The Real Estate Investment Structure Taxation Review: Italy
i Investment vehicles in real estate
Vehicles commonly used in Italy for investment in real estate properties include both non-regulated vehicles and regulated vehicles.
Non-regulated vehicles are usually in corporate form, such as real estate limited liability companies or joint stock companies. In certain specific circumstances, partnerships, which are transparent for tax purposes, may be used.
Regulated vehicles can be either in contractual form, such as real estate investment funds (REIFs), or in corporate form, such as real estate investment companies with fixed capital (SICAFs), which were introduced by Legislative Decree No. 44 of 4 March 2014 and implemented in Italy by the EU Alternative Investment Fund Managers Directive (AIFMD).2
As regards the listed real estate market, Italian listed real estate investment companies (SIIQs) were introduced by Law No. 296 of 27 December 2006, and the related civil law and tax regime was subsequently amended in 2014 to take into consideration similar vehicles in other European countries (i.e., EU real estate investment trust (REIT) regimes).
Recently, pursuant to certain amendments to Italian securitisation law (Law No. 130 of 30 April 1999), a new special purpose vehicle for the securitisation of proceeds arising from real estate properties (RE SPV) has also been introduced in Italy. RE SPVs now sit together with real estate operating companies (ReOCo) and leasing companies (LeaseCo), special purpose vehicles dedicated to the acquisition of assets relating to the securitisation of receivables originated by Italian banks and financial intermediaries secured by real estate assets.
ii Property and transfer taxes
The ownership of real estate properties located in Italy is subject to property tax (IMU).
The IMU tax base is equal to the cadastral value increased by 5 per cent and adjusted applying certain parameters provided for by the law. The IMU rate is determined annually by the municipality where the real estate property is located, within a range set out at national level3 (from 0.86 to 1.14 per cent). A wider reform of the cadastral values of real estate assets to align to market values has recently been announced by the government, but there are no indications so far as to timing and method of determinations of the values.
IMU is payable in respect of the ownership of real estate properties in Italy, regardless of the type of investment vehicle holding the properties (i.e., corporate vehicle, REIF, real estate SICAF or SIIQ).
The transfer of the ownership of real estate properties located in Italy triggers the following indirect taxes: value added tax (VAT), registration tax, mortgage tax, cadastral tax and minor stamp duties (see Section II.iii).
Asset deals versus share deals
i Legal framework
Investments in real estate properties may occur either through an asset deal, whereby the investor acquires the property directly, or through a share deal, whereby the investor acquires a participation in a company that owns the relevant property.
In respect of due diligence requirements, asset deals are usually straightforward. The purchaser acquires only the real estate property. From a tax perspective, the relevant due diligence is usually focused on the assessment of the existence of any possible real estate lien provided for by the Italian Civil Code or by the tax laws that may derive from certain indirect taxes relating to the property.
However, in respect of acquisition formalities, asset deals are generally more complicated than share deals. Indirect taxes are due on the registration of the deed of transfer (registration tax) and on the formalities in the real estate public registries (mortgage and cadastral taxes). In addition, VAT may apply depending on the real estate property being purchased (see Section II.iii).
Share deals entail that the investor acquires a participation in the entity that owns the real estate property. This investment structure usually requires a broader tax due diligence on the whole entity. In addition, the structuring is more complex because any financial flow (such as interest on shareholders' loans, dividend distributions and exit strategies) requires an investor to take into consideration the evolution of the international tax framework to reduce or minimise taxation and prevent double taxation.
In respect of indirect taxes, share deals are subject only to minor registration tax duties on the deed of transfer of the shares (i.e., no mortgage and cadastral taxes are due). Furthermore, the transfer of the shares is exempt from VAT.
ii Corporate forms and corporate tax framework
The most common non-regulated vehicles for real property investment are limited liability companies, joint stock companies and, in minor cases, partnerships, the latter being transparent for tax purposes.
Real estate companies are subject to corporate income tax (IRES) at a rate of 24 per cent on a tax base equal to the net income resulting from the profit and loss account, duly adjusted according to the tax rules.
Deductible expenses from the IRES tax base include, inter alia, interest expenses, depreciation of real estate properties,6 a portion of IMU on non-residential properties7 and other inherent expenses.
Interest expenses are deductible according to the following rules:
- the ordinary rule: interest expenses (net of interest income) paid by the company on third-party loans and shareholders' loans are deductible from the IRES tax base up to 30 per cent of the gross operative income determined for tax purposes (approximately equal to the earnings before interest, taxes, depreciation and amortisation) of the relevant tax period; and
- the specific rule for real estate companies: interest expenses on mortgage bank loans are fully deductible from the IRES tax base provided that the company mainly leases real estate assets, based on certain parameters provided by the law.8
It must be considered carefully whether companies investing in real estate properties fall within the scope of the dormant companies regime (i.e., income lower than a deemed income defined by the law).9
If a company is considered 'dormant', certain negative consequences apply from both a direct and an indirect tax perspective.
Finally, real estate companies are subject to the regional tax on business activities (IRAP) levied annually on the net value of company production derived from the activity carried out in the territory of each Italian region (3.9 per cent standard rate).
However, partnerships are transparent for tax purposes; therefore, income realised by them is subject to tax in the hands of the partners, irrespective of the effective distribution, and in proportion to the shares held.13
iii Direct investment in real estate
This subsection is focused on indirect taxes (on purchase) and direct taxes (on holding and disposal) applicable in the case of direct investment by a non-resident entity in real estate properties in Italy (i.e., asset deals).
Indirect taxes on the sale and purchase of real estate properties
The indirect taxes regime applicable to the sale and purchase of real estate properties located in Italy depends firstly on the characteristics of the seller. If the seller is registered for VAT in Italy, the transfer is subject to VAT.
Furthermore, the indirect taxes regime depends on whether the property qualifies as a commercial building or a residential building according to the classification in the public real estate registries (Catasto).
The transfer of commercial buildings located in Italy made by a VAT-registered person is subject to the following VAT regimes:14
- VAT exemption (ordinary regime);
- VAT under the reverse charge procedure (10 or 22 per cent) if the seller opts for the application of VAT in the sale and purchase agreement – for these purposes, the non-resident purchaser should obtain a VAT position in Italy;15 or
- VAT (10 or 22 per cent) without the reverse charge procedure if the seller built the property or carried out and completed certain renovation works in the five years before the sale.
Regardless of the VAT regime, the deed of purchase of commercial buildings that are subject to VAT is also subject to registration tax at the fixed amount of €200.16 Mortgage tax and cadastral tax (transfer taxes) apply at rates of 3 and 1 per cent,17 respectively, on the fair market value. Such rates are reduced to 1.5 and 0.5 per cent if at least one of the counterparties is a REIF or a SICAF established under Italian law.
The purchase of residential buildings located in Italy is subject to the following VAT regimes:18
- VAT exemption (ordinary regime);
- VAT under the reverse charge procedure (10 or 22 per cent) if the seller has built the property or carried out certain renovation works more than five years before the sale and opts for the application of VAT in the sale and purchase agreement – for these purposes, a non-Italian EU resident purchaser should obtain a VAT position in Italy;19 or
- VAT (10 or 22 per cent)20 without the reverse charge procedure if the seller has built the property or carried out certain renovation works in the five years before the sale.
Notably, under the reverse charge procedure, the seller issues an invoice without VAT (to be integrated by the purchaser), and no financial flow of VAT is paid by the purchaser to the seller, thus eliminating the financial burden relating to the funding of VAT.
The VAT taxable amount is the consideration agreed for the sale between the parties in the transfer deed.21
For residential buildings, if the purchase is exempt from VAT, the registration tax applies at the rate of 9 per cent on the fair market value,22 whereas transfer taxes apply at the fixed amount of €50 each.23 If the seller opts for VAT to be applied or if VAT is compulsory, then registration tax, mortgage tax and cadastral tax apply at the fixed amount of €200 each.24
Income taxes on rental income
Rental income received by a non-resident entity without a permanent establishment (PE) in Italy from the lease of real estate properties located in Italy is subject to IRES on a taxable basis that is the higher of the deemed income of the property pursuant to Italian cadastral law and 95 per cent of the annual rent.25
IRAP is not applicable if the non-resident entity does not have a PE in Italy.26
Capital gains from the sale of real estate properties located in Italy by a non-resident entity may be, alternatively:27
- subject to IRES if the sale occurs within five years of the purchase of the property; or
- exempt from IRES if the sale occurs after five years from the purchase.
