Italy’s 2019 Stability Law – Flat-Rate Tax Scheme

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Italy’s 2019 Stability Law – Flat-Rate Tax Scheme

By introducing the flat-rate tax scheme in 2018, the Italian government’s objective was to boost employment. In addition, the government aimed to reduce undeclared taxable income and employment irregularities. In the 2019 stability law, the government broadened the flat-rate tax scheme.

The scheme therefore now extends to individuals operating in, ‘the arts and independent professional activities’ sector. This includes individuals generating income from investment property rentals and second homes.

As well as replacing Irpef, Irap and additional taxes, the scheme establishes a tax rate of 5% for the first 5 years. This subsequently rises to 15% from the sixth year onwards. Neither VAT nor other taxes are payable.

The flat-rate tax scheme also provides an opportunity to regularise previously undeclared activities to the Italian tax authorities.

Foreign property owners may not realize that they need to declare income from rental or investment properties, even if it is seasonal and infrequent. However,  property owners may be subject to heavy penalties in case of an audit by the Italian tax authority.

Flat-rate tax calculations in the 2019 Stability Law

Taxable income in the flat-rate scheme is determined by applying profitability coefficients. These coefficients vary according to business activity. A profitability coefficient of 40% on revenues is applicable to accommodation, lodging, lettings and B&B activities.

To illustrate this:

Mr. Hunt owns a property in Tuscany, which he starts using as a seasonal holiday letting business. Mr. Hunt opts to apply for the flat-rate tax scheme.

Revenues from Mr. Hunt’s first year of lettings are € 40.000.

Based on a 40% profitability coefficient, taxable revenues would therefore amount to €16.000. At a 5% tax rate, Mr. Hunt would be liable for a tax payment of €800.

Had Mr. Hunt opted to use the personal income tax scheme, he would have paid tax of approximately € 4.300.

As you can see from the example above, for the purposes of calculating income tax, expenses are not included – income tax calculation is exclusively on revenues. Only social security contributions (INPS) are deductible from revenues.

The flat-rate tax scheme requires social security cover

It is worth bearing in mind that anyone wishing to take advantage of the flat-rate scheme, must have social security cover. Contributions are a percentage of revenues. However, a reduction of up to 35% of contributions is available and in certain cases an exemption is possible.

Any individual planning to start-up a business activity in Italy qualifies for the flat-tax scheme, provided that the individual has not carried out the same activity in the past three years and that revenues do not exceed €40.000 per annum.

Foreign residents and non-residents, who generate an income from letting their property in Italy, wishing to benefit from the flat-tax scheme, must notify the Italian tax authorities through a Notice of Business Start-Up.

Finally …

If you need help to understand your personal situation, please get in touch with us or seek advice from a qualified accountant registered with the ODCEC, the Italian professional accounting association of certified public accountants, auditors and advisors.

EU Succession Rules Harmonise Cross-Border Inheritance

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In 2015, the EU introduced new succession rules to simplify cross-border inheritance matters

To benefit from the new EU succession rules, overseas nationals with assets in an EU Member State need to take action in a will.

According to The European Commission some 450,000 cross-border successions occur in the EU each year. These are estimated to be worth in excess of €120 billion. Effective from August 17th 2015, to solve confusion and prevent disputes, the EU introduced new EU succession rules. These rules allow individuals across participating EU member states to choose which country jurisdiction to apply to the devolution of their estate.

Forced heirship

Many countries in the EU, including Italy, have laws governing ‘forced heirship’. Forced heirship rules are similar to UK Intestacy rules. However, forced heirship is applicable even if there is a will. The key point is that Italian forced heirship rules take precedence over a will.

In practice, this means that close family members inherit the deceased’s property regardless of the contents of the deceased’s will. This can often be in preference to the deceased’s spouse or partner. Sometimes, this creates conflicts within families who are unfamiliar with forced heirship cultures. Particularly  if the deceased had children from previous relationships. According to Italian forced heirship rules, these children must also inherit a share of their deceased parent’s estate.

