Real Estate 2024 Comparisons

The Italian Civil Code is the main source of real estate law for civil aspects. Commercial leases are governed by Law No 392/1878 (the Tenancy Law), while residential leases are governed by Law No 431/1998.

Zoning and planning aspects are mainly regulated by several national, regional and municipal laws and regulations. In this regard, the main national sources are Urban Planning Law No 1150/1942, which disciplines planning aspects, and D.P.R. 380/2001, regulating construction aspects.

The main sources of the real estate finance law are:

• Legislative Decree No 385 of 1 September 1993 (TUB), on banking and lending matters;
• Law No 130 of 30 April 1999 on securitisation transactions;
• Legislative Decree No 170 of 21 May 2004, on financial security agreements; and
• Directive 2011/61/EU on alternative investment fund managers.

The real estate market is also facing the potential challenges of complying with complex new ESG regulations. Initiatives that closely involve the real estate market are Regulation (EU) 2019/2088 on sustainability-related disclosure in the financial services sector (SFDR) and Regulation (EU) 2020/852 of 18 June 2020 (“EU Taxonomy”).

The SFDR aims to bring greater transparency on social and environmental responsibility for financial markets, and to limit so-called “greenwashing”. It also aims to ensure comparability of products and direct the flow of private capital toward more sustainable investments.

The EU Taxonomy identifies a set of criteria for determining what is green and sustainable and what is not, and identifies all those economic activities that make a substantial contribution to achieving at least one of the six environmental objectives identified by the European Commission.

The total investment volume for commercial real estate in Italy in 2023 was approximately EUR6.6 billion, decreasing by almost 45% compared to 2022 (although Q4 2023 saw more growth than the previous quarter, reaching approximately EUR2.9 billion, which was a 17% increase compared to the same period in the previous year).

The contraction in real estate purchases and sales can be attributed to various factors:

• High interest rates: High rates were caused by the constant increases made by the ECB to counter high inflation.
• Increased difficulty in accessing credit: Rising rates caused interest rates on variable mortgages to soar and prompted banks to tighten lending conditions.
• Russia-Ukraine conflict: In addition to socio-economic instability, the war has also affected the procurement of energy resources, leading to higher utility bills and increased housing construction costs.
• New post-pandemic housing needs: Restrictions due to the COVID-19 pandemic and the increased use of smart working have focused buyers’ attention on housing solutions with larger spaces and in suburban areas.
• Increased focus on energy class: Italians are increasingly focusing on the energy class of their home and are looking for properties with low energy consumption, while the supply of homes with high energy classes is still too scarce to cover demand.

Despite the slowdown in price inflation bolstering the prospect of monetary policy normalisation, the repricing process observed since the second half of 2022 has not yet fully ended and will likely continue to be an obstacle to closing new investments during the first half of 2024.

Logistics maintained its significance, representing around 26% of total investments, driven by strong leasing demand, low vacancy rates and rising rents.

The demand for technological facilities and healthcare assets continued and the “alternatives” sector registered a volume of around EUR900 million. Notably, investments in healthcare assets surged, reaching approximately EUR600 million – more than double the amount seen in 2022.

The hospitality sector retained strong investment volumes, experiencing the least contraction compared to 2022 in terms of capital invested, with a total of EUR1.1 billion.

Investments were mainly concentrated in Milan, but Rome and secondary cities such as Florence and Bologna also confirmed their attractiveness, particularly in the student housing segment, which recorded numerous transactions in such cities, also thanks to funds made available by the National Recovery and Resilience Plan.

The most significant deals in 2023 included:

• The Fedrigoni Group monetised most of its European industrial production portfolio (over 400,000 square metres of built surfaces and mostly composed of industrial spaces, with associated logistics and office areas), with the majority of the assets located in Italy (85%), specifically Lombardy, Veneto, Trentino Alto-Adige, Friuli-Venezia Giulia and Marche, with the remaining 15% divided between Spain and Germany.
• The 5-star luxury hotel Six Senses in Rome, the brand’s first urban hotel, was sold by Orion Capital Managers to the Statuto Group, which already owns some of Italy's most prestigious hotels, for a record EUR245 million.
• Palazzo San Fedele in Milan was sold by COIMA SGR to an investment vehicle underwritten by Union Investment Real Estate GmbH for the establishment of Bottega Veneta’s (Kering Group's) headquarters following a sustainable redevelopment of the building co-ordinated with the Superintendency of Milan.

Start-ups and venture capitalists are focusing on improving the “tokenisation” of real estate assets, driven by the need to increase the liquidity of the market, and the fragmentation of investments. These technologies are still to be fully implemented but they have all the necessary attributes to emerge as a viable alternative market for small/medium projects accessible to retail and institutional investors.

Italy continues to be a major player in European real estate crowdfunding, ranking fourth in the continent. This data comes from the sixth Real Estate Crowdfunding Report, drawn up by the research group of the Crowdinvesting Observatory created by the Polytechnic of Milan and financed by Walliance.

Between July 2022 and June 2023, Polytechnic of Milan recorded 500 successfully closed campaigns, of which only 27 were in equity. The remainder was financed by lending.

Within Italy, Lombardy emerged as the clear leader in real estate crowdfunding activity, accounting for 42% of total projects (Milan alone accounted for 21% of projects).

Italy is undergoing a broad tax reform, including changes affecting VAT on real estate transactions, particularly for residential properties. These changes are driven by Law 111/2023, which empowers the government to reform the tax system.

