How to buy a property in Italy

For those who don’t know, let’s begin by clarifying the meaning of the term real estate law. It is the area of law that governs buying, using and selling land.
That being explained, when considering to buy a house in Italy, it is crucial to follow the process in all of its steps and not get lost in it. Here below a guide through the process on how to invest in real estate in Italy, underlining rights and responsibilities, in order to avoid any potential legal issues.

Choosing the right house or property with a real estate agent

It is advisable to find a reputable real estate agent or agency to help in the searching for the fittest housing. It can make the process smoother and simplify the task, if one doesn’t know where to start. It can be through recommendations or in an online search. It is possible to reach out to either international or local agencies.

Property inspection

Preliminary assessment

A preliminary assessment is needed in order to determine the investment worth. A surveyor may conduct a survey of the property and release a report that allows to take a more informed decision.

Due diligence review

Before making an offer on a property, it is advisable to verify the seller’s ownership and legal status of the property through a due diligence review by checking the land registry records and obtaining a copy of the deed. Furthermore, the review involves a thorough investigation of the property, including its legal and tax aspects, any liens or encumbrances, and any potential issues with the property’s construction or renovation.

Reciprocity

There also must be a condition of reciprocity between the two countries involved.
According to Italian law, a foreigner has the same civil rights as an Italian citizen if the Italian citizen has the same rights in the nation of the foreigner. This applies also to the foreign legal persons.

In relation to this, Italy has signed Bilateral Agreements on Investment Promotion and Protection (Bilateral Investment Treaties or BITs). In this case the condition of reciprocity is to be considered verified.

However, the content of Bilateral Agreements should always be checked on a case-by-case basis.
It is to point out that foreigner means citizen of a nation that is not part of the European Community. In most cases this is not a real obstacle for foreign buyers, but the lack of the reciprocity condition affects the validity of the contract itself, which makes the purchase void. A simple check can be done on the website of the Italian Ministry of Foreign Affairs, the site is frequently updated.

The Property Purchase Offer (“Proposta Irrevocabile di Acquisto”)

To temporarily taking the property off the market, a Property Purchase Offer is necessary. The “Proposta Irrevocabile di Acquisto”is a written statement by the possible future buyer to the seller in order to show interest in the transaction of buying and selling the property.

A deadline is set in the proposal that binds the proposer for a certain period of time; the seller is free to evaluate other offers before the deadline specified in the deed. The proposal binds only the proposer. The seller, prior to formal acceptance of the proposal, may evaluate other offers and choose the one he deems most convenient. The proposal lapses if on the date set in the proposal the seller has not accepted.
If the seller accepts, the document becomes a preliminary contract of purchase and sale. The money paid as a deposit is deducted from the final price.

The irrevocable purchase proposal must contain:

– the cadastral data of the property
– information regarding the provenance of the property (such as purchase, donation, inheritance, etc.)
– the urban planning situation of the property, indicating the authorizations and certifications, building permits, condonations or amnesties
– the price offered
– indication of the time limit within which the proposal maintains its effectiveness

Usually, together with the proposal, a sum of money is handed over as a deposit. The deposit will remain locked until the expiration or acceptance of the irrevocable proposal. In case of non-acceptance, the “caparra” will have to be returned. Though, it is possible that in case of unjustified withdraw from the proposer, the money will not be returned.
Normally, the amount to be paid as a deposit varies in relation to the value of the property. It is usually around 10% of the price of the property.

Although the purchase offer does not oblige the parties to finalize the final sale and purchase agreement, it may produce legally binding effects. This is why it is recommended that the buyer should be careful when signing, otherwise the money that had been given will not be returned.

Caparra confirmatoria

“Caparra confirmatoria” is a sort of deposit. It consists in a sum of money that serves to demonstrate the buyer’s seriousness in the intention to purchase the property. At the time of the conclusion of the contract one party gives to the other, a sum of money or a quantity of other fungible things. In the event of fulfillment of obligations, it shall be returned or set off against the performance due.