As clarified by the Italian Supreme Court,28 the mere ownership and lease of real estate properties in Italy by a non-resident entity does not, per se, give rise to a PE in Italy. However, if the property is used to carry out a business activity by the non-resident entity or it is itself the object of the business activity, this circumstance may, in principle, entail a PE issue.
The question is relevant because if the non-resident entity has a PE in Italy, it is subject to IRES and IRAP on the profits attributable to that PE (see Section VI).
The European Court of Justice (ECJ) has recently addressed this issue, holding that a property that is leased in a Member State does not constitute a PE under the meaning of EU VAT law when the owner of that property, resident in another Member State, does not rely on their own staff to perform services relating to the lease.29
iv Acquisition of shares in a real estate company
This subsection is focused on indirect taxes applicable to the purchase by a non-resident entity of a participation in an Italian real estate property company, and on the tax treatment of dividends and capital gains at disposal (i.e., share deals).
Indirect taxes on share purchases
The purchase by a non-resident person of shares in a real estate company resident in Italy is outside the scope of VAT.30 The deed of purchase, if executed in Italy, is subject to registration tax at a fixed amount of €200;31 conversely, if it is not executed in Italy, it is outside the scope of the registration tax.32
If the real estate company is incorporated as a joint stock company, the purchase of such shares is, in principle, subject to the financial transaction tax33 (the Tobin tax) at 0.2 per cent of the price of the shares.
Dividends distributed by an Italian resident real estate company to a non-resident shareholder are subject to the following withholding tax regime:
- in principle, a domestic withholding tax applies at the rate of 26 per cent;34
- reduced rates are available under the applicable double tax treaty between Italy and the state of the non-resident shareholder, provided that the non-resident shareholder qualifies as a beneficial owner of the dividends and is eligible to benefit from the double tax treaty;
- the domestic rate is reduced to 1.2 per cent, provided that the non-resident shareholder is resident for tax purposes in an EU or European Economic Area (EEA) country and subject to corporate income tax;35
- no withholding tax applies under the EU Parent–Subsidiary Directive, as implemented in Italy,36 provided that the non-resident shareholder, as beneficial owner of the dividends, meets the relevant requirements under the Directive;
- to benefit from the withholding tax exemption, specific documentation (including a tax residence certificate) must be collected by the company distributing the dividend, before the dividend distribution; and
- according to guidelines issued by the Italian Revenue Agency,37 the application of the exemption under the Parent–Subsidiary Directive must be verified, analysing the actual features of the non-resident entity. Furthermore, recent decisions of the ECJ38 and the Italian Supreme Court39 must be taken into consideration.
Under a provision introduced by the 2021 Budget Law,40 starting from 1 January 2021, Italian withholding tax does not apply to dividends distributed by an Italian resident company to certain foreign investment funds (as better detailed in Section VII.ii below).
As mentioned in Section II.ii, income realised by Italian resident partnerships is subject to tax in the hands of the shareholders, irrespective of the effective distribution and proportionally to the shareholding held.41
Capital gains on the sale of the shares or quotas
Capital gains realised by a non-resident shareholder on the disposal of the real estate company's shares are subject to the following tax regime in Italy.
- In principle, a substitutive tax in lieu of IRES and IRAP applies at a rate of 26 per cent.42
- Under domestic rules,43 the substitutive tax does not apply, provided that the real estate company's shares are 'non-qualified' shares (and the non-resident shareholder is resident for tax purposes in a white list state44 or qualifies as a certain type of investor (e.g., institutional investor)).
- Under the applicable double tax treaty between Italy and the state of the non-resident shareholder, it is generally provided that capital gains from the disposal of the company's shares are taxable only in the state of the non-resident shareholder.45 Such an exemption shall be further evaluated once the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral instrument (MLI)) enters into force in Italy (see Section VI).
Regulated real estate investment vehicles
i Regulatory framework
The Italian regulatory framework provides two different regulated real estate investment vehicles: REIFs and SICAFs.
Both REIFs and SICAFs are undertakings for collective investment regulated by Legislative Decree No. 58 of 24 February 1998, as subsequently amended (the Consolidated Law on Finance), and by the implementing provisions issued by the Italian financial regulatory authorities.
REIFs and SICAFs are alternative investment funds (AIFs) within the meaning of the AIFMD. REIFs may be externally managed only by Italian management companies authorised and supervised by the Bank of Italy and Consob or by non-resident EU-passported alternative investment fund managers (AIFMs). SICAFs may be, alternatively, externally managed, like a REIF, or internally managed by its board of directors, provided that the SICAF is authorised by the Bank of Italy to the management activities.
ii Overview of the different regulated investment vehicles
REIFs are collective investment schemes established as an independent pool of assets, divided into units, pertaining to a plurality of investors and managed on a collective basis by a third-party management company independently and in the investors' interest, on the basis of a predetermined investment policy.46
REIFs shall invest at least two-thirds47 of the total value of their assets in real estate assets, which include, inter alia, buildings, lands, and equity holdings in real estate companies or in other REIFs, including foreign REIFs.
The establishment of a REIF reserved to professional investors is not subject to prior authorisation by the Bank of Italy, but it may be subject to the authorisation of Consob unless it is established under the reverse enquiry procedure. More specifically, the main regulatory requirements of REIFs are: (1) capital autonomy, (2) plurality of investors and (3) independence of the management company.
SICAFs are closed-ended undertakings for collective investment incorporated in the form of a joint stock company with fixed capital, having as their exclusive purpose the investment of their capital collected through the issue of shares, among a plurality of investors, managed as a whole in the interest of its investors and independently from them.
SICAFs are generally subject to the same regulations provided for REIFs in respect of, inter alia, investment activity, risk concentration limits and plurality of investors. Specific differences are provided to consider the different nature of the SICAF (as an AIF incorporated in the form of a company) as opposed to REIFs (as an AIF established in contractual form).
The establishment of a SICAF is subject to prior authorisation by the Bank of Italy. The authorisation procedure of an internally managed SICAF may be longer than for those that are externally managed, because the process also requires the authorisation of the company as a fund manager.
iii Taxes payable upon acquisition of real estate assets
The acquisition of real estate assets by REIFs or SICAFs may be pursued either by direct purchase against cash payment or by contribution of the real estate assets by the investor in exchange for units or shares.
Indirect taxes on the purchase of real estate properties
The purchase of real estate assets by REIFs or SICAFs is subject to VAT and registration tax pursuant to the ordinary rules (see Section II.iii, 'Indirect taxes on the sale and purchase of real estate properties').
Conversely, mortgage and cadastral taxes apply at the reduced rates of 1.5 and 0.5 per cent, respectively48 (half the ordinary rates). That reduction applies to the extent that the agreement is entered into by a REIF or by a SICAF (as purchaser or seller).
Indirect taxes on the contribution of real estate properties
The contribution of real estate properties to REIFs or SICAFs (i.e., in exchange for units or shares) is subject to the same indirect tax regime applicable to the sale of real estate properties. The tax is on the value of the assets contributed.
A special tax regime is provided for the contribution of a 'plurality of real estate properties mainly leased at the time of the contribution' to REIFs or real estate SICAFs.49 According to that regime, the contribution is outside the scope of VAT and is subject to registration, mortgage and cadastral taxes at the fixed amount of €200 each.
Income taxes on the sale or contribution due from the seller or contributor
The sale or contribution of real estate properties, in principle, may generate a taxable gain in the hands of the seller or contributor, which is subject to ordinary direct taxes on the difference between the value of the consideration received and the tax base of the asset in the hands of the seller.