The Budget Law 2024 introduces, inter alia, specific measures for short leases. Landlords can now choose a flat tax rate of 26% under the “Cedolare Secca” tax regime in lieu of income tax and related surcharges, as well as registration taxes on the lease. The “Cedolare Secca” tax regime is a distinct taxation framework characterised by a flat-rate tax, offering an alternative to standard income tax (Imposta sui redditi delle persone fisiche, IRPEF) applied to rental income.

For those declaring income from short leases related to a single unit, the tax rate stands at 21%.

Law 111/2023 also opens the door for extending the “Cedolare Secca” regime to non-residential properties. This would allow landlords of commercial or professional spaces to potentially benefit from the flat tax system.

The categories of property rights that can be acquired are as follows:

• absolute freehold or full ownership (piena proprietà) – the right to fully enjoy and dispose of the property;
• right to build or surface right (diritto di superficie) – the surface right is either the right to build on a third party’s property and, subsequently, to purchase the property of the building built, or the right to sell the existing building separately from the land itself;
• beneficial interest (diritto di usufrutto) – the right to enjoy a third party’s real estate for a specific (and limited) period of time;
• right of use (diritto d'uso e di abitazione) – 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) – the right to enjoy a property owned by a third party, similar to those granted to a full owner.

Standard Italian transactions refer to sale and purchase or absolute freehold/full ownership.

The Italian Civil Code governs the transfer of title, along with tax, zoning/planning and cadastral regulations.

A deed transferring a real estate asset shall be in writing and executed before an Italian notary, who has the duty to authenticate it. Preliminary sale and purchase agreements shall take the same form as the final deed and therefore must be made in writing.

The parties can freely negotiate the content of the notarial deed, except for the following requirements, which must be included according to the applicable law:

• the price and means of payment;
• the cadastral data of the real estate asset and declaration of compliance of the cadastral plans (planimetrie catastali) filed with the competent Building Cadastre with the actual status of the real estate asset;
• a list of building permits issued to build the real estate asset;
• the rules allocating the risks and benefits of the real estate asset; and
• details of the real estate broker involved (if any) and the relevant fee paid to the broker.

Once executed, the notary files the deed with the Real Estate Register (Conservatoria dei Registri Immobiliari); this is not a requirement for the validity of the notarial deed but it is necessary to avoid conflicts with third parties and future buyers.

Because the Italian legal system gives the buyer a certain level of assurance in terms of title to the property, title insurance might not be necessary.

After the COVID-19 pandemic and the issuance of European Directive 1151/2019, which was implemented in Italy through the European Delegation Law 2019–2020, there was a significant expansion of the use of digital tools in the legal field, enabling the remote execution of computerised notarial acts.

This novelty is part of the regulatory trend that, since 2013, has legitimised the use of so-called digital public deeds, where parties electronically sign a digital version of the deed instead of paper documents.

A potential purchaser should build up a team of legal, tax, commercial and technical advisers.

Areas of investigation are the following:

• title to property (in this respect, it is fundamental to obtain a 20-year notarial report, including an investigation into third-party rights, registered prejudicial liens and the seller’s title to the property);
• leases and contracts relating to the property;
• third-party rights and encumbrances affecting the property;
• zoning/planning permits (including agreements entered into with municipalities authorising the construction of the property);
• litigation; and
• analysis of all technical aspects of the property (eg, plants, fire prevention system and certificate).

Usually, technical and commercial analysis requires specific site visits. Because of the pandemic-related travel restrictions, many due diligence exercises were divided into a “documental phase”, where the advisers assess the documents in a dedicated virtual data room, followed by a second phase with site visits if there is a positive outcome from the first phase.

According to statutory law, the seller has to guarantee the following:

• the title to the property;
• the property is free from any third-party rights, except those reported in the deed (if any);
• the factual cadastral situation of the property complies with that registered with the relevant cadastre; and
• the list of the building titles.

According to the Italian Civil Code, the purchaser has to notify the seller of any breach of the warranties within eight days from the relevant discovery. A one-year statute of limitations applies from the date the purchaser takes possession of the property. These 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 usually negotiate and include additional representations and warranties, and agree to depart expressly from the set of rules included in the Italian Civil Code in relation to warranty defects, thus derogating to the above-mentioned time limitations.

Additional representations and warranties are usually included in sale and purchase agreements.

Parties usually include contractual remedies or special indemnities to cure any breach of the representations and warranties preventing the termination of a sale and purchase agreement once the transfer of title has been executed.

The representations and warranties generally last for a certain amount of time (the “survival period”) following the execution of the sale and purchase agreement, and the buyer will not be able to cover claims that arise following the end of the applicable survival period.

The survival period usually ranges from six months to two years, although representations and warranties covering the seller’s title to the property and tax matters usually remain valid until the statutory terms provided by law have elapsed.

Warranty and indemnity insurance policies providing cover for losses arising from breaches of the representations and warranties are being used with increasing frequency, particularly when one of the parties (often a real estate investment fund) is to be liquidated upon completion of the relevant transaction. Usually, the policy is underwritten by the purchaser, and payment of the insurance premium is divided between the parties.

Investors should carefully evaluate all tax aspects of the investment. Other areas to be taken into account would vary depending on the type of investment to be carried out. In relation to core investment, a detailed evaluation of leases in place would be required, while for value-add investments – where the goal is to increase/create value – planning and zoning aspects should be evaluated in detail, with the same approach to be applied as to the acquisition of development projects.