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EU Regulation 650/2012 is also known as Brussels IV

The UK did not opt into Brussels IV when it was still a member of the EU. However, UK nationals with assets in EU countries that adopted the changes, which is all of them except for Ireland and Denmark, can take advantage of Brussels IV.

Brussels IV allows any overseas national who owns property in a participating EU member state to choose either the law of the country of their habitual residence, or the law of their nationality to govern succession of their EU estate. Or, if they have multiple nationalities, they can choose one of their nationalities to govern succession.

Electing a country law provides a way to circumvent forced heirship laws.

EU succession rules allow you to elect a country law in your will

If for example you are a UK national habitually resident in England with a holiday home in Italy. You can now update your English will with a choice of law codicil. This would cover the Italian property with an election for the inheritance laws of England and Wales to apply to it. It means you don’t need a separate Italian will for the Italian  holiday home.

That said, it is highly advisable to have either a bilingual Italian will or an official Italian translation of your English will.  Preferably, the translated version would be in the hands of a solicitor or notary. This will make things easier, less time-consuming and costly in the long run for the executor of your estate.

Before taking action, it’s important to understand all the implications of the EU succession rules

Before making any changes to your will, it is important to understand Brussels IV and all its implications. For example, Brussels IV does not impact inheritance tax.

As previously mentioned, Brussels IV is applicable to all foreign property owners. However, if you are habitually resident in Italy it is essential that you make or update your will in Italian. In your Italian will, you should clearly state which country’s law you wish to elect. Otherwise, because you are resident in Italy, the laws of Italy will automatically apply when dealing with succession. Again, it is important to understand the Brussels IV regulation and its impact.

Interestingly, Brussels IV does not restrict the choice of law to EU nationals. For example, a US national with property in a participating EU Member State could elect for US law to apply to the succession of their property; an Australian could nominate Australian law; a Canadian, Canadian law, and so on.

Finally …

As ever, the key is in the planning. If you want freedom of choice, you have it. Just don’t leave it until it’s too late!

Cross-border inheritance law is a complex matter. We recommend you seek independent legal advice regarding your personal situation. For more information about Italian succession and inheritance, you may find our Italian Succession Guide useful.

At De Tullio Law Firm, we have over 55 years of expertise managing cross border succession and estate planning matters throughout Italy. We are a full member of STEP, the world’s leading association for trust and estate practitioners. If you need advice, help or have any questions on cross-border inheritance matters, please get in touch.

Italian Property Lawyer

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Buying a property in Italy may be your first experience with the Italian legal system

Investing in Italian real estate requires long-term planning. It should be an exciting process. However, it can be stressful if things go awry. Unfortunately, foreign property purchasers in Italy often throw caution to the wind and do things that they would never dream of doing when buying a property at home. If you’ve ever bought a property at home, you probably didn’t opt for DIY conveyancing. You most likely instructed a lawyer to manage all the legalities on your behalf. Italian property law is complex, probably unfamiliar to you. It raises special issues of practice not present in other transactions and jurisdictions. An Italian property lawyer is a qualified legal specialist, experienced at dealing with these problems.

Italian property purchases proceed through three stages. Each stage has legal and financial implications

Firstly, in a typical Italian home purchase, the buyer enters into a brokerage contract with a real estate agent. This is usually in writing. Acting as an intermediary, the estate agent conducts negotiations with the vendor. The buyer and vendor then conclude a formal reservation offer. This is usually time-limited. Often a vendor agrees to remove the property from the market for a period of two weeks. A buyer pays a first deposit and conducts preliminary due diligence.

Secondly, assuming the buyer and seller agree to continue the process, they enter into a preliminary contract and agree a completion date. The buyer pays another deposit at this point. Between signing and completion of the sale, the buyer has a further opportunity to conduct more in depth due diligence. By law, it is the buyer’s responsibility to check the legalities. As a minimum, due diligence at this stage should include checking ownership through title deeds. Also, searches pertaining to  property plans and planning permission.