In the case of contribution, capital gains would be subject, alternatively, to income taxes under the ordinary rules (including the possibility of offsetting with available tax losses) or to a 20 per cent substitutive tax50 in lieu of the ordinary income taxes.
iv Tax regime for the investment vehicle
REIFs are taxable persons for the purpose of IRES and IRAP because they qualify as undertakings for collective investments established in Italy.51
However, REIFs are exempt from IRES and IRAP if and to the extent that they meet the regulatory requirements to qualify as undertakings for collective investment provided by the Consolidated Law of Finance (such as, inter alia, plurality of investors and independence of the fund manager).52
In any case, REIFs are exempt from IRES and IRAP if they are participated exclusively by 'institutional investors' (i.e., 'institutional REIFs') regardless of any further analysis about the regulatory requirements.53
The category of institutional investor includes, inter alia, Italian undertakings for collective investment, Italian pension funds and similar entities established in states that allow the adequate exchange of information for tax purposes with Italy. The tax treatment of SICAFs for IRES purposes would be the same as for REIFs. Conversely, differently from REIFs, SICAFs may be subject to IRAP, whose tax base is equal to the difference, if any, between subscription fees received by the SICAF and those paid by the SICAF for the placement of the shares,54 if any (at 4.65 per cent).
A specific VAT regime is provided for REIFs, pursuant to which the management company (and not each of the REIFs managed) is the taxable person for VAT purposes.55 In particular, the sale of 'goods' (the sale of real estate assets) and the supply of services (the lease of real estate assets) carried out by the REIFs represent separate accounts of the management company for VAT purposes.
Accordingly, the management company applies the VAT separately in respect of each REIF managed, determining and calculating the VAT separately in respect of to the activity carried out by itself and by each REIF managed, keeping separate VAT registers, issuing invoices with different numbering and recording the transactions distinctly.
However, being a single VAT person, the management company files a single VAT return (which includes separate forms for each of the REIFs managed) and makes a single cumulative payment for the VAT due by itself and by all the REIFs managed (or accounts for single VAT credits).
The Revenue Agency has clarified that, in the event of a change of the manager of a REIF, the new management company seamlessly takes over the VAT position of the previous one in relation to all the transactions carried out by the REIF during the year in which the change of manager occurs.56
This VAT treatment also applies in the event that the management company is established in another EU Member State and manages an Italian REIF under the AIFMD passport regime (without a PE in Italy).57 However, specific issues may arise in respect of the fulfilment of the application of VAT in Italy by an EU management company that is a VAT taxable entity in another EU Member State; some of these issues have been addressed by the Revenue Agency in unpublished tax rulings.
Unlike REIFs, SICAFs are taxable persons for VAT purposes in Italy and have their own VAT position, distinct from that of the management company, as confirmed by the tax authority.58 Therefore, in the case of a SICAF externally managed by an Italian management company or an EU management company under the AIFMD passport regime, the transactions of the SICAF would be considered as carried out by the SICAF as a VAT taxable person and not by the management company.
Withholding taxes on incoming income
REIFs and SICAFs are exempt from most of the withholding or substitutive taxes generally applied on financial income.59
In particular, the Revenue Agency has clarified that REIFs are not subject to withholding taxes on dividends distributed by Italian companies (e.g., SPAs and SRLs).60
Withholding tax on interest paid on loans by Italian REIFs or real estate SICAFs
Interest expenses paid on loans granted by Italian banks are not subject to withholding tax at the moment of the payment,61 whereas loans granted by non-resident banks to businesses resident for tax purposes in Italy are generally subject to a 26 per cent withholding tax62 (may be reduced under double tax treaties). Under Article 26, Paragraph 5 bis of Presidential Decree No. 600 of 29 September 1973 (Decree No. 600/1973), interest expenses paid on medium- and long-term loans granted by banks established in EU Member States to businesses resident in Italy for tax purposes are exempt, under certain conditions, from the ordinary 26 per cent withholding tax in Italy.
The Revenue Agency63 clarified that Italian real estate REIFs and SICAFs, as undertakings for collective investments, do not fall within the definition of 'businesses' for the purposes of such a withholding tax exemption.
Therefore, interest expenses on medium- and long-term loans granted by EU banks to Italian REIFs or SICAFs would not benefit from the exemption from withholding tax in Italy. Consequently, such interest expenses are subject to withholding tax in Italy at the ordinary rate of 26 per cent, which may be reduced under a relevant double tax treaty (generally 10 per cent under Article 11 of the OECD Model Tax Convention).
Conversely, Italian real estate companies (established as unregulated entities) do benefit from the withholding tax exemption under the domestic rule on similar loans.
v Tax regime for investors
Tax regime for resident investors
Proceeds distributed by REIFs and SICAFs to resident investors are subject to a 26 per cent withholding tax64 applied, upon distribution, by the management company or by the depository bank of the units.
The withholding tax is applied in advance in respect of entrepreneurs, partnerships, companies and other commercial entities subject to IRES, and to the Italian PE of non-resident entities. The withholding is final in respect of any other resident investor.
The withholding tax does not apply to proceeds distributed to Italian complementary pension funds and undertakings for collective investment.
The above-mentioned regime would apply also when proceeds are distributed to Italian institutional investors, as defined in Section III.iv. Conversely, the tax regime applicable to Italian 'non-institutional' investors depends on the share of their participation in the REIF, and specifically:
- when the share of their participation is 5 per cent or less, the investor is subject to the tax regime described above; and
- when the share of their participation is more than 5 per cent, the investor is taxed on a look-through basis on the profits resulting from the financial statements (i.e., the profits are attributed proportionally to the units held, regardless of their actual distribution).65
Capital gains realised by resident investors by the transfer of the units of REIFs or SICAFs are subject to a 26 per cent substitutive tax.66 The Revenue Agency clarified that if the capital gain is realised by an investor that holds the units in connection with its business activity, the gain is subject to ordinary IRES.67
Tax regime for non-resident investors
Proceeds distributed by REIFs and SICAFs to non-resident investors are subject to withholding tax at the 26 per cent rate or at a reduced rate (e.g., 10 per cent or 15 per cent) under the applicable double tax treaty between Italy and the state of residence of the investor.68 The Revenue Agency69 clarified that, unless specific provision is provided in the double tax treaty, the proceeds distributed by a REIF can be considered 'interest' within the meaning of Article 11 of the OECD Model Tax Convention.
In respect of SICAFs, no guidelines have been provided in respect of the qualification of proceeds distributed. On the one side, the clarifications issued by the Revenue Agency in respect of REIFs should also apply to SICAFs (being collective investment undertakings), but, on the other side, it may be argued that they qualify as 'dividends' (because the SICAF is incorporated as a joint stock company).
Proceeds distributed to the following non-resident investors are exempt from withholding tax in Italy under Article 7(3) of Law Decree No. 351 of 25 September 2001:
- pension funds and undertakings for collective investment established in a country that allows the exchange of information for tax purposes;
- international entities established in accordance with international agreements enforced in Italy; and
- central banks or entities that manage the official reserves of a state (sovereign wealth funds).
Capital gains deriving from the sale for consideration or from the redemption of units of REIFs or SICAFs, realised by non-resident investors without a PE in Italy, are deemed to be accrued in Italy if the units are not traded in regulated markets.70 Those capital gains are, in principle, subject to a 26 per cent substitutive tax, in lieu of ordinary income taxes.71 However, if the applicable double tax treaty provides the exclusive right to tax to the state of residence of the investor, capital gains are not taxable in Italy.72
A domestic tax exemption is provided for capital gains realised by certain non-resident investors.73 In particular, capital gains realised by the following non-resident investors74 are not included in the taxable income and are therefore exempt from the 26 per cent substitutive tax:
- entities resident in a state that allows the exchange of information for tax purposes;
- international entities or bodies established on the basis of international treaties implemented in Italy;
- institutional investors established in a state that allows the exchange of information for tax purposes, regardless of their legal form and their tax status in the foreign states in which they are established; and
- central banks or organisations that also manage the official reserves of a state.
vi Withholding tax exemption if the investor qualifies as a foreign collective investment undertaking
An exemption on proceeds distributed to foreign collective investment undertakings is applicable provided that:
- according to the applicable law of the state in which they are established, the non-resident collective investment undertakings meet the fundamental requirements of and have the same investment purposes as Italian REIFs, regardless of their legal form and tax status; and
- those undertakings, or the entities appointed for their management, are subject to supervision, namely the beginning of the activity is subject to a prior authorisation and the carrying out of the activity is subject to controls on an ongoing basis under the rules in force in the foreign state.75
The Revenue Agency confirmed that the regulatory supervision requirement is satisfied for foreign collective investment undertakings externally managed by managers regulated by the UCITS IV Directive76 and by the AIFMD, given that, pursuant to those Directives, regulatory supervision is expressly required and must be recognised in all Member States.