Italy applies the “polluter pays” principle, which means that an owner who is not responsible for the pollution/contamination is not obliged to carry out the relevant remediation works. If the owner does not carry out remediation works, the owner would not be entitled to carry out construction works and, in the worst-case scenario, the public authorities may carry out the remediation works at the expense of the owner. In this case, upon the sale of the area, the public authorities should return to the owner the excess price obtained through the sale compared to the costs borne by the public authorities to carry out the remediation works.

The permitted use of an asset is set forth in the general town planning scheme of the city but, in the case of existing buildings, the construction history of each asset should also be taken into account, since it could affect the establishment of a specific use.

A buyer may ascertain the permitted use under the town planning rules in force by requesting a zoning certificate (certificato di destinazione urbanistica), from which it is also possible to discover any urban planning restrictions that apply to the asset.

Private ownership might be subject to an expropriation procedure if there is a supervening public interest, such as the realisation of public works or works of public interest. In this event, an indemnification shall be paid to the owner of the property/land. It should be noted that the indemnification is at the market price of the property/land subject to expropriation.

Non-residential Property

The sale of a non-residential property by one VAT entity to another VAT entity is generally VAT-exempt, other than in the following circumstances:

• if the seller was also either the developer of a newly constructed property or the entity that carried out renovation works on an existing property, provided that the sale is performed within five years of the date when the construction or renovations works are completed (mandatory VAT); or
• when the above requirements are not met, if the seller exercises the option to apply VAT to the sale and purchase transaction, and the exercise of this option is properly set out in the deed providing for the sale and purchase of the real asset.

In either of these cases, one of the following two mechanisms will respectively apply:

• the ordinary regime in the first case, which provides that the seller must issue an invoice in connection with the sale charging the VAT; or
• the reverse charge mechanism in the second case (ie, when the seller opts for VAT to apply), which provides that the seller will not charge VAT in the invoice, and the purchaser then “writes in” the rate and amount of applicable VAT in the invoice, and then registers the invoice and the VAT in its input VAT register and its output VAT register; consequently, the sale and purchase transaction will be VAT-neutral (and no cash-out for VAT).

The applicable VAT rate is either 22% or the reduced rate of 10% if the real property sold underwent material renovation works.

The following taxes will be payable in any sale and purchase of non-residential real assets:

• cadastral tax at 1% of the sale price;
• mortgage tax at 3% of the sale price; and
• registration tax of EUR200.

Mortgage and cadastral taxes can be reduced to an aggregate 2% rate if one of the parties to the transaction is an Italian real estate investment fund (REIF) or if the property is acquired by an Italian listed real estate investment company (Società di Investimento Immobiliare Quotata, SIIQ). The tax authority may verify within two years if the sale price is in line with the fair market value.

Generally speaking, VAT can be offset against output VAT, offset against other taxes, or recovered through a refund by the tax authority under certain circumstances.

Residential Property

The sale of residential property by a VAT entity to another VAT entity is generally VAT-exempt, except where:

• the seller was also the developer of a new property or is the company that carried out renovation works, the developer of a newly constructed property or the entity that carried out renovation works on an existing property, provided that the sale is performed within five years from the date when the construction or renovations works are completed; or
• the sale and purchase transaction takes place more than five years after the works are completed, and the seller is the developer or entity that performed the renovation works on the real property, and exercises the option to apply VAT; in these circumstances, VAT would be applied under the reverse charge mechanism.

The following taxes apply on sales of residential properties that are VAT-exempt:

• cadastral tax of EUR50;
• mortgage tax of EUR50; and
• registration tax at 9% of the sale price (the tax authority may verify within two years if the price is in line with the fair market value).

Otherwise, the registration tax, mortgage tax and cadastral tax will each be due at EUR200.

The sale of a real property whose VAT was not totally deducted by the seller VAT entity when it purchased the property is always VAT-exempt (and liable to proportional registration, cadastral and mortgage taxes).

Typically, the purchaser will pay the transfer tax and the fees for the notary. Brokerage fees typically range from 1% to 3% of the sale price.

If the transfer of the asset is the result of the acquisition of the entity that owns the asset, then the transfer transaction is VAT-exempt and a registration tax of EUR200 will be due, regardless of which percentage of ownership in the entity is purchased, and no stamp duty will be due in connection with the transaction. However, a financial transaction tax (also called a Tobin Tax) will be due on a purchase of any number of shares representing the corporate capital of a joint stock company (but not in the case of quotas in a limited liability company or participation in a real estate fund) that is an Italian resident company for tax purposes, regardless of whether the purchaser or the seller is an Italian resident. This financial transaction tax is equal to 0.2% of the sale price.

In principle, there are no restrictions on foreign investors acquiring real estate. However, it shall be verified whether or not investors come from countries that are affected by international sanctions or where rights are limited or restricted, in which case the so-called reciprocity principle (ie, whether the country of the investor grants a similar right to Italy) or the investment screening regulations at the European level might apply.

Commercial real estate purchases are generally financed through bank loans, although the number of real estate financings granted by non-banking institutions has increased significantly.

In the real estate market, investors can participate in commercial real estate through contractual vehicles like real estate investment funds (REIFs) or corporate vehicles like SICAVs and SICAFs (joint stock companies with variable or fixed capital).