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In the third and final stage, all parties to the transaction sign the deed of sale. On behalf of the Italian State, a notary public draws up this deed, oversees signing and exchange of the outstanding purchase price. The notary also collects purchase tax and registers the transfer of ownership.

Mistakes when buying a property in Italy can become costly, time-consuming and heartbreaking

We often meet people who find themselves in trouble because they didn’t seek legal advice when they bought their Italian property. It is not uncommon to discover after the purchase that an Italian property is wholly or partially illegal. On top of this, many legally built properties in Italy harbour significant liabilities that are not compliant with the law.

Mistakes when buying a property in Italy can become costly, time-consuming and heartbreaking to rectify. Issues have the potential to derail plans for a new life or impact the saleability of Italian investments later on.

The best way to protect yourself against problems is to engage a specialist Italian property lawyer

This will ensure you stay safe when buying an Italian property. In addition, it often saves time and money. An Italian property lawyer will be able advise and guide you through the whole journey.

During the first stage for example. A buyer may sign a brokerage agreement with a real estate agent that does not deal with a number of legal problems. In the absence of an agreement to the contrary, the buyer may therefore become liable to pay a brokerage commission even if a sale does not take place. If a buyer uses multiple estate agents, they may find themselves paying more than one brokerage commission.

In addition to explaining the ramifications of estate agency contracts, a lawyer can manage negotiations on your behalf. On the one hand with the estate agent regarding their fees and on the other hand, terms and conditions. For instance, what happens if the vendor withdraws the property from the market, or can’t deliver a title to sell the property?

A lawyer can also advise on issues such as tax implications of a cross-­border transaction.

The preliminary contract is the single most important document in the transaction

Estate agents often use standard forms for preliminary contracts. Although standard printed forms are useful, it can be helpful to consult a lawyer for explanation and clarification. You may need to make changes or add conditions to the form to reflect your personal circumstances.

The preliminary contract should also contain conditions of your purchase.

– Existing alterations, additions, extensions. Are they legal?

– If you plan to change the property, can you do this lawfully?

– Do you need a survey?
What happens if the survey finds termites, asbestos, radon, or lead-­based paint or  hazardous waste on the land?

– What are the legal consequences if completion is delayed? And, what happens to the deposits in this case? This question raises related questions: Who holds the deposits? The vendor, the estate agent, a lawyer or a notary?

Again, it is important to remember that pre-printed contract forms are generally inadequate to incorporate conditions to which your purchase may be subject.

The onus is on the buyer to conduct thorough due diligence

An Italian property lawyer can execute a title search, explain the title and determine whether the legal description is correct and whether there are problems with co-­owners or previous owners. A lawyer can also check for mortgages and debts on the property. In addition, a lawyer can check municipal records and land registers for property plans.

It is vital to check that the plans match the property footprint and that the whole property has planning permission. A certificate of habitability is also important.

An Italian property lawyer can explain the effect of any easements and agreements or restrictions imposed by a prior owner, and whether there are any legal restrictions which will impair your ability to sell the property later on.

The title search does not tell the buyer anything about existing and prospective plans in the area. Having your own Italian legal advisor will enable you to obtain this type of information more accurately, thoroughly and easily than trying to do it yourself.

Signing the deed of sale is the most important event in the purchase and sale transaction

When you purchase a property in Italy you must do so through a notary. A notary is a government official. Their main tasks are to ensure that all documents are genuine, draw up the deed of sale and collect tax and fees.

Although the role of notary is to ensure that the transaction meets all legal requirements, this does not mean that the notary is acting on the buyer’s behalf to ensure the buyer gets the best deal. Furthermore, contrary to what many people believe, the notary cannot guarantee the absence of legal issues such as illegal work and features (abusivi). While a notary will check planning permission for example, a notary will not make a site inspection of the property to ensure the absence of illegal work. An Italian property lawyer will work on your behalf to guarantee that your property conforms to Italian building legislation and regulations.