In this context, in an unpublished ruling dated 2016, the Revenue Agency considered those investors that were established in countries located outside the EU but that have voluntarily implemented 'AIFMD-like' legislation to be assimilated to AIFMD-compliant entities.
In addition, the Revenue Agency recognised that the supervision exercised by the US Securities and Exchange Commission (SEC) over registered investment advisers (and on their 'relying advisers' also registered with the SEC under the 'umbrella registration' procedure) is considered valid for the purposes of the Italian withholding tax exemption on proceeds distributed by Italian REIFs. In light of this, US limited partnerships managed by investment advisers or relying on advisers registered with the SEC may qualify for the withholding tax exemption.77
The existence of regulatory supervision may be demonstrated by using the information on the SEC's public website78 and by submitting to the Italian withholding agent (i.e., the management company) Form ADV filed with the SEC at the time of registration, along with any subsequent amendment.
vii Withholding tax exemption on investments by foreign REITs
Also, the Revenue Agency provided some clarification on the withholding tax exemption on proceeds distributed by an Italian REIF to a REIT established in Singapore and managed by an entity authorised by the Monetary Authority of Singapore.79 The Revenue Agency recognised that the Singapore REIT did in fact qualify as an institutional investor (having features similar to those of an Italian REIF and being managed by an external manager subject to the regulatory supervision of the competent authority in Singapore) and therefore could benefit from the withholding tax exemption in Italy.
Furthermore, the Revenue Agency80 recently addressed this issue with reference to an Australian REIT, confirming that such an entity should qualify as an institutional investor assimilated to a domestic investment fund, thus being eligible to benefit from the withholding tax exemption on proceeds distributed by an Italian REIF. The possibility for foreign investors to apply the withholding tax exemption is evaluated on a case-by-case basis because it is strictly dependent on foreign local laws and on the characteristics and status of the investors. In this respect, an assessment can be initiated by filing a tax ruling request with the Revenue Agency, which generally adopts an open and cooperative approach.
Real estate investment trusts and similar structures
i Legal framework
The SIIQ regime was introduced in Italy by Law No. 296 of 27 December 2006 to provide a special legal and tax regime applicable to Italian listed real estate investment companies that meet certain requirements and whose main activity is the rental of real estate properties, in line with similar institutions in other European countries (e.g., Spain and France).
The regime applies also to Italian unlisted real estate investment companies that are subsidiaries of SIIQs and meet certain requirements (SIINQs).
The SIIQ regime applies to Italian PEs of foreign REITs that mainly carry out letting activities of real estate properties through participations in SIINQs81 and are established in EU and EEA Member States that allow an adequate exchange of information for tax purposes with Italy.
The SIIQ and SIINQ regime was subsequently amended by Law Decree No. 133 of 12 September 2014.
ii Requirements to access the regime
Subjective, shareholding and statutory requirements
SIIQs are joint stock companies, resident for tax purposes in Italy, whose main activity is the rental of real estate properties and whose shares are listed on the Italian stock exchange or on regulated markets of EU or EEA Member States that allow an adequate exchange of information for tax purposes with Italy. The regime is subject to the following requirements:
- no single shareholder should own, directly or indirectly, more than 60 per cent of the voting rights and of the profit participation rights (the control threshold); and
- at least 25 per cent of the shares are owned by shareholders that individually do not hold, directly or indirectly, more than 2 per cent of voting rights and profit participation rights (the free-floating threshold).
The control threshold must be satisfied continuously. If the threshold is exceeded because of M&A transactions or capital market transactions, the SIIQ regime is suspended until the requirement is restored.
The free-floating threshold must be satisfied only to access the SIIQ regime and at the time of access. The requirement is not applicable to companies already listed on regulated markets.82
To access the SIIQ regime, eligible companies must file a specific form with the Revenue Agency by the end of the fiscal year prior to the year in which they intend to apply the special regime.
It is worth mentioning that the 2022 Budget Law amended the requirements for the qualification of a company as a SIINQ. SIINQs are joint stock companies or Sapa or Srl (limited liability companies) with a minimum share capital of €50,000, resident for tax purposes in Italy, whose main activity is the rental of real estate properties and whose shares are not listed. In addition, a company may qualify as a SIINQ if it is alternatively owned by (1) a SIIQ (or SIINQ) that individually owns more than 50 per cent of the voting rights and of participation in profits (95 per cent according to the previous regime before the 2022 Budget Law), or (2) a SIIQ (or SIINQ) that owns with other SIIQs (or SIINQs) or qualified real estate funds 100 per cent of participation in the share capital, as well as voting rights and participation in profits (provided that at least 50 per cent is owned by the SIIQs or SIINQs).
The amendments set out by the 2022 Budget Law are aimed at supporting joint ventures between SIIQs and REIFs.
To access the SIINQ regime, eligible companies must opt for the special regime jointly with the SIIQ parent company.
SIIQs are deemed to carry out the rental of real estate properties as their main activity if the following requirements are met:83
- the asset test: at least 80 per cent of the SIIQ's assets must consist of:
- real estate properties held for lease; and
- participations accounted as fixed assets in SIIQs, SIINQs, Italian REIFs or Italian real estate SICAFs, at least 80 per cent of whose assets consist of real estate assets held for lease or participations in real estate investment companies, REIFs and real estate SICAFs that carry out lease activity or SIIQs and SIINQs (qualifying REIFs and qualifying SICAFs); and
- the profit test: at least 80 per cent of the SIIQ's positive components of income must consist of:
- proceeds from the lease activity;
- dividends from participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs deriving from the lease activity; and
- capital gains realised on the disposal of real estate properties held for lease or of participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs.
The asset test and the profit test must be verified on the basis of each year's financial statements.
The asset and profit tests must be satisfied also by SIINQs.
iii Tax regime
Access to the SIIQ regime requires that the fiscal value of the real estate assets held for lease, accounted for in the previous financial statements with the ordinary regime, is aligned to their fair value. The related capital gains (net of any capital loss) may be alternatively subject to a 20 per cent substitutive tax (entry tax) in lieu of ordinary IRES and IRAP or included in the taxable income for IRES and IRAP purposes under the ordinary rules.84
If capital gains are subject to the substitutive tax, the higher fiscal value of the assets is effective starting from the fourth fiscal year following the one in which the company exercised the option for the SIIQ regime.
Conversely, if capital gains are included in the taxable income for IRES and IRAP purposes, the higher fiscal value of the assets is effective starting from the first fiscal year following the one in which the company exercised the option for the regime.
Tax losses realised before the election for the SIIQ regime can be utilised to offset the tax base for the calculation of the 20 per cent substitutive tax or to offset IRES taxable income under the ordinary limits (i.e., 80 per cent of the taxable income).
The same provisions also apply to SIINQs.
Ongoing tax treatment of SIIQs and SIINQs for direct taxes purposes
SIIQs' income deriving from the lease activity is exempt from IRES and IRAP.85
No withholding taxes are levied on dividends from the lease activity distributed by other SIIQs and SIINQs or on proceeds from the lease activity distributed by qualifying REIFs and qualifying SICAFs to SIIQs.
As described in Section IV.iv, the income deriving from the lease activity is taxed when distributed to the shareholders.