An additional financing scheme is represented by real estate securitisations. Special purpose vehicles meeting certain requirements can carry out securitisation of proceeds arising from the ownership of real estate and registered movable assets as well as other rights in rem or personal rights over such assets.

In recent years, some provisions have entered into force in Italy introducing new alternative lending (ie, entities can operate in the Italian market without requiring a banking license).

There are two types of alternative lending: (i) the European alternative investment funds (EU AIFs) can carry out investment activities in receivables in Italy; while (ii) the special purpose vehicle (SPV) can grant financing to certain borrowers under conditions provided by Law No 130 of 30 April 1999.

Italian real estate finance transactions are assisted by an extensive security package that includes:

• the mortgage;
• the assignment of rental receivables;
• the assignment of due diligence report receivables;
• the assignment of construction contracts receivables;
• the assignment of hedging agreements receivables;
• the pledge over the corporate capital of the borrower;
• the pledge over the shares of the borrower;
• the pledge over the units of the borrower;
• the pledge over the borrower’s bank accounts;
• the assignment of receivables under other contracts or of insurance proceeds;
• the loss payee clause in connection with any insurance policy (other than covering third-party risks);
• the equity commitment agreement; and
• the subordination agreement.

There are different restrictions on granting securities in the context of a real estate financing transaction.

If a company enters into a financing transaction, it needs to receive some corporate benefits.

Such transaction must be considered on its merits and the corporate benefit in granting the security must be assessed in the context of that transaction.

To ensure that any guarantee or third-party security is valid, the lender needs to identify any concerns regarding corporate benefit and ensure that the situation is properly addressed.

The fund’s units may be pledged in accordance with Article 2784 of the Italian Civil Code.

For registered notes, an entry in the issuer’s register of unit holders, held by the management company, is necessary.

A pledge over dematerialised units is also allowed.

Pursuant to Article 2358 of the Italian Civile Code, a joint stock company may not, directly or indirectly, obtain loans or provide securities for the purchase or subscription of its shares, except under certain conditions.

Limited liability companies are subject to stricter rules, as detailed in 3.5 Legal Requirements Before an Entity Can Give Valid Security.

Pursuant to Presidential Decree No 601 of 29 September 1973 (Decree 601/1973), some loans and related securities granted can be exempt from the ordinary taxation regime.

The borrower can pay a substitute tax, which is an all-inclusive tax at a rate of 0.25% of the principal amount of the loan.

In the cases mentioned in 3.10 Taxes on Loans, the parties can expressly exercise the option of applying the substitute tax regime to securities.

If the parties do not exercise this option, the security package will be subject to the ordinary taxation regime, including:

• notary fees (in case of notarial securities);
• stamp duty;
• cadastral tax;
• registration tax;
• mortgage tax; and
• governmental duties.

The deed of pledge over quota granted by a third person other than the debtor, bears registration tax at the rate of 0.5%, which is calculated on the taxable base represented by the amount secured by the pledge.

The granting of security on own assets in favour of third parties – within a group of companies – is always subject to the existence of a corporate benefit, and to certain restrictions in financial assistance situations.

Corporate benefit should exist, and be verified, on a case-by-case basis.

In the case of joint stock companies, financial assistance is generally prohibited, but it is possible to provide security over own assets subject to compliance with certain steps, formalities and restrictions (see 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders).

Limited liability companies are subject to stricter rules. In particular, Article 2474 of the Italian Civil Code regulates transactions on their quotas, preventing companies from making transactions to purchase their quotas or provide securities for their purchase or subscription.

In case of borrower default, the acceleration of the loan and enforceability of the securities are regulated by the provisions of the Italian Civil Code, the Legislative Decree No 170 of 21 May 2004 (as the case may be), as supplemented by the facility agreement and the security documents.

The lender shall notify the borrower that an event of default has occurred.

The lender may withdraw from the facility agreement and/or accelerate the payment obligations of the borrower, and/or terminate the facility agreement.

Upon withdrawal, acceleration of the payment obligations or termination, all outstanding amounts will be immediately due and payable (save for any grace period permitted by law).

The lender may be entitled to enforce the relevant securities.

Banks and companies’ shareholders (or funds’ unit holders), can enter into a subordination agreement.

A subordination agreement establishes one debt as ranking behind another in priority for collecting repayment from a borrower. A second-in-line creditor collects only if and when the priority creditor has been fully paid.

When a lender accepts a subordination agreement, it acknowledges that another party’s claim or interest will take precedence over its own in the insolvency, winding-up or liquidation of the borrower.

Lenders are not juridically liable in relation to environmental issues affecting borrowers.

Legislative Decree No 14 of 12 January 2019 (the “Insolvency Law”) regulates the crisis and insolvency situations of the borrower.

The asset and financial imbalance of mutual funds, and in particular liquidation in cases of insolvency, is regulated by Article 57 paragraphs 6-bis and 6-bis.1 of Legislative Decree No 58 of 24 February 1998 (TUF).

Article 57 paragraph 6-bis of the TUF provides that if the assets are insufficient to satisfy the fund’s obligations, and there is no reasonable prospect that this situation can be overcome, the creditors or the management company can request the fund’s judicial liquidation.

In order to protect the holders of financial instruments issued in securitisation transactions, Article 4 of Law No 130 of 30 April 1999 expressly excludes from the application of the bankruptcy claw-back action, pursuant to the Insolvency Law, payments made by the assigned debtors in favour of the assignee company. The borrower’s insolvency is one of the cases of an event of default and it could lead to the acceleration of the loan.

