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Country - Italy
Corporate Vehicles
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A. DIRECT INVESTMENT
There are two ways to make direct investments in real estate in Italy: either without a permanent establishment (stabile organizzazione) or through a permanent establishment.
1. Investment without a permanent establishment
Minimum capital
Not applicable.
Set-up costs
Not applicable.
Time required to become operative
Not applicable.
Costs per annum for corporate and accounting compliance
To recover VAT paid on investment activities, appointing a VAT representative to file regular VAT returns is recommended. Costs amount to approximately EUR 5,000 per annum, but this cost may increase if the number of VAT invoices to be registered exceeds 100 per year.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in Italy
IRES is payable at 33% of 85% of the gross income without amortisation or deduction of expenses (including interest payments).
IRAP is not payable.
ICI is payable at 0.4% to 0.7% of the cadastral value.
Taxation of distribution of current income to investors
No further taxation or withholding tax applies.
Taxation of capital gains
Sale of real estate assets
IRES is normally payable at 33% but no tax is due if the asset is sold at least five years after the date of acquisition.
Sale of a participation in a real estate company
IRES is normally payable at 33% but if an OECD double tax treaty applies then there is no taxation in Italy.
2. Investment through a permanent establishment
Minimum capital
Not applicable.
Set-up costs
Around EUR 1,500.
Time required to become operative
10 days.
Costs per annum for corporate and accounting compliance
Accountancy services are required for corporate tax and VAT purposes. Filing of annual corporate tax returns and monthly/annual VAT returns is required, as is the preparation of an annual financial statement. Annual costs will be from around EUR 20,000.
Corporate governance
Not applicable.
Regulatory control
Not applicable.
Taxation of current income in Italy
IRES is payable at 33%.
IRAP is payable at 4.25%.
ICI is payable at 0.4% to 0.7% of the cadastral value.
Taxation of distribution of income to investors
No further taxation or withholding tax applies.
Taxation of capital gains
Sale of real estate
IRES is payable at 33% and IRAP at 4.25%.
Sale of a participation in a real estate company
Not applicable. A permanent establishment cannot be sold through a corporate transaction.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
There are two types of corporate vehicle which can be used for investments in real estate in Italy: the società a responsabilità limitata (s.r.l.) and the società per azioni (s.p.a.).
1. Società a responsabilità limitata (s.r.l.)
Minimum capital
EUR 10,000.
Set-up costs
EUR 5,000.
Time required to become operative
15 days.
Costs per annum for corporate and accounting compliance
EUR 12,000 plus the cost of internal auditors (EUR 10,000/20,000) although auditors are only required when certain thresholds (relating to capital, turnover and the number of employees) are exceeded.
Corporate governance
Considerable flexibility can be agreed in the by-laws. Voting and profit rights can be freely allocated. Shareholders can appoint and remove directors and may have approval rights over management decisions, but the directors are responsible for day-to-day business decisions. The company can be managed by either a sole director or by a board of directors.
A board of statutory auditors is required only if the capital exceeds EUR 120,000 or certain thresholds (relating to turnover and the number of employees) are exceeded.
Regulatory control
Not applicable.
Taxation of current income in Italy
IRES is payable at 33%.
IRAP is payable at 4.25%.
ICI is payable at 0.4% to 0.7% of the cadastral value.
Taxation of distribution of current income to investors
Tax-resident shareholders
No further taxation or withholding tax applies to the distribution of income to investors. 5% of the distributed dividends are taxed in the hands of the shareholder at 34% IRES. Tax consolidation rules allow the avoidance of further taxation of the distributed income.
Non-tax-resident shareholders
- If the Parent-Subsidiary Directive applies, no withholding tax is payable.
- If the Parent-Subsidiary Directive does not apply, but an OECD double tax treaty does, withholding tax of between 10% and 15% is normally payable.
- If neither the Parent-Subsidiary Directive nor a double tax treaty applies, withholding tax of 27% is payable.
Taxation of capital gains
Sale of real estate assets
IRES is payable at 33% and IRAP at 4.25%.
Sale of a participation in an s.r.l.
IRES is payable at 33% for corporate shareholders or substitute tax, at between 12.5% and 27% for individuals. For corporate shareholders, the participation exemption regime may apply. This is only possible for companies carrying out recognised commercial activities and holding real estate does not qualify for this purpose. Under an OECD double tax treaty, there is no taxation of capital gains in Italy if the shareholder is not tax-resident.
2. Società per azioni (s.p.a.)
Minimum capital
EUR 120,000.
Set-up costs
EUR 5,000.
Time required to become operative
15 days.
Costs per annum for corporate and accounting compliance
EUR 20,000 plus the cost of internal auditors (EUR 10,000/15,000) and external auditors (EUR 10,000/15,000).
Corporate governance
Considerable flexibility can be agreed in the by-laws. It is possible to create different categories of shares with different rights. Voting and profits rights can be freely allocated.
Joint stock companies can be managed in the following ways:
- by a sole director or a board of directors appointed by the shareholders' meeting (the "traditional system");
- by a management board appointed, and subsequently supervised, by a board appointed by a shareholders' meeting ("two-tier system");
- by a board of directors appointed by a shareholders' meeting and by an executive committee of the board ("one-tier system").
The appointment of statutory auditors is mandatory.
Regulatory control
Not applicable.
Taxation of current income in Italy
IRES is payable at 33%.