Conversely, income deriving from activities other than the lease activity is subject to ordinary IRES and IRAP taxation rules (at an aggregate rate of 27.9 per cent) on receipt by the SIIQ. The same treatment for direct tax purposes also applies to SIINQs.
If the SIIQ regime is applied to the Italian PE of a foreign REIT, starting from the fiscal year for which the option is effective, the lease income of the PE is subject to a 20 per cent substitutive tax in lieu of ordinary IRES and IRAP.
Ongoing VAT regime of SIIQs and SIINQs
SIIQs and SIINQs apply the VAT pursuant to the ordinary rules provided for by the Italian VAT Law.86
Indirect taxes on the purchase or contribution of real estate properties
The purchase or contribution of real estate assets by or to SIIQs is subject to VAT and registration tax, pursuant to the ordinary rules (see Section II.iii, 'Indirect taxes on the sale and purchase of real estate properties').
Mortgage and cadastral taxes on the purchase or contribution of real estate assets by or to SIIQs apply at the reduced rates of 1.5 per cent and 0.5 per cent, respectively,87 as for REIFs and SICAFs.
In addition, the special tax regime provided for contributions of a plurality of real estate properties mainly leased at the time of the contribution also applies to SIIQs (see Section III.iii) (outside the scope of VAT and subject to registration, mortgage and cadastral taxes at the fixed amount of €200 each).88
The same treatment for indirect taxes purposes apply also to SIINQs.
Profit distribution obligations
Each year, SIIQs must distribute at least 70 per cent of the lower of:89
- net profits deriving from the lease activity or from participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs; and
- total profits available for distribution, according to Italian civil law.
Furthermore, SIIQs must distribute at least 50 per cent of net capital gains realised on the disposal of real estate properties held for lease or of participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs in the two years subsequent to the disposal.90
The same distribution obligations apply also to SIINQs.
iv Tax regime for investors
Dividends deriving from SIIQs' exempt lease activity are subject to a 26 per cent withholding tax upon distribution levied by the financial intermediaries where the SIIQ shares are deposited. That withholding tax is applied:91
- on account to individual shareholders carrying out a business activity and to corporate shareholders; therefore, dividends are included in the individual income tax (IRPEF) basis (at progressive rates of up to 43 per cent) and the IRES taxable income (at a rate of 24 per cent), respectively; and
- as final to other shareholders – for non-resident shareholders, double tax treaties apply if the relevant conditions are met.
The withholding tax is not applied on dividends distributed to Italian pension funds and to Italian collective investment undertakings.
Dividends distributed to investors that derive from SIIQs' taxable activities that are different from the exempt lease are subject to the ordinary tax regime. Accordingly, dividend distributions are taxed at the following rates:
- corporate shareholders are subject to IRES (at a rate of 24 per cent) on the limited amount of 5 per cent;
- individuals carrying out a business activity are subject to IRPEF (at progressive rates) on the limited amount of 58.14 per cent;
- individuals not carrying out a business activity are subject to a 26 per cent final withholding tax; and
- non-resident shareholders (without a PE in Italy) are subject to a 26 per cent final withholding tax, which may be reduced pursuant to applicable double tax treaties if the relevant conditions are met (e.g., to 15 per cent) or pursuant to domestic rules (1.2 per cent under specific conditions). The exemption from withholding tax under the Parent–Subsidiary Directive would apply.
Capital gains resulting from the disposal of SIIQs' shares are taxed at the following rates:
- for corporate shareholders, fully subject to IRES (at 24 per cent rate);
- for individuals carrying out a business activity, fully subject to IRPEF (at progressive rates);
- for individuals not carrying out a business activity, subject to a 26 per cent substitutive tax; and
- for non-resident shareholders (without a PE in Italy), subject to a 26 per cent substitutive tax, unless an applicable double tax treaty allows them to be taxed outside Italy.
v Forfeiture of REIT status
The forfeiture of SIIQ status occurs if the company:
- ceases to be a joint stock company tax resident in Italy whose shares are listed on regulated markets;
- fails to meet the control threshold (unless this failure is due to M&A transactions or capital market transactions, in which case the exempted tax regime is suspended);
- fails to meet the asset test or the profit test for three consecutive years or fails to meet both the asset and profit tests in the same year;92 and
- fails to meet the profit distribution obligations.93
Those factors also lead to the forfeiture of SIINQ status.
There are no specific penalties in the event of forfeiture of SIIQ or SIINQ status.
Real estate securitisation vehicles
i Special purpose vehicles for real estate securitisation
Article 7.2 of Law No. 130 of 30 April 1999 (Law No. 130), as amended from time to time, provides for a special purpose vehicle for the securitisation of proceeds from real estate properties (RE SPV).
Requirements to access the regime
The RE SPV is incorporated under the Securitisation Law as an unregulated securitisation vehicle. The RE SPV shall have a corporate purpose limited to the securitisation of real estate assets (i.e., the purchase of properties funded through the issuance of notes to investors (the Notes).
The real estate properties and any proceeds arising from the properties are a separate pool of assets, distinct from the assets of the RE SPV (or the properties of other securitisation transactions).94
The profits from the activity of the RE SPV (e.g., rental activity or sale of properties) are to be used to pay out proceeds under the Notes.95
The RE SPV must appoint an asset manager and a service provider, both of whom must satisfy certain requirements. The RE SPV must also appoint a depositary bank.96
Ongoing tax treatment of RE SPVs for direct tax purposes
The RE SPV is subject to the same tax treatment as is applicable to investment vehicles for the securitisation of receivables, on the basis of Law No. 130.
As confirmed by the Revenue Agency,97 the RE SPV is exempt from IRES and IRAP, given that the profits deriving from the real estate activity are a separate pool of assets, which are to be used to pay the proceeds under the Notes and therefore would not constitute an income attributable to the RE SPV98 (see Section VII.i).
Upon the conclusion of the securitisation transaction, any outstanding income – arising after all the creditors of the segregated assets and noteholders have been satisfied – would be subject to income taxes (IRES and IRAP) in the hands of the RE SPV.
For VAT purposes, the Revenue Agency clarified that the RE SPV is subject to the ordinary VAT regime.
Indirect taxes on the sale or purchase of real estate properties
The sale or purchase of real estate assets of the RE SPV is subject to the ordinary regime for the purposes of VAT, registration tax, mortgage tax and cadastral tax.99 Moreover, the RE SPV is entitled to opt to pay the VAT due separately, in the case of multiple investment activities being carried out. It would do this by applying the separation regime to the activities for VAT purposes, as provided by Article 36(3) of Presidential Decree No. 633 of 26 October 1972.
Tax regime on the investors
The Revenue Agency confirmed that tax treatment of investors in the RE SPV is the same as for investors in vehicles for the securitisation of receivables. Therefore, interest and other profits paid by the RE SPV under the Notes are:
- subject to a substitutive tax at a rate of 26 per cent if received by, inter alia, individuals who do not carry out a business activity;
- included in the taxable income if received by commercial companies, collective investment undertakings and pension funds resident in Italy for tax purposes; and
- subject to withholding tax of 26 per cent if received by non-resident noteholders.
However, a specific exemption from withholding tax is provided for entities resident in a white list state and institutional investors established in a white list state.
ii Parallel SPVs for the real estate securitisation (ReOCo and LeaseCo) legal framework
Under Article 7.1 of Law No. 130, a dedicated real estate company (ReOCo) is an investment vehicle whose activity is strictly limited to functioning as a parallel SPV for the securitisation of receivables originated by Italian banks and financial intermediaries secured by real estate assets, such as non-performing loans (NPLs). If the securitisation of receivables concerns, together with real estate assets subject to leasing, relative leasing contracts or legal relations deriving from the termination of these contracts, a dedicated leasing company (LeaseCo) may be established to purchase the leasing contracts together with the assets covered, which will be managed and enhanced accordingly.