Pursuant to Decree 601/1973, some loans can be exempt from registration tax, stamp duty, mortgage and cadastral taxes and taxes on government concessions (otherwise applicable to the loan and the security package).

The parties can expressly exercise the option of applying the substitute tax regime (0.25% of the principal amount of the loan) instead of the ordinary taxation regime to the facility agreement.

The substitute tax applies, upon option, to:

• transactions related to medium- and long-term financing (more than 18 months carried out by banks);
• financing transactions, the duration of which are more than 18 months, set up by securitisation special purpose vehicles, EU insurance companies and by EU UCITSs; and
• securities of any kind, by anyone and at any time given in connection with financing transactions structured as issues of bonds or bond-like securities.

Town planning rules are set forth by each municipality at a local level by means of the general town planning scheme.

The local rules must be in compliance with national and regional legislation (indeed, zoning is a shared competence between the state and the region), and with higher-ranking plans (such as the regional and provincial plans).

The regional authorities must also check each local town planning scheme and have the authority to require any necessary changes to the rules to ensure compliance with the higher-ranking plans.

The regulation of the design, appearance and method of construction of new buildings, and the refurbishment of existing buildings, is set forth principally at a national level. However, certain aspects of design and appearance may be further detailed locally, through the building regulation of the municipalities.

The municipality is responsible for authorising and controlling the development of individual parcels of real estate.

If the asset is affected by specific restrictions, the authority competent over the constraint must issue its prior approval.

In any case, development projects must comply with town planning, building, hygiene, health and safety, structural stabilityand fire prevention regulations, as well as any specific constraint (hydrogeological, cultural, landscape, etc) affecting the asset.

The entitlement procedure and specific building title depend on the type of building works to be carried out, and they are mainly regulated by national legislation.

For certain works, the developer must submit a prior certified notice to the Municipality (a Start Works Notice or SCIA – Segnalazione Certificata di Inizio Attività), which is checked by the relevant municipal offices.

Significant works are subject to the issuance of a building title (building permit) on the part of the municipality.

The general town scheme may – at a local level – provide for the necessity to approve a prior implementation plan or to enter into a town planning agreement.

Building permits expire if the developer fails to carry out the works within given timeframes.

An operator who requested and was denied a building permit may challenge such denial before an administrative regional court.

Third parties may challenge an existing title (before the administrative courts) if they have legal standing and interest to sue (ie, they can prove they have a direct interest in the development project and are affected by it).

Through town planning agreements, the municipality and the developer regulate various aspects of the development, such as the transfer of areas to the municipality for public use and the realisation of urbanisation works (roads, squares, parks, etc). The execution of urbanisation projects follows the guidelines set out in the Public Procurement Code, which has recently been entirely revised (Legislative Decree No 36/2023).

Any building works carried out in violation of building or town planning regulations may be subject to a suspension order, a demolition order and/or an order to re-establish the legitimate status of the building. The developer may also incur administrative and/or criminal liability. In certain cases set forth by the Building Law, it is also possible to apply to the municipality for a regularisation procedure to address any building abuses or non-compliance.

Real estate investments in Italy are mainly carried out via one of the following types of investment vehicles, or a combination thereof.

Companies

Real estate companies are special purpose vehicles carrying out the purchase/sale, management, leasing and building of real estate assets. Real estate companies are generally formed as limited liability companies (società a responsabilità limitata – S.r.l.) or joint stock companies (società per azioni – S.p.A.), and are usually not listed on an exchange (with few exceptions).

REIFs

REIFs are undertakings for collective investments, and are generally used to invest in a variety of real estate assets.

REIFs must be managed by licensed Italian managers (so-called SGR), or alternatively by non-domestic EU managers under the freedom to provide services regime (management passport), or by establishing an Italian branch.

REIFs must invest at least two-thirds of their assets into real estate assets (including rights in rem on such assets, equity interests in real estate companies, and units of other REIFs). The remaining third may be invested in listed or non-listed financial instruments.

REIFs may not directly own business activities, which are deferred to affiliates indirectly owned by the REIF.

SIIQs

Listed real estate investment companies are Italian investment vehicles that have the following features:

• SIIQs must be formed as joint stock companies, and their shares must be listed on a regulated stock exchange of an EU member state or a European Economic Area member state, and must be resident for income tax purposes in the same area.
• No shareholder can own, directly or indirectly, more than 60% of the voting rights nor have the right to more than 60% of the company’s profits.
• At least 25% of the shares must be owned by shareholders who do not own, directly or indirectly, more than 2% of the voting rights nor have the right to more than 2% of the company’s profits.
• SIIQs’ main business must be the leasing of real estate assets.

Real Estate SICAFs

A Real Estate SICAF is an Italian joint stock company with fixed corporate capital that has its registered office and headquarters in Italy. A Real Estate SICAF raises capital by offering its shares or other equity instruments, and invests the capital raised into real estate assets.

The considerations that apply to REIF investments also apply, mutatis mutandis, to Real Estate SICAF investments.

The recent Law No 21/2024 introduced measures aimed at simplifying the regulation of SICAVS and SICAFS through the introduction of a distinction between SICAVs and SICAFs that directly manage their own assets (so-called self-managed) and those that entrust the management of their assets to licensed intermediaries (so-called hetero-managed SICAVsS/SICAFs), and also eliminated the unnecessary requirements imposed on hetero-managed SICAVs/SICAFs by the current Article 38 of the TUF, aligning their regulatory provisions with those applicable to OICR.