Having your own Italian property lawyer is helpful in explaining the nature, amount, and fairness of closing costs. A lawyer can assure that the deed of sale is correct and explain it to the buyer. The notary will in fact require the presence of a translator at closing if buyers are not fluent Italian speakers. So having an Italian lawyer who speaks your language makes sense. A buyer benefits not only from translation ability, but also legal know-how and expertise.

Those present at the closing often include the buyer/s and seller/s, their respective lawyers, and the real estate agent. There may be last minute disputes about delivering possession and personal property or the adjustment of various costs. If you are the only person there without a lawyer, your rights may be at risk.

Choose your own Italian property lawyer

Perhaps the most important reason to have your own lawyer is conflicting interests of the parties. Throughout the process, the buyer’s and seller’s interests can be at odds with each other, and even with those of professionals involved in the sale. The estate agent generally serves the seller. Both seller and estate agent want to see the deal go through, since that is how they will make money.

It may seem cost effective to use the services of a solicitor recommended by an agent or the seller. However, to avoid any conflict of interest, you should choose your own lawyer to act in your interests and your interests only.

Finally …

At De Tullio Law Firm, we specialise in property law. We have decades of experience advising clients on buying property in Italy. Our team of solicitors, associates and professionals combine international legal experience and knowledge with local know-how. We pride ourselves on our personal service so that you can make your plans a reality without any hidden surprises.

Let us guide and protect you through the whole process of buying an Italian property, as well as advise you on issues such as how owning property in Italy will impact your tax affairs and inheritance plans and other important issues that you should think about to safeguard your family assets long term.

We can also help you with Italian residence and other paperwork if you plan to live in Italy. If you are unable to reach Italy in person, we can act on your behalf by organising a power of attorney for you.

Get in touch.

 

For more information about the Italian property purchasing process, you might like to read our guide.  We also have a range of useful property-buying info videos.

Power of Attorney and its legal implications

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You may have often heard of “power of attorney,” yet you may still not know exactly what its purpose is.

To shed some more light on the subject, here are some basic facts on PoA. Along with the legal ramifications to purchasing and/or inheriting real estate in Italy.

What is a Power of Attorney?

A Power of Attorney – “Procura” in Italian, is a legal document by means of which “principal” gives certain powers to act legally on his/her to someone else: the “agent”. A “Procura” clarifies exactly what powers the principal gives to the appointed agent.

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What are the currently existing types of “Procura”?

1. In case of a “Procura Speciale” (Special Power of Attorney), the principal can give limited powers to the attorney/agent. If, for instance, you are purchasing an estate in Italy. However, you cannot be on-site on the day to sign the deed. You can bestow the power to sign such deed on your attorney/agent.

2. A General Power of Attorney (Procura Generale) entitles your agent to do almost anything you could do.

In what circumstances can you revoke a Procura?

Both Procura Special and Procura Generale terminate if the principal dies or becomes legally “incapable”. However, if necessary, you can terminate it at any time. This is done by means of the same legal document used to confer it.

What should I consider before appointing an agent/attorney?

If you are considering granting a procura, you should be extremely careful about whom you chose as an agent/attorney. You are delegating the very management of your affairs to someone else. Hence, it is extremely important that you entrust a reliable and competent person with this delicate task, preferably a professional. Conferring Power of Attorney to someone who does not have enough experience or that you might have a conflict of interest with is not advisable.

What are the legal requirements to issue a power of attorney?

A Procura is a formal document with many legal requirements.
Generally, the competent authorities carefully examine it before releasing it. The agent will need to sign the Procura in their home country in the presence of a public officer. 
The USA, UK and Australia have signed The Hague Convention of 5th October 1961. This abolished the Requirement of Legalisation for Foreign Public Documents. In any case, an Apostille Certificate or Stamp, also known as the Hague Apostille, is required as proof of authenticity. Ensure to check the pertinent procedures with the UK Foreign and Commonwealth Office, the US Department of State and the Australian Department of Foreign Affairs and Trade.

Finally…

A Power of Attorney is a very delicate matter. You are granting your rights and the handling of your affairs to someone else. Make sure to seek the help of a professional before drawing up a Procura.

Contact us today. We can help.

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