Requirements to access the regime
Parallel SPVs are established in the form of joint stock companies with a corporate purpose limited to the purchase, management and sale of real estate properties that constitute the guarantee of NPLs, in connection with the securitisation of those NPLs. LeaseCos must be consolidated in the financial statement of a bank or a financial intermediary pursuant to Article 106 of Legislative Decree No. 385 of 1 September 1993, even if not part of a banking group, and must be liquidated once the securitisation transaction has been concluded.100
The proceeds arising from the real estate properties are a separate pool of assets, distinct from the assets of the parallel SPVs (or the properties of other securitisation transactions). The amounts deriving from the holding, management, or disposal of these assets are used exclusively to pay the proceeds under the Notes of the securitisation SPV and to pay the costs of the transaction.101
Ongoing tax treatment of ReOCos and LeaseCos for direct tax purposes
Law No. 130 does not provide a specific ongoing tax regime for parallel SPVs. As clarified by the explanatory report for Law Decree No. 34 of 30 April 2019, parallel SPVs are subject to the same tax treatment as is applicable to investment vehicles for the securitisation of receivables.
Therefore, parallel SPVs should be exempt from IRES and IRAP in respect of the profits realised during the transaction and, upon the conclusion of the securitisation transaction, the residual profits owned by parallel SPVs, if any, would be subject to income taxes (IRES and IRAP) in their hands.102
Indirect taxes on the sale or purchase of real estate properties applicable to ReOCos and LeaseCos
Law No. 130, as amended, provides a specific tax regime for the indirect taxes on the transfer of real estate properties involving parallel SPVs.
Registration, mortgage and cadastral taxes at the fixed sum of €200 for each such tax shall apply in relation to:
- the purchase by the ReOCo (or LeaseCo) of the properties that are the object of the transactions performed, even if the transfer is realised through judicial or insolvency proceedings;103
- the subsequent transfer of assets by the ReOCo (or LeaseCo) to individuals carrying out business activities, on condition that the purchaser transfers them within five years of the date of purchase;104
- the subsequent transfer of assets by the ReOCo (or LeaseCo) to individuals not carrying out business activities who benefit from tax relief for the purchase of their primary home;105 and
- the transfer, to or by a leasing company, of properties that are the object of leasing contracts terminated or otherwise extinguished.106
The sale and purchase of the real estate assets of a ReOCo (or LeaseCo) are subject to the ordinary rules on VAT.
International and cross-border tax aspects
i Tax treaties
The Italian tax treaties network includes more than 90 double taxation conventions, which are generally based on the OECD Model Tax Convention, with some differences.
On 7 June 2017, Italy signed the MLI, which entered into force on 1 July 2018. However, Italy has still to ratify it; therefore, it has not yet become effective in respect of the tax treaties with Italy that are currently in force.
From the perspective of cross-border real estate investments, Article 13 of the OECD Model Tax Convention deals with the taxation of gains from both the alienation of immovable properties and shares in real estate entities.107 Under that Article, gains from both shares and properties are taxable in the state where the properties are located (if certain requirements are met).
Under Paragraph 4, gains derived by a resident of a contracting state from the alienation of shares or comparable interests (e.g., interests in a partnership or trust) may be taxed in the other contracting state (e.g., Italy) if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from real estate properties situated in that other state (e.g., Italy).
The tax treaties currently in force with Italy, as a rule, do not include a clause based on Article 13, Paragraph 4 of the OECD Model Tax Convention, with a few exceptions.
Article 9 of the MLI addresses the real estate clause set out in Article 13, Paragraph 4 of the OECD Model Tax Convention, strengthening the application of that rule at an international level in respect of the tax treaties that already include that rule.
Furthermore, Article 9, Paragraph 3 allows a state to introduce the following provision into a tax treaty:
For purposes of a Covered Tax Agreement, gains derived by a resident of a Contracting Jurisdiction from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting Jurisdiction if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property (real property) situated in that other Contracting Jurisdiction.
Italy has opted for the application of Article 9, Paragraph 4 of the MLI in respect of its tax treaties (i.e., the rule addressing gains from the alienation of shares in entities deriving their value principally from immovable properties).108
Once the MLI becomes effective in respect of Italy, Article 9, Paragraph 4 will apply to a tax treaty with Italy only when the other contracting state has also chosen to apply the provision (pursuant to Article 9, Paragraph 8 of the MLI).
Tax treaties allocate tax rights between the contracting states, whereas the taxable income is identified under domestic rules. Therefore, specific tax exemptions set out by Italian domestic rules in respect of gains realised by a non-resident person should continue to apply, even if Article 9, Paragraph 4 of the MLI is applicable to the treaty between Italy and the state of residence of the non-resident person.
The domestic definition of a PE is based on the definition in the OECD Model Tax Convention, with some material differences introduced in 2017.
Under the revised Article 162 of the Income Tax Code, a PE may exist if there is a 'significant and continuous economic presence' in the Italian territory, arranged in a way that does not give rise to a physical presence in Italy.109
In respect of cross-border real estate investments, in principle, the mere ownership of an immovable property located in Italy does not per se give rise to a PE.110 The existence of a PE in Italy must be determined considering the business activity actually carried out in Italian territory by the non-resident entity in connection with the real estate investment and, in particular, where the management is located.
The Revenue Agency addressed the PE issue in respect of EU AIFMs that manage collective investment undertakings established in Italy (e.g., REIFs or SICAFs) under the passport regime set out by the AIFMD, clarifying that, under the passport regime, management activity does not require per se a PE in Italy.111 In any case, the existence of a PE in Italy in respect of the activity of a non-resident AIFM must be verified on a case-by-case basis, taking into account the activity actually carried out in Italy by that AIFM.
ii Cross-border considerations
Italian law does not provide specific restrictions on ownership or on investment by a non-resident person in real estate properties located in Italy, except for the reciprocity principle.
Under the reciprocity principle, non-Italian investors are allowed to invest in Italy only if their state of residence allows rights equivalent to those of Italian investors or if their country of residence has an international treaty with Italy that allows those investments.
That limitation would not apply, in any case, for European investors (e.g., EU investment platforms) but could be applicable in some residual cases involving non-EU investors.
iii Locally domiciled vehicles investing abroad
Based on market practice, investment vehicles for real estate investments abroad, namely in jurisdictions other than Italy, by non-Italian investors, including platforms for pan-European investments, are established in other jurisdictions rather than in Italy.
iv DAC 6
Council Directive (EU) 2018/822 of 25 May 2018 (DAC 6), enacted in Italy by Legislative Decree No. 100 of 30 July 2020, imposes on intermediaries and taxpayers mandatory disclosure obligations to tax authorities of EU Member States in respect of cross-border arrangements that meet certain hallmarks.112 A cross-border arrangement qualifies as a reportable cross-border arrangement (RCBA) if it meets at least one of the hallmarks provided for by Annex 1 of Legislative Decree No. 100 of 30 July 2020.
If an arrangement qualifies as an RCBA, it shall be reported to the Italian tax authority within specific deadlines.
Real estate cross-border transactions that involve Italian and EU entities and that meet one of the provided hallmarks, in principle may be subject to the disclosure obligations provided by DAC 6. Therefore, a case-by-case analysis has to be conducted. The Italian Revenue Agency recently issued public guidelines113 to individuate the applicable hallmarks and comply with the disclosure obligations provided by DAC 6.
Year in review
Significant clarifications regarding REIFs, SICAFs and RE SPVs have been issued.
i Tax regime applicable to RE SPVs
As mentioned in Section V.i, the Revenue Agency has confirmed that RE SPVs are subject to the same tax regime as vehicles for securitisation of receivables under Law No. 130.114
There is growing interest in the real estate industry for such investment vehicles. During 2020 and 2021, several real estate transactions with RE SPVs were performed, and others are expected to be launched in 2022. Indeed, the tax framework has been confirmed by the Revenue Agency.
ii Exemption of Italian source dividends and capital gains derived by EU undertakings for collective investment
The 2021 Budget Law introduced favourable tax provisions for undertakings for collective investment (UCIs) established outside of Italy and investing in Italian resident companies. Dividends or capital gains realised starting from 1 January 2021 and derived from shareholdings in Italian tax-resident companies are not subject to taxation in Italy if realised by:
- foreign UCIs compliant with Directive 2009/65/EC (the UCITS Directive); or
- foreign UCIs not compliant with Directive 2009/65/EC established in an EU or EEA Member State, allowing for an adequate exchange of information for tax purposes and whose manager is subject to regulatory supervision in the country where it is established pursuant to Directive 2011/61/EU (the AIFM Directive).