Real Estate Securitisation Vehicle

The real estate securitisation scheme was introduced in Italy in 2019, so that a securitisation vehicle may now purchase real estate assets and benefit from the tax and regulatory regime applicable to the securitisation vehicles.

In a real estate securitisation, the real estate assets are transferred to a securitisation vehicle, which issues securitisation notes to finance the payment of the assets’ price.

The securitisation vehicle is a bankruptcy remote vehicle and, on the basis of the principle of fiscal neutrality, the proceeds deriving from the securitised real estate assets are not subject to direct taxes.

Limited liability companies have a corporate capital divided into quotas with no face value.

Joint stock companies have a corporate capital divided into shares with the same face value.

Limited liability companies and joint stock companies are subject to ordinary corporate income tax of 24% (Imposta sul reddito delle società, IRES) and regional tax on productive activities of approximately 3.9% (Imposta regionale sulle attività produttive, IRAP). Special rules are provided for the tax deduction of certain interest expenses. Starting from 1 January 2024, there are no tax incentives for equity injections.

Capital gains from the sale of participation in such companies may benefit from the participation exemption regime (effective tax rate of 1.2%) if certain requirements are met.

The new property-rich companies rule introduced in 2023 should be considered in cross-border investment structure, with reference to the capital gains on the disposal of the participation (exit phase).

REIFs and Real Estate SICAFs are exempt from corporate income tax and regional tax on productive activities. Regional tax on productive activities may apply to SICAFs in limited cases.

Investors in REIFs and Real Estate SICAFs may benefit from a withholding tax exemption on profits distributed by the REIF/Real Estate SICAF if certain requirements are met: for example, in case of foreign pension funds or foreign investment funds having certain features (both in case of direct or indirect investment into REIFs and Real Estate SICAFs). Generally, foreign investors may also benefit from a tax exemption on capital gains from the sale of participation in REIFs and Real Estate SICAFs.

The Real Estate Securitisation Vehicle is not subject to corporate income tax or regional tax on productive activities on the profits realised during the securitisation transaction since it does not own such profits for tax purposes. This is because the profits must be used for the repayment of the notes issued by the vehicle for the financing of the property acquisition. 

The non-resident noteholders may benefit from a withholding tax exemption on proceeds paid under the notes.

REITs have been implemented in the Italian jurisdiction pursuant to Law 296/2006, as subsequently amended.

Liquidity and diversification are among the main features of these instruments. The tax regime providing for SIIQs is an optional regime intended for listed joint stock companies whose main activity is real estate leasing and which meet certain financial and equity requirements. This regime provides an advantage for direct tax purposes consisting in the exemption of business income from leasing activities from corporate income tax of 24% and regional tax on business activities of approximately 3.9%. However, taxation occurs at the investor level, with the SIIQ obligated to make periodic distributions. On the other hand, income from activities other than real estate remains subject to ordinary income taxation for the SIIQ.

The option for such regime can also be exercised by unlisted joint stock companies that are primarily engaged in real estate leasing activities and in which a SIIQ owns a certain percentage of participation in profits and voting rights (ie, more than 50%).

In case of foreign investors, such regime is available by establishing a branch in Italy which would opt for the SIIQ regime, if certain requirements are met.

There are currently few SIIQs in Italy, and the number has actually decreased in recent years.

The minimum capital required is EUR10,000 (or EUR1 under certain conditions) for limited liability companies, and EUR50,000 for joint stock companies.

The minimum share capital for SGRs, as set by the Bank of Italy, is EUR1 million, even though SGRs with reduced capital (not lower than EUR50,000) are allowed under certain circumstances.

SICAFs’ minimum share capital is also EUR1 million (the minimum capital is reduced to EUR500,000 for SICAFs reserved to professional investors). For SICAFs entirely managed by external managers, the minimum capital is EUR50,000.

A limited liability company is characterised by greater flexibility, and quota-holders have wider autonomy in shaping the company according to their needs through the provision of different rules within the by-laws, while a joint stock company is governed by a large number of mandatory provisions.

See 5.1 Types of Entities Available to Investors to Hold Real Estate Assets regarding the governance principles that apply to REIFs, SIIQs and SICAFs.

The annual entity maintenance and accounting compliance costs depend on the amount of activities to be carried out. On average, for both types of company, costs range from EUR10,000 to EUR20,000. Auditors’ costs will be added.

Italian law recognises two types of leases:

• property leases; and
• business leases.

Property Leases

A property lease concerns non-residential properties (eg, office, retail and hotel) and residential properties. Property leases are mainly regulated by the Italian Civil Code, Law No 392/78 (in relation to non-residential properties) and Law No 431/98 (in relation to residential properties).

The Italian tenancy law on non-residential properties was amended on 11 November 2014, allowing the parties to freely negotiate the terms and conditions of a lease if the lease provides for an annual rent higher than EUR250,000 and the building does not have historical value – so-called “large leases”.

Business Leases

A business lease covers a “going concern” or a business (ramo d’azienda or azienda) that might include a property. In this case, the lease is only regulated by certain provisions of the Italian Civil Code, so the parties are granted wider freedom to negotiate the terms and conditions of the lease.

The Italian tenancy law on non-residential properties regulates leases concerning offices, retail properties and hotels.

