting property.

Taxation upon disposal of real estate properties depends on the structure of the investment.

Moreover, an investor may derive gains from the disposition of a real estate property. Tax on capital gains deriving from the sale of real estate properties may vary according to the structure of the investments.

Taxation Upon Exit for Foreign Investors

Taxation upon exit from an investment depends on: i) the structure of the sale; and ii) the structure of the investment.

Profits on the sale of property realised by an Italian corporate vehicle are subject to IRES at the ordinary rate of 24%, regardless of how much time has lapsed since its acquisition. The profit is the difference between the book value of a property at the time of the sale (as reduced by depreciation) and the agreed purchase price. In some cases, it is possible to spread the liability for tax on capital gains over a period of five years.

Capital gains realised from the sale of property are also generally subject to IRAP at a rate of 3.9%, unless the sale is considered to be an 'extraordinary activity' (eg, outside the normal activities of the company).

In case of sale of the participation into the Italian vehicle, capital gain is subject to Italian taxes at a rate of 24% on the 58.14% of the capital gain amount (26% on 100% starting from 2019). Double tax treaties in force between Italy and the country of residence of a foreign investor may provide for exclusive taxation in the country of residence of the foreign investor.

Financial transactions tax (Tobin Tax) is payable by the purchaser of shares in an Italian resident joint stock company, even if the purchaser and the seller are not Italian residents. This tax is levied at a rate of 0.2% on the agreed price.

Capital gains derived from the sale of real estate are not subject to IRES if the property is sold more than five years after its acquisition. If the sale occurs within five years, IRES applies at a rate of 24%. Since depreciation is not permitted in the absence of a permanent establishment, taxable gains comprise the difference between the acquisition cost at the time of purchase and the price agreed for the sale of a property.

Since an Italian partnership is a transparent entity for tax purposes, any income deriving from the sale of real estate is taxed at the level of the individual partners, even if this is not distributed. If the partner is non-resident, income is taxed at partner level at a rate of 24%.

Capital gains are excluded from the IRAP taxable basis of a partnership, unless its normal business activities include the sale of real estate. If this is the case, capital gains is included in the IRAP taxable basis.

In case of sale of the participation into the Italian vehicle, capital gain would be subject to Italian taxes at a rate of 24% on the 58.14% of the capital gain amount (26% on 100% starting from 2019). Double tax treaties in force between Italy and the country of residence of a foreign investor may provide for exclusive taxation in the country of residence of the foreign investor.

Capital gains from the sale of property are included in the fund's net income and taxed at the level of the investors when the income is distributed or upon redemption of the units.

In case of sale of the participation into the Italian fund, capital gain would be, in principle, exempt from taxation in case the foreign investor is resident in a white listed country.

Capital gains from the sale of real estate by a SIIQ are included in the taxable income for IRES and IRAP purposes.

Italian corporate vehicles and Italian partnerships are allowed to deduct real estate depreciation, while direct investment from abroad is not granted any deduction.

DLA Piper Studio Legale Tributario Associato

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Milan
Italy

+39 02 806181

+39 02 80618201

info@dlapiper.com www.dlapiper.com
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DLA Piper Studio Legale Tributario Associato has a market-leading real estate offering: an international multi-disciplinary team of lawyers that can serve client needs globally across the real estate sector. It has over 500 real estate lawyers operating in more than 40 countries around the world and is able to serve clients in key real estate markets, with strongly established teams in Europe, Asia Pacific, the Middle East, Africa and the Americas. DLA Piper works with clients through all stages of the real estate life cycle, including planning, acquiring, finding, developing, leasing, completing, trading and divesting. Working through this cycle, the team offers the following services: financing, acquisitions and disposals, asset management, construction, cross-border investment, development, fund formation, joint ventures, leasing, litigation, planning, zoning and environmental issues, public-private partnerships, REITs, restructuring and tax. Lawyers work alongside investors, lenders, developers and managers on every aspect of their real estate activities. They advise on matters ranging from fund formation and establishing investment platforms for clients moving into new markets for the first time to cross-border portfolio acquisitions and restructuring loan facilities secured on assets in multiple jurisdictions.

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