And again, if the party who gave the “caparra” is in default, the other party may withdraw from the contract, retaining the deposit; but if the party who received it is in default, the other party may withdraw from the contract and demand double the deposit. If, however, the party who is not in default prefers the performance or the termination of the contract, damages shall be governed by the general rules.

Thus, if the “caparra” is given for a purchase and sale contract, if the contract is successful, the “caparra” will be treated as an advance on the sale price of the property; if, on the other hand, the contract does not come to fruition, the “caparra” will turn into a penalty clause becoming compensation for the injured party. If it is the seller who is in default, the seller must give the buyer double the deposit; if it is the buyer who fails in his duties, the seller will retain the deposit.

Preliminary contract

The preliminary contract, “contratto preliminare”, also called “compromesso” is frequently (and improperly) used to refer to a preliminary contract of sale, more specifically one involving real estate. It is an agreement by which the parties, the buyer and the seller, intending to conclude a future purchase and sale, obligate themselves to conclude the final sale and purchase agreement.
The sale’s effects like transfer of ownership, payment of the price, delivery of the property, and so on, are produced only with the conclusion of the final contract. With the “compromesso” the parties sign a real contract (the preliminary sale, precisely), in which they undertake to conclude the final sales contract at a later date.

The preliminary contract of sale is very useful since it allows some relevant needs to be met:

– it allows the parties to bind each other for the future, i.e., ensuring that none of them can avoid to conclude the final contract
– it also allows to take advantage of the time between the preliminary and the final agreement, in order to put in place a whole series of fulfillments required for the sale

The fundamental elements that the preliminary real estate sale must have, are:

– the consent of the parties
– the written form
– the exact specification of the real estate to be sold (address, type, cadastral data…)
– the price

The preliminary agreement must be registered. The fees to pay are:

– registration tax or “imposta di registro”, due in a fixed amount of 200.00 euros;
– stamp duty (16.00 euros for every 4 sides of the deed and in any case every 100 lines, or 155.00 euros if the deed is notarized).

It is possible for the parties to agree on the payment of “caparra” or deposit, at the conclusion of the “compromesso”.
If the preliminary was concluded by public deed before the Notary, it is possible to proceed with its transcription.

In this case, the effects are:

– it avoids legal problems in case the seller also agrees with third parties to transfer the same property to them. If prior, the transcription made by the buyer can be validly opposed to the third parties, safeguarding the future purchase
– a further advantage is that the transcription of the final contract (or of the judgment that takes the place of the final contract not concluded, if any) has a so-called “reservation” effect (art. 2645 bis, second paragraph, Civil Code), making the purchase retroactive to the date of transcription of the preliminary, as if the sale had been concluded then
– however, there is one aspect to be considered: the effects of the transcription cease within one year of the agreed date for the stipulation of the definitive one, and in any case within three years of the transcription itself

Mortgage application

In Italy, if you are a foreign citizen and wish to apply for a mortgage to purchase a house, you should meet some requirements.

All documents necessary to start the assessment procedures will have to be translated in Italian.

Concerning the documents, a distinction is due. There are two categories of foreigners:

– immigrant citizens who are legal residents in Italy and have a regular employment contract must meet the following requirements: 2 years residence in Italy, and an employment contract for at least 6 months.

If these conditions are met, some documents are required to apply for the mortgage:
– current residence permit or “permesso di soggiorno”
– bank or postal account, in the applicant’s name
– certificate stating the period of time since when you have been residing in Italy
– copy of employment contract
– certification of one’s income status

– for immigrant citizens who do not permanently reside in Italy, documentation, in this case, will include: employment contract, bank or postal account of the bank from which the loan is being applied for and “codice fiscale”.

To summarize, in order to apply for a mortgage, it is needed to supply the bank with the following paperwork:
• a “codice fiscale”
• tax returns for the last two years
• proof of personal financial liquidity (bank statements) as well as details of all personal assets
• all pertinent documentation of the house (act of provenance, floor plans, visure, signed preliminary contract and/or binding offer of purchase)

To take into consideration, the impact of the euro conversion and the exchange rate that will be decisive in determining the amount of the mortgage installment. Therefore, it will be important to verify the actual affordability of the loan.