The parties are free to determine rent amounts.

Italian laws set a minimum term for leases (see 6.4 Typical Terms of a Lease), and the parties can freely fix the term in large leases.

The Italian tenancy law provides for fixed minimum terms for non-residential leases of six years for office/retail properties and nine years for hotel properties. Temporary leases can be entered into based on certain objective reasons. In large leases, the parties can agree on a different term. The Italian Civil Code provides for a maximum lease term of 30 years.

The lease automatically renews upon the expiry of the first period, unless either party gives notice not to renew at least 12 months prior to the expiry term, or 18 months for hotels.

A residential lease has a fixed/minimum term of four years. Upon the expiry of the initial term, the lease automatically renews for a further period of four years, unless the parties agree otherwise.

The Italian Civil Code distinguishes between ordinary and extraordinary maintenance works, and tenants are generally responsible only for ordinary maintenance; however, parties can deviate from this principle.

The frequency of rent payments can be freely agreed between the parties. 

Parties are free to determine the rent, but once fixed it is subject only to an annual review based on 75% of the ISTAT consumer price index (or 100%, depending on the duration of the lease). Since November 2014, parties in large leases can freely negotiate and determine a mechanism to review and update the rent; however, current market practice still provides for the update of the rent based on the ISTAT consumer price index.

Turnover rents, stepped rents and free rent periods are also permitted, with certain limitations provided by case law.

See 6.5 Rent Variation.

Residential Leases

The general rule is that such leases are VAT exempt. However, landlords can opt for the VAT regime to be applied (at a 22% rate) exclusively in the following cases:

• leases executed by (i) companies that built the leased building and (ii) companies that have performed, including through contractors, the interventions referred to in Article 3, co. 1, lett. c), d) and f) of Presidential Decree No 380/2001; and
• leases of social housing also carried out by other companies (not necessarily construction or reinstatement).

Non-residential Leases

The general rule is that such leases are VAT exempt. However, landlords can opt for the VAT regime to be applied (at a 22% rate). The VAT option must be clearly stated in the agreement.

No costs should be paid by the tenant other than rent (and ancillary charges, if any), unless there are fit-out works to be carried out within the property. If this is the case, the parties shall define which works are for the benefit of the tenant and which are for the benefit of the landlord.

Maintenance costs for common parts of the property are borne by the landlord and reimbursed by tenants on a pro rata basis.

Tenants pay for utilities and telecommunication costs.

Tenants are required to take out policies covering any damage caused to third parties or to the property as a result of the activities carried out by the tenants within the premises.

Landlords are usually required to take out insurance policies covering the building where the leased premises are located.

Real estate must be used in compliance with zoning and planning provisions. Lease agreements expressly provide for the use of the property and the tenant is not allowed to change such intended use; doing so would result in the termination of the lease.

The tenant is usually allowed to alter/improve the property, subject to the landlord’s consent. Upon the expiry of the lease agreement, the landlord may require the tenant to remove all alterations and improvements, or may decide to acquire all alterations and improvements for free.

Law No 392/78 regulates commercial leases (eg, office, retail and hotel), while Law No 431/98 regulates residential leases. The Italian Civil Code applies to all leases.

Landlords are not allowed to terminate lease agreements in the event of a tenant’s insolvency; instead, a specific procedure set up by the court-appointed receiver will take place.

A cash deposit of up to three months’ rent is usually provided by tenants to landlords in order to secure the latter against a failure by the tenant to meet its obligations. Bank guarantees/insurance policies can cover higher amounts. Corporate guarantees are even delivered by the tenant.

Upon the expiry date, the tenant shall vacate the property. Failure to do so may result in holdover indemnities being paid to the landlord for a specified period. Upon the expiry of this grace period (if agreed), the landlord may seek a court injunction and the restoration of damages.

Per current market practice, a tenant might be allowed to assign the lease, subject to the landlord’s consent. Exceptions might apply to intra-group assignments. A sub-lease term must not be longer than the term of the lease.

These provisions can be freely determined by the parties and are subject to negotiations.

Italian tenancy law provides that, if a tenant transfers the business along with the lease, the landlord can only oppose such transfer on justified grounds. Large leases can deviate from this provision.

Leases include a specific termination clause listing all events pursuant to which a landlord can demand termination. In any case, a tenant’s non-fulfilment of its obligations might allow the landlord to terminate the lease.

A tenant has the right (according to the final paragraph of Article 27 of Law 392/78) to withdraw at any time from the lease agreement on the basis of “serious grounds” (gravi motivi) with six months prior notice. This provision can be derogated by the parties only in large leases.

All leases have to be registered with the tax authority, and an annual registration fee equal to 1% of the passing rent must be paid. The registration fee is usually paid equally by the landlord and the tenant.

Certain leases that have a first term longer than nine years should be executed before a notary and registered with the Land Register so that they can be opposed to all third parties.

If the tenant does not comply with the obligations arising from lease, the landlord can terminate the lease and seek eviction. This is a court process, the duration of which changes on a court-by-court basis.

A lease can be terminated by a third party only in cases of compulsory procedure, and an indemnity is payable.

In the event of a tenant breach and termination of the lease, landlords may hold the cash deposit (which, save for large leases, cannot be higher than three monthly instalments of rents) and/or enforce the guarantee.

In addition, landlords may seek for further damages (eg, loss of profit and reputational damages) to be ascertained before a court and/or provide in the lease agreement for specific penalties.

