Introduction
Owning rental property in Italy can be a profitable investment, but it also comes with tax obligations that must be properly managed. Both Italian tax residents and non-residents earning rental income from Italian properties are required to comply with Italian tax laws, file tax returns, and ensure that their earnings are reported accurately. This guide explains the key steps for non-resident property owners to report rental income in Italy, including optional tax regimes, tax credit programs, filing requirements, tax payments, and deadlines.
Who Needs to Report Rental Income in Italy?
If you own property in Italy and rent it out, you must report your rental income in Italy, even if you are not an Italian tax resident and regardless of your citizenship. Tax obligations apply if you rent out an Italian property for short-term stays, directly or through an online platform (e.g., Airbnb, Booking.com, Vrbo), or long term.
Choosing the Right Tax Regime for Rental Income
There are two main taxation options available for rental income and they apply to those who are Italian tax resident or non-Italian tax residents:
1. Cedolare Secca (Flat Tax Regime) – 21% or 26%. Some important considerations to take advantage of this flat tax regime include:
- 21% flat tax on rental income from any long-term residential income (contracts over 30 days) and no more than one short-term rental property (contract for no longer than 30 days).
- 26% flat tax on the short-term rental income of any additional property .
- No additional local or regional income taxes.
- You must expressly opt for this flat tax regime, otherwise rent will be taxed as ordinary income under the progressive tax rates starting at 25%.
- No deductions allowed for property expenses (e.g., maintenance, mortgage interest, taxes, utilities, management fees and commissions are not deductible). NOTE: The taxable income is the total (gross) rental income.
- Tax credit: you cannot use any tax credit to offset the 21% or 26% flat tax.
The flat tax (Cedolare Secca) is only applicable if both landlord and tenant are private individuals. In some cases the flat tax option is also applicable when the landlord signs the lease agreement with a company for employee’s residential use.
2. Standard Progressive Income Tax (IRPEF). Important considerations for property owners are as follows:
- Rental income is taxed at progressive tax rates:
- 23% on income up to €28,000.
- 35% on income from €28,001 to €50,000.
- 43% on income over €50,000.
- The taxable basis is 95% of the gross income. No other rent-related deductions are allowed for property expenses (e.g., maintenance, mortgage interest, taxes, utilities, management fees and commissions are not deductible). Similar to the flat-tax regime mentioned above, the taxable income is the total (gross) rental income.
- Tax credit: if you have any tax credit, for example related to property remodeling, you can use it to lower the ordinary taxable rental income, even if the remodeling work was done on another property.
- Personal Deductions: Some personal deductions might apply if you are or are not an Italian tax resident.
21% Withholding Tax and what it Means for Rental Income in Italy
If you rent a property through an intermediary that collects rent on your behalf from the tenant, for example through an online platform like Airbnb or Booking.com, such intermediary must apply a 21% withholding tax on the collected rent, regardless whether that rental is under the flat tax regime or the ordinary income regime.
After the tax year ends, the intermediary will give you a withholding tax statement showing how much withholding tax that intermediary applied to your income. You can use that withheld amount as a tax credit against your rental income tax payment obligations.
Did you know? Italiantaxes.com can help streamline and optimize your tax returns for Italy. Get started today for free.
Additional Tax Considerations for Non-Residents
Beyond income tax obligations, non-resident property owners should also be aware of additional financial responsibilities that may affect their rental business and tax liabilities.
1. Understanding Double Taxation Agreements
Many countries, including the United States, have a Double Taxation Agreement (DTA) with Italy to prevent property owners from being taxed twice on the same income. Under the U.S.-Italy Tax Treaty, for example, U.S. citizens can claim a Foreign Tax Credit (FTC) on their U.S. tax return for taxes paid in Italy. This can help offset tax burdens and reduce the overall tax liability on rental income. Additionally, they might be able to write off Italian property expenses in their home country tax return.
2. Choosing Between Individual Ownership vs. Company Ownership
Non-residents who own multiple rental properties may consider structuring their rental activity under an Italian SRL (Limited Liability Company). While this involves additional registration and compliance requirements, it can offer tax benefits such as reduced corporate tax rates and deductible business expenses that are not available to individual owners.
3. Choosing Between Direct Rent vs. Managed Rent
Another tax efficient strategy is to rent the property to a property management company that takes on all property costs and rents the property to individual tenants. In this way your gross (taxable) rental income is more similar to your profit and as a result you lower your Italian taxes.
4. Implications of Using Property for Mixed Purposes
Some property owners use their Italian property for both personal use and rental income. In these cases, only the portion of the property that is rented out is subject to income tax. It’s essential to keep clear records of rental periods versus personal use to ensure accurate tax reporting and to avoid overpaying taxes.
How to Report Rental Income as a Non-Resident
Non-residents must declare their rental income through Italy’s annual tax return system. The key steps include:
- Choose a Tax Regime – If you want the Cedolare Secca to apply, you need to spell it out in any long-term lease agreement or when you fill out the tax return for short-term rental income. If you want to apply the default progressive income tax rates, no need to do anything other than fill out the tax return where you will indicate the income taxes accordingly.
- File a Tax Return (Modello Redditi PF) – Rental income must be reported annually by October 31 each year.
- Make Advance Tax Payments (Acconto d’Imposta) – If required, advance payments must be made based on the previous year’s tax liability, with deadlines on June 30 and November 30. Balance payments are also due by June 30.
Tourist Tax, Property Tax and Trash Tax Obligations
In addition to income tax, both resident and non-resident private property owners renting out Italian properties, either short-term or long term, are subject to:
- Tourist Tax (Imposta di Soggiorno): Collected from guests and remitted to the local municipality (Comune).
- Annual property taxes (IMU)
- Trash Tax (TARI): in long-term rental this is usually paid directly by the tenant. For short-term rentals it is on the owner and must be paid to the municipality (Comune).
Penalties for Non-Compliance
Failure to report income or pay taxes can result in significant liability. If you comply within a short grace period after the deadlines, lower penalties apply. The lowest penalties apply if you settle your tax obligations within 90 days after the deadline. Otherwise, maximum income tax penalties might range from 120% to 240% of the due taxes.
How ItalianTaxes.com Can Help
Managing tax obligations can be complex. ItalianTaxes.com, in partnership with the Italian tax lawyers and certified accountants at Studio Legale Metta, offers expert guidance and digital solutions to help property owners accurately report rental income, comply with tax laws, and maximize tax efficiency. Our platform simplifies tax filing, ensuring that property owners meet all legal requirements while minimizing tax burdens.
Conclusion
Non-residents earning rental income from Italian properties must comply with Italian tax laws by choosing the appropriate tax regime, filing tax returns, and making timely payments. Whether opting for the flat tax (Cedolare Secca) or ordinary income taxation (IRPEF), understanding your obligations is essential to avoid penalties and optimize your tax position. Using professional tax services like ItalianTaxes.com can streamline compliance and help property owners efficiently manage their Italian rental income.