Concerning banks that allow mortgage for non-residents, there generally are two possible options:
– Italian banks with branches in the foreign country of residence or
– foreign banks with branches in Italy

So, is it possible for foreigners to obtain a mortgage in Italy?
Yes, also non-Italian resident or non-resident foreigners can. However, due to the economic crisis and the new Anti-Money Laundering Regulation, over the past few years Italian Banks had made their mortgage-policy stricter, especially when dealing with non-Italian residents because of bank director personal responsibility in verifying the source of the money used to buy the property. Furthermore, properties are no longer considered as sufficient warranty.

Codice fiscale

In Italy, the “codice fiscale” is a tax identification number that serves to identify individuals and entities in their dealings with Italian public administration. Concerning individuals, it generally consists of 16 alphanumeric characters. While for entities it consists of 11 digits.

The “codice fiscale”or tax code is assigned at birth or at incorporation for associations and entities. Furthermore, it involves all non-individual taxpayers with a VAT number (trusts, permanent establishments, companies and among them companies in corporate form, non-commercial companies such as companies among professionals, associations with a VAT number, foundations).

For example, an Italian Tax Code is needed to open an Italian bank account, inherit an Italian property, register a Preliminary Contract for property purchase, complete a Deed of Sale, set-up utility connections and obtain an Italian mortgage.

While the Tax Code is assigned by birth to Italian citizens, it is assigned upon request to non-Italian residents.
Foreign citizens can apply for an Italian Tax Code at any Italian diplomatic or consular office or at any Italian inland Revenue Agency office (“Agenzie delle Entrate”).

Final sale and Purchase Agreement or “Rogito notarile” and Notary

The Notary Public will draft the final deed of sale based on the preliminary agreement. This deed, known as the “atto di compravendita,” contains all the relevant details of the property, parties involved, and any conditions or restrictions.
The Notary Public conducts several checks and verifications before the final deed is signed. This includes verifying the property’s ownership history, any liens or encumbrances, and ensuring compliance with legal requirements.

Registering the property in the Land Registry

After signing the sale and purchase contract, the Notary Public is responsible for registering the property in the Land Registry. They will submit the necessary documentation, including the deed of sale and other required forms, to the local Land Registry office. Once the Land Registry receives the documentation, they review and process it. After completion, the Land Registry will issue a registration certificate (visura catastale) confirming the property’s registration in your name.

To summarize, the documents needed to purchase and own a property in Italy will be: the sale and purchase agreement, “codice fiscale”, the title deed from the seller to prove that the purchaser is the legal owner of the property, cadastral documents from the local registry office to get to know the boundaries and all the other legal details, building permits whether renovations are planned, and possibly the energy certificate, which certifies the energy efficiency of the property.

After the buying come the taxes

After purchasing a property in Italy, you will indeed have to consider various taxes associated with property ownership. It’s important to understand these taxes to plan your finances accordingly. Here are some common taxes you may encounter:

– Imposta Municipale Unica (IMU): this is the municipal property tax paid annually to the local municipality where the property is located. The IMU tax is calculated based on the property’s cadastral value, which is an assessed value of the property determined by the government. The rate and calculation method may vary between municipalities.
– Imposta di Registro: this is a registration tax paid when transferring ownership of the property. The rate is typically a percentage of the property’s declared value or the sale price, whichever is higher. The exact rate depends on factors such as the property’s intended use (primary residence, second home, or investment property).
– Imposta sul Valore Aggiunto (IVA): VAT, or Value Added Tax, is applied to the sale of newly built or substantially renovated properties or alternatively when the seller is a company. The current rate of VAT on residential properties is 10%. However, it’s important to note that this tax is not applicable to resale properties. Discover more about VAT compliance in Italy.
– Tassa di Iscrizione Ipotecaria e Catastale: these are registration fees paid to the Land Registry and the Mortgage Registry. The fees are generally a percentage of the property’s value or the mortgage amount and are paid to register the property and any associated mortgage.
– Tassa per l’Ocupazione di Suolo Pubblico (TOSAP): if you plan to use any outdoor spaces, such as terraces or courtyards, for commercial activities, you may be subject to this tax. The rate and conditions vary depending on the municipality.
– Imposta sul Reddito delle Persone Fisiche (IRPEF): this is the personal income tax paid annually based on your income, including any rental income generated from the property. The rate varies depending on your income bracket. Discover more about IRPEF.