Such provisions counter the less favourable treatment previously applied to dividends and capital gains realised by foreign UCIs compared with national UCIs that are exempt from taxes.
i Future developments regarding vehicles in real estate assets in Italy
Traditionally characterised by REIFs managed by resident management companies, the regulated market in investments in Italian real estate has seen the development and growth in the past few years of investments carried out through REIFs managed by non-resident EU-passported AIFMs. However, as a market practice, and also in respect of tax considerations relating to VAT management and PE issues, REIFs managed by resident management companies are still the preferred investment structure for foreign investors.
In recent years, the Italian market has been experiencing growth in the use of externally managed real estate SICAFs. Indeed, some foreign institutional investors may benefit from the advantages that real estate SICAFs may provide in terms of compliance with their home country investment rules, as compared with REIFs that are set up in contractual form. In other cases, real estate SICAFs are preferred for their corporate form and governance. Moreover, the market is now also experiencing an uptake in multi-compartment SICAFs.
In addition, it is worth mentioning that, in the past few years, the Italian real estate market has seen an increasing number of transactions carried out through RE SPVs and parallel SPVs (ReOCo and LeaseCo), in the context of the securitisation of real estate assets or of receivables with underlying real estate assets. Indeed, such vehicles are characterised by a lighter organisational structure than that of REIFs and SICAFs (e.g., an authorised fund manager is not required), and the range of investors (noteholders) that may benefit from a tax exemption115 in relation to the proceeds distributed is wider than for REIFs and SICAFs.
Finally, the withholding tax exemption starting from 1 January 2021 for dividends and capital gains from participations in Italian companies held by EU UCIs (see Section VII.ii) should render Italian companies more appealing as investment vehicles for such EU funds.
ii Covid-19 measures affecting the Italian real estate market
The Italian real estate market has been severely impacted by the covid-19 emergency, with the government adopting several measures to deal with this crisis and mitigate the impact on the economy in line with those suggested at OECD level.116
Moreover, in respect of the hotel industry, an option has been introduced for a 'tax-free' revaluation for accounting and tax purposes of real estate assets of entities carrying out hotel and thermal activities, to be executed in the fiscal years 2020 and 2021.117 In this respect, a specific authentic interpretation rule sets out that the revaluation may be applied also by subjects operating in hotel and thermal sectors in relation to properties leased to them under a lease agreement or a lease of going concern.118 The reserve arising from the revaluation would be taxable in the event of distribution, unless a tax of 10 per cent were paid. This measure represents an important boost for the tourism sector, which has been very badly hit by the emergency.
A second revaluation regime was introduced allowing the revaluation of single real estate assets resulting from 2019 financial statements. The revaluation could be executed in the 2020 financial statements,119 and the higher value attributed to real estate assets deriving from the revaluation could also be recognised for tax purposes by applying a 3 per cent substitute tax in lieu of ordinary corporate income taxes (IRES and IRAP). This regime has been amended by the 2022 Budget Law with reference to intangible activities.120
The Revenue Agency has recently released guidelines on the above-mentioned revaluation regimes.121
It is therefore currently very difficult to predict what the Revenue Agency's priorities will be in the immediate future.
In any case, the government is expected to adopt additional measures specifically aimed at the real estate sector, which is recognised as being undoubtedly a central pillar of the relaunch of the Italian economy.
1 Giuseppe Andrea Giannantonio is a partner, Gabriele Paladini is a counsel and Giulia Bighignoli is a senior associate at Chiomenti. The authors would like to thank Roberta Damasi, Giovanni Scavone and Francesco Castro (also at Chiomenti) for their contributions to this chapter.
2 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010, implemented in Italy by Legislative Decree No. 44 of 4 March 2014 (Legislative Decree No. 44/2014).
3 Legislative Decree No. 23 of 14 March 2011 and Article 1 (738–782) of Law No. 160 of 27 December 2019.
4 Article 115 of Presidential Decree No. 917 of 22 December 1986 (the Income Tax Code); the Income Tax Code's implementing rules are set out by the Ministerial Decree of 23 April 2004.
5 Article 115(1) and (2) of the Income Tax Code and Article 1 of the Ministerial Decree of 23 April 2004. The tax transparency regime is eligible if the company is participated in solely by shareholders that qualify as companies or as non-resident entities, provided that profits distributed to them are not subject to Italian withholding tax and each holds a shareholding between 10 and 50 per cent.
6 Article 102(2) of the Income Tax Code and the Ministerial Decree of 12 December 1988. The maximum depreciation rate of real estate properties relevant for IRES purposes is generally equal to 3 per cent.
7 Article 14(1) of the IMU Law, as amended. IMU on non-residential properties is deductible for 50 per cent of the amount in respect of fiscal year 2019, 60 per cent of the amount in respect of fiscal years 2020 and 2021, and 100 per cent of the amount for fiscal years from 2022 onwards.
8 Article 1(36) of Law No. 244 of 24 December 2007.
9 Article 30 of Law No. 724 of 23 December 1994.
10 Making reference to partnerships and companies that have elected to use the tax transparency regime under Article 115 of the Income Tax Code.
11 Article 6(3) of the Income Tax Code.
12 Article 56(1) of the Income Tax Code.
13 Articles 5(1) and 115(1) of the Income Tax Code.
14 Article 10(1)(8 ter) of Presidential Decree No. 633 of 26 October 1972 (the VAT Law).
15 Article 17(6)(a bis) of the VAT Law.
16 Article 40 of Presidential Decree No. 131 of 26 April 1986 (the Registration Tax Law).
17 Article 1 bis of the Tariff attached to Legislative Decree No. 347 of 31 October 1990 (Legislative Decree No. 347/1990) and Article 10(1) of Legislative Decree No. 347/1990.
18 Article 10(1)(8 ter) of the VAT Law.
19 Article 17(6)(a bis) of the VAT Law.
20 In the case of 'first home' relief, 4 per cent VAT applies (No. 21 Table Part II attached to the VAT Law).
21 Article 13(1) of the VAT Law.
22 Article 40 of the Registration Tax Law and Article 1(1) of the Tariff, Part I attached to the Registration Tax Law.
23 Article 10(3) of IMU Law.
24 Article 40 of the Registration Tax Law; note at Article 1 of the Tariff attached to Legislative Decree No. 347/1990; Article 10(2) of Legislative Decree No. 347/1990.
25 Article 37(4 bis) of the Income Tax Code and Revenue Agency Circular Letter No. 263 of 12 November 1998, Paragraph 2.
26 Article 12(2) of Legislative Decree No. 446 of 15 December 1997.
27 Articles 23(1)(f) and 67(1)(b) of the Income Tax Code.
28 Italian Supreme Court, Decisions Nos. 8815 and 8820 of 27 November 1987.
29 ECJ, Decision of 3 June 2021, C-931/19 (Titanium Ltd v. Finanzamt Osterreich).
30 Article 7 ter of the VAT Law.
31 The €200 registration tax applies in any case whereby the purchase deed is in the form of a notarial deed or a private deed authenticated by a notary (Article 11 of the Tariff, Part I attached to the Registration Tax Law) or, under certain conditions, if the purchase deed is in the form of a non-authenticated private deed (Article 2 of the Tariff, Part II attached to the Registration Tax Law).
32 Article 2 of the Registration Tax Law.
33 Article 1(491–500) of Law No. 228 of 24 December 2012.
34 Article 27(3) of Presidential Decree No. 600 of 29 September 1973 (Decree No. 600/73).
35 Article 27(3 ter) of Decree No. 600/73.
36 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, implemented in Italy by Article 27 bis of Decree No. 600/73.