IRAP is payable at 4.25%.
ICI is payable at 0.4% to 0.7% of the cadastral value.
Taxation of distribution of current income to investors
Tax-resident shareholders
No further taxation or withholding tax applies. 5% of the distributed dividends are taxed in the hands of the shareholder at 34% IRES. Tax consolidation rules allow the avoidance of further taxation of the distributed income.
Non-tax-resident shareholders
- If the Parent-Subsidiary Directive applies, no withholding tax is payable.
- If the Parent-Subsidiary Directive does not apply, but an OECD double tax treaty does, withholding tax of between 10% and 15% is normally payable.
- If neither the Parent-Subsidiary Directive nor a double tax treaty applies, withholding tax of 27% is payable.
Taxation of capital gains
Sale of real estate
IRES is payable at 33% and IRAP at 4.25%.
Sale of a participation in an s.p.a.
IRES is payable at 33% for corporate shareholders, or substitute tax at between 12.5% and 27% for individuals. For corporate shareholders, the participation exemption regime may apply. This is only possible for companies carrying out recognised commercial activities and holding real estate does not qualify for this purpose. Under an OECD double tax treaty, there is no tax on capital gains in Italy if a shareholder is not tax-resident.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS (s.a.s.)
The only partnership under Italian law which offers limited liability to its partners is the società in accomandita semplice (s.a.s.).
Minimum capital
Not applicable.
Set-up costs
EUR 5,000.
Time required to become operative
15 days.
Costs per annum for corporate and accounting compliance
EUR 10,000.
Corporate governance
There is considerable flexibility on corporate governance in the by-laws. Voting and profit participation rights can be freely allocated.
The partner with unlimited liability (socio accomdatario) must be the managing partner. Limited liability partners (socio accomandante) may have limited approval rights in relation to management decisions but too much management influence by a limited partner creates a risk that they will lose their limited liability status.
No external or internal audit is required.
Regulatory control
Not applicable.
Taxation of current income in Italy
IRAP is payable at 4.25% on partnership income. The remaining income is allocated to partners on the basis of their profit participation rights and is subject to IRES at 33% if the partner is a company, or to IRPEF if a partner is an individual (the amount depends on the individual income).
ICI is payable at 0.4% to 0.7% of the cadastral value.
Taxation of distribution of current income to investors
No tax is payable by the partnership on distributions: the income is allocated to partners and taxed at the level of the individual partners.
Taxation of capital gains
Sale of real estate assets
IRAP is payable at 4.25% but if the sale is considered to be an extraordinary operation, no IRAP applies. The remaining profit is distributed to partners and subject to IRES or IRPEF depending on their individual tax status.
Sale of a participation in an s.a.s.
IRES is payable at 33% unless the participation exemption regime applies. This is only possible for a company carrying out recognised commercial activities and holding real estate does not qualify for this purpose.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
The only collective investment vehicle available for investments in real estate is the real estate fund (fondo immobiliare).
Management company
A real estate fund can only be set up and managed by an Italian asset management company (società di gestione, SGR).
Minimum capital
SGR: EUR 1,000,000.
Fund: none.
Set-up costs
SGR: EUR 30,000.
Fund: EUR 25,000.
Time required to become operative
SGR: six months.
Fund: five months.
Costs per annum for corporate and accounting compliance
SGR: EUR 30,000/40,000.
Fund: 0.3% to 0.5% of the fund's asset value.
Corporate governance
All decisions relating to the investment policy of the fund must be taken by the SGR. Certain day-to-day business can be delegated to a third party asset manager. Investment decisions must not be subject to approval by unit-holders. Unit-holders can remove and replace the SGR in exceptional circumstances.
Italian funds are "closed-end" funds. Recent regulations allow funds to grant a right to redemption at certain pre-established dates to the extent of subscriptions to new units, or for up to 10% of the fund's net asset value.
Special rules apply to funds which are limited to institutional investors (fondi riservati).
Regulatory control
The SGR and the fund are regulated by the National Bank of Italy and to some extent by CONSOB. Monthly reporting is required.
Shareholders in the SGR and the directors are subject to certain professional and personal requirements.
Taxation of current income in Italy
There is no taxation of income at the level of the fund.
Taxation of distribution of current income to investors
Tax-resident unit-holders: corporate
IRES is payable at 33%.
Tax-resident unit-holders: individuals
12.5% substitute tax is levied by the SGR as withholding tax on the distribution of dividends.
Non-tax-resident unit-holders
There is no taxation of dividends distributed in Italy.
Taxation of capital gains
Sale of real estate assets
There is no taxation at the level of the fund.
Sale of units
- For tax-resident corporate unit-holders IRES is payable at 33% and IRAP at 4.25%.
- For tax-resident individuals who are unit-holders 12.5% substitute tax is levied by the SGR as withholding tax upon the distribution of dividends.
- For non-tax-resident unit-holders there is no taxation of capital gains on the sale of units in Italy.
E. RULES ON LEVERAGE
1. Thin capitalisation rules
No tax deduction is allowed for income from loans if the debt to equity ratio exceeds 4:1. The definition of debt includes loans granted or guaranteed by shareholders but does not include external debt.
2. Withholding tax on interest
No withholding tax is charged on loans by non-tax-resident shareholders. Withholding tax on loans by banks or other third parties is payable but is capped at 10% under the OECD double tax treaty.
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