It’s important to note that the tax rates and regulations may change, so it’s advisable to consult with a local tax professional or an Italian real estate lawyer who can provide up-to-date information and guidance specific to your situation. They can help you understand your tax obligations and ensure compliance with Italian tax laws.

But why choosing a real estate lawyer to help with the purchase?

Choosing a real estate lawyer to assist with a property purchase can be beneficial for several reasons:

– Legal Expertise: Real estate transactions involve complex legal documentation and processes. A real estate lawyer has specialized knowledge and expertise in this area of law. They can review contracts, identify potential issues, and ensure that all legal aspects of the transaction are handled correctly.
– Contract Review and Negotiation: when purchasing a property, you’ll likely encounter various contracts and agreements, such as purchase agreements, title documents, mortgage contracts, and more. A real estate lawyer can carefully review these documents, explain their implications to you, and negotiate favorable terms on your behalf. They can protect your interests and help you understand the legal consequences of the agreements you’re entering into.
– Title Search and Insurance: a real estate lawyer can conduct a thorough title search to ensure that the property you’re buying has a clear title and is free from any liens, disputes, or other legal encumbrances.
– Due Diligence: real estate lawyers can help you perform due diligence on the property. They can investigate zoning regulations, environmental concerns, property taxes, and any other legal aspects that may affect your purchase decision. This helps ensure that you are fully informed about the property’s legal status before completing the transaction.
– Closing Process: the closing process involves a significant amount of paperwork, including the finalization of the purchase agreement, mortgage documents, title transfer, and various legal filings. A real estate lawyer can guide you through this process, ensuring that all necessary documents are properly prepared, reviewed, and signed. They can also attend the closing on your behalf to address any last-minute issues that may arise.

Ultimately, engaging a real estate lawyer provides you with professional guidance and peace of mind throughout the property purchase process. They can help you navigate legal complexities, protect your rights, and ensure that the transaction proceeds smoothly.

Benefits of investing in Italian real estate

At this point, the question is: why investing in Italian real estate?

Italian real estate is an affordable real estate but with high value properties that have the potential for capital appreciation. As the demand for properties increases, in particular in famous locations, property values rise as well, resulting in a return on investment, or ROI that measure the economic efficiency of a financial transaction. As a matter of fact, Italian real estate has a high average of ROI of 22%. Moreover, according to recent ISTAT, in the third quarter of 2021 the House Price Index (HPI), which measures the evolution of market prices of all residential properties that are purchased by households, increased by 4.2% compared to the same quarter of the previous year.

In addition to this, Italian government has introduced new policies with regards to tax deductions and state incentives in order to incentivize renovation works. This, in order to increase energy efficiency levels in households. The new policies include the renovation bonus, and the facades bonus and the 110% Superbonus, to name a few.

Tourism is another relevant aspect to take into consideration. The house, object of the investment, can be used as vacation home or a retirement destination, though it can also generate a passive income from rentals when not using it. In fact, Italy is one of the most popular destinations for tourists. That can assure a high demand for rental properties throughout the year.

Last but not least, the affordable cost of living in a country that it is one of the most famous travel destinations, rich in culture, astonishing architectures, breathtaking landscapes, and delicious food. The quality of life, in Italy, is pretty high. As a consequence, investing in real estate can provide the investor with the opportunity to enjoy and be part of this lifestyle.