37 Revenue Agency Circular Letter No. 6/E of 30 March 2016.
38 ECJ Decision dated 8 March 2017, Case C-448/15 – Wereldhave; ECJ decision dated 26 February 2019, in the joined cases C-116/16 and C-117/16 – T Denmark.
39 Italian Supreme Court, Decision No. 32255 of 13 December 2018, Decision No. 14527 of 28 May 2019, Decision No. 25490 of 10 October 2019, Decision No. 2313 of 31 January 2020 and Decision No. 3380 of 3 February 2022.
40 Article 1(631-633) of Law No. 178 of 30 December 2020.
41 In particular, in the case of a partner that is a non-resident entity, that income is considered Italian source income and is subject to 24 per cent IRES (Articles 5(1) and 115(1) of the Income Tax Code). Conversely, no withholding tax is applied on profits when distributed.
42 Article 5(2) of Legislative Decree No. 461 of 21 November 1997.
43 Article 5(5) of Legislative Decree No. 461 of 21 November 1997 and Article 6(1) of Legislative Decree No. 239 of 1 April 1996.
44 States included in the list provided in the Ministerial Decree of 4 September 1996, as amended.
45 Article 13(5) of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital (the OECD Model Tax Convention).
46 Article 1(1)(k) of Consolidated Law on Finance.
47 The two-thirds investment requirement should be reached within 24 months of the commencement of activity by the REIF (Article 2 of Ministerial Decree No. 30 of 5 March 2015).
48 Article 1 bis of the Tariff attached to Legislative Decree No. 347/1990 and Article 10 of Legislative Decree No. 347/1990 and Article 35(10 ter) of Law Decree No. 223 of 4 July 2006, converted into Law No. 248 of 4 August 2006. The ordinary rates of mortgage and cadastral tax are 3 per cent and 1 per cent, respectively.
49 Article 8(1 bis) of Law Decree No. 351 of 25 September 2001, converted into Law No. 410 of 23 November 2001.
50 Article 1(137)(140) of Law No. 296 of 27 December 2006.
51 Article 73(1)(c) of the Income Tax Code. In particular, pursuant to Article 73(3) of the Income Tax Code, an OICR established in Italy is a person resident in Italy for income tax purposes.
52 Article 6 of Law Decree No. 351 of 25 September 2001.
53 Article 32(3) of Law Decree No. 78 of 31 May 2010.
54 Article 9 of Legislative Decree No. 44/2014.
55 Article 8 of Law Decree No. 351 of 25 September 2001.
56 Public Answer No. 124/2020.
57 Revenue Agency, in unpublished tax rulings and in Public Tax Ruling No. 199/2019.
58 Public Answer No. 74/2020.
59 Article 6 of Law Decree No. 351 of 25 September 2001.
60 Revenue Agency Circular Letter No. 47/E of 8 August 2003, Paragraph 3.3.
61 Article 1 of Legislative Decree No. 239 of 1 April 1996.
62 Article 26, Paragraph 5 of Presidential Decree No. 600 of 29 September 1973.
63 Public Answer No. 98/2019.
64 Article 7(1) of Law Decree No. 351 of 25 September 2001 and Article 9 of Legislative Decree No. 44/2014.
65 Article 32(3 bis) of Law Decree No. 78 of 31 May 2010.
66 Article 5 of Legislative Decree No. 461 of 21 November 1997.
67 Revenue Agency Circular Letter No. 2/E of 15 February 2012, Paragraphs 3.1.2 and 4.1.2.
68 Article 7(3 bis) of Law Decree No. 351 of 25 September 2001.
69 Revenue Agency Circular Letters Nos. 11/E of 9 March 2011 and 2/E of 15 February 2012, Paragraph 4.3.
70 Article 23(1)(f) of the Income Tax Code.
71 Article 5 of Legislative Decree No. 461 of 21 November 1997.
72 Revenue Agency Circular Letter No. 2/E of 15 February 2012, Paragraph 4.3.
73 Article 5(5) of Legislative Decree No. 461 of 21 November 1997.
74 Article 6(1) of Legislative Decree No. 239 of 1 April 1996.
75 Revenue Agency: Circular Letter No. 2/E/2012, Resolution No. 54/E/2013, Guidelines 16 December 2011.
76 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).
77 Resolution No. 78/E/2017, Public Answers Nos. 43/2018, 44/2018, 147/2018 and 430/2019.
79 Public Answer No. 345/2019.
80 Public Answer No. 655/2021.
81 Article 1(141 bis) of Law No. 296 of 27 December 2006, as amended by Article 12 of Law Decree No. 135 of 25 September 2009, converted into Law No. 166 of 20 November 2009.
82 Article 1(119) of Law No. 296 of 27 December 2006.
83 Article 1(121) of Law No. 296 of 27 December 2006 and Article 6 of Ministerial Decree No. 174 of 7 September 2007.
84 Article 1(126 and 130) of Law No. 296 of 27 December 2006.
85 Article 1(131) of Law No. 296 of 27 December 2006.
86 Article 10(8) of the VAT Law.
87 Article 1 bis of the Tariff attached to Legislative Decree No. 347/1990 and Article 10 of Legislative Decree No. 347/1990 and Article 35(10 ter) of Law Decree No. 223 of 4 July 2006, converted into Law No. 248 of 4 August 2006. Ordinary rates of mortgage and cadastral tax are 3 and 1 per cent, respectively.
88 Article 1(138) of Law No. 296 of 27 December 2006.
89 Article 1(123) of Law No. 296 of 27 December 2006.
90 Article 1(123 bis) of Law No. 296 of 27 December 2006.
91 Article 1(134) of Law No. 296 of 27 December 2006.
92 Article 1(122) of Law No. 296 of 27 December 2006.
93 Article 1(124) of Law No. 296 of 27 December 2006.
94 Article 7.2(2) of Law No. 130.
95 Article 7.2(1) of Law No. 130.
96 Article 7.1(3) and (8) of Law No. 130.
97 Public Answer No. 132/2021.
100 Article 7.1(5) of Law No. 130.
101 Article 7.1(4) of Law No. 130.
102 Revenue Agency Circular Letter No. 8/E/2003.
103 Article 7.1(4 bis) of Law No. 130.
104 Article 7.1(4 quater) of Law No. 130.
105 Note II bis of Article 1 of the Tariff, Part I, attached to Presidential Decree No. 131 of 26 April 1986; Article 7.1(4 quinquies) of Law No. 130.
106 Article 7.1(4 ter) of Law No. 130.
107 Respectively Paragraphs 1 and 4, Article 13 of the OECD Model Tax Convention.
108 See the MLI Matching Database provided by the OECD.
109 Article 162(2)(f bis) of the Income Tax Code.
110 Supreme Court, 27 November 1987, Nos. 8815 and 8820; Resolution of the Ministry of Finance No. 460196 of 13 December 1989.
111 Revenue Agency Circular Letter No. 21/E of 10 July 2014.
112 Further specifications on the criteria to verify whether a cross-border arrangement qualifies as reportable under DAC 6 rules have been rendered by the Decree of Ministry of Economy and Finance of 17 November 2020.
113 Revenue Agency Circular Letter No. 2/E of 10 February 2021 and Circular Letter 12/E of 13 May 2022.
114 Revenue Agency Circular Letter No. 8/E of 6 February 2003, Resolution No. 222/E of 5 December 2003 and Resolution No. 77/E of 4 August 2010.
115 Article 6 of Legislative Decree No. 239 of 1 April 1996.
116 OECD, 'Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience' report published on 15 April 2020.
117 Article 6 bis of Law Decree No. 23 of 8 April 2020, as converted into Law No. 40 of 5 June 2020 (the 'Liquidity Decree').
118 Article 5 bis of Law Decree No. 41of 22 March 2021 as converted into Law No. 69 of 21 May 2021.
119 Article 110 of Law Decree No. 104 of 14 August 2020, converted into Law No. 126 of 13 October 2020.
120 Article 1(622) of Law No. 234 of 30 December 2022.
121 Circular Letter No. 6/E of 1 March 2022.