The most common structures are as follows:

• a guaranteed maximum price to be determined based on an open book approach, except for variations;
• a price determined on the basis of separate prices for certain works, and the overall final price is determined upon the completion of works; or
• a cost plus fee basis, where the price is determined on an open book basis plus a pre-agreed fee.

Landlords might decide to enter into separate agreements for design and construction, and relevant liabilities will remain with the appointed contractor, except in the case of any necessary variations.

It is market practice to insert penalties to be paid by the contractor in case of delay. Regarding the feasibility of the project, the construction agreement usually includes proper representations and warranties. Contractors are even required to deliver performance bonds.

Construction agreements usually provide for penalties to be paid in case of delay.

Contractors are required to deliver a performance bond and, upon completion of the works, to give a warranty bond and a ten-year insurance policy (decennale postuma) covering material defects of the building.

In case of a landlord’s default, there might be a possibility for contractors/designers to encumber the property and enforce the sale in order to recover their outstanding debts. This would imply a judicial proceeding in court.

The law requires buildings to be fit for use before they can be inhabited.

According to the regulations currently in force, the fitness for use is self-declared by the developer through a certified technical assessment using a specific form, which confirms that the works comply with the submitted project and the regulations on hygiene, health and safety, plants and systems, and fire prevention.

See 2.10 Taxes Applicable to a Transaction.

Where non-residential real assets are purchased by a REIF or a SIIQ, the applicable cadastral tax and mortgage tax are halved to 0.5% and 1.5%, respectively.

The contribution of multiple real assets, primarily leased, performed by a VAT-registered entity to a REIF or SIIQ is not subject to VAT. Instead, it is subject to fixed cadastral tax, mortgage tax, and stamp duty.

An owner of real property is generally liable for the payment of the local property tax (Imposta Municipale Unica, IMU). The taxable basis is equal to the cadastral income (including a 5% increase), multiplied by a figure depending on the kind of property.

Each year the local municipality approves the rates (from 0% to 1.14%).

The user of a property is also subject to the waste removal tax (tassa sui rifiuti, TARI).

An investor may derive lease income from owned real properties, 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.

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 income tax (IRES) at a rate of 24% and to regional tax on productive activities (IRAP) at the ordinary rate of 3.9% (or more, depending on the relevant region).

The taxable income of a real estate company for IRES purposes is the net revenue after the deduction of costs, as shown in the annual profit and loss account. Roughly all costs relating to the activities of a company can be deducted, including depreciation (excluding land) and interest (as long as this exceeds interest receivable), up to an amount equal to 30% of tax EBITDA in each fiscal year. Interest due on loans aimed at purchasing real estate properties for “letting” that are secured by mortgages over the same properties is fully deductible.

The taxable income of a real estate company in relation to the leasing of residential real properties for IRES purposes is represented by the rent minus maintenance expenses and interest up to the above limits. No other costs are deductible.

Interest is not deductible from an IRAP standpoint.

The taxation of dividends distributed to shareholders depends on the nature of the shareholder.

Dividends in favour of a foreign individual are generally subject to a withholding tax of 26%. Withholding tax rates can be reduced by any double tax treaty signed by Italy with the country of residence of the foreign investor.

Dividends distributed to a company that is resident in the EU or EEA and subject to corporate income tax therein are liable to a 1.2% withholding tax (to avoid discrimination with dividends received by Italian resident companies). Exemption from Italian withholding tax under the Parent-Subsidiary Directive may apply.

Dividends paid by an Italian resident company to foreign undertakings for collective investments (UCIs) are exempt from withholding tax if the following conditions are met (EU UCIs):

• UCIs are established in the EU or EEA; and
• UCIs are compliant with Directive 2009/65/EC (UCITS) or are alternative investment funds managed by managers subject to regulatory supervision in the country where they are established, pursuant to Directive 2011/61/EU (AIFMD).

In the case of direct investment performed by a foreign company (without a permanent establishment in Italy, noting that ownership of 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.

Italian REIFs are not subject to IRES or IRAP and foreign investors may benefit from a withholding tax exemption if certain requirements are met.

Tax on capital gains deriving from the sale of real estate properties may vary according to the structure of the investments.

Profits on the sale of a property realised by an Italian corporate vehicle are subject to IRES and IRAP at the aggregate rate of 27.9%, regardless of how much time has lapsed since acquisition. The profit is represented by the difference between the agreed purchase price and the net tax value of the property at the time of the sale. In some cases, it is possible to spread the liability for tax on capital gains over a period of five years.

In a sale of the participation into an Italian vehicle, the capital gain is subject to Italian income tax at a rate of 26%.

Capital gains from the sale of real estate directly owned by a foreign investor without a permanent establishment in Italy 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%. The taxable income is represented by the difference between the price agreed for the sale of the property and its acquisition cost.

Starting from 1 January 2023, Italy introduced a so-called property-rich companies rule, in line with the OECD Model Tax Convention, which regards capital gains realised by foreign investors from the direct or indirect sale of a participation in an Italian vehicle owning certain real estate assets. Such gains may be subject to Italian income tax, including in case of the sale of participations in a foreign vehicle owning a participation in an Italian real estate company.

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

Italian corporate vehicles are allowed to deduct real estate depreciation and interest on real estate financing, while direct investment from abroad is not eligible for any deduction. No benefits are allowed for residential real estate properties that are rented by Italian companies.