Are you thinking to rent out your holiday home in Italy and earn extra income?
Holiday lettings follow a specific legislation in Italy, even if you rent sporadically and it doesn’t count as running a business.
You must comply with specific tax obligations.
In addition, new rules on short-term rentals have been introduced since 2017.
The rules concern landlords whose rental income qualifies as HFL or it is a buy to let; and intermediaries such as Airbnb, Booking, Homeaway, Rentalia etc., who manage reservations and process payments online while retaining a commission for their services.
Let’s have a look:
- Short term rental: what it means and how it works
- Short rents and tax obligations: flat rate coupon or ordinary regime?
- Ordinary regime: Irpef on short leases
- Subsidized regime: flat rate coupon
- Short rentals with Airbnb, Booking and other intermediaries: the tax news from 2017
1.Short term rental: what it means and how it works
By Italian law, short-term rentals are those relating to residential properties, leased with a regular contract for periods not exceeding 30 days.
This type of contract can be stipulated by those who DO NOT exercise property renting as a business.
There is no obligation to register the contract with the Italian Revenue Agency.
It is mandatory to draw up the contract in writing, indicating:
- detailed information on the property
- personal data of tenant, owner and any other subjects who have rights to the apartment (as usufructuary or beneficiaries)
- contractual conditions and rent
- rights and duties of the parties
- deposit or deposit paid
- expenses included in the price or excluded / optional (i.e.: electricity, gas, condominium, cleaning, utilities, linen etc.)
- jurisdiction in case of disputes.
The 30-day limit refers to total number of days per tenant!
If you make several short-term leases to the same person over the course of a year, make sure that the sum of the rental periods does not exceed 30 days.
2 Short rents and tax obligations: flat tax rate – Cedolare secca or ordinary regime?
There are taxes to pay on the sums you earn from short-term rentals.
Rental income increases the total taxable income on which you are required to pay income tax, which as you probably know will be more or less high depending on your income tax band
If you rent for short periods you have the possibility to choose between two alternative tax systems.
You can decide to opt for a flat tax rate named “cedolare secca”, generally cheaper than the alternative ordinary tax regime “tassazione ordinaria”.
Let’s see the differences.
3 Tassazione ordinaria – ordinary tax regime
If you choose the ordinary regime, you will have to calculate 95% of the income derived from short-term lease contracts and add this sum to your taxable income.
If, for example, you have earned 1,000 euros with short-term rental you must report 950 euros on the Italian Income Tax return and add it up to your total taxable income.
Italy has a progressive tax system, meaning people with higher taxable incomes pay higher income tax rates, and people with lower taxable incomes are subject to lower income tax rates.
There are four tax brackets for the 2020 tax year: 23%, 27%, 38%, 41%. Your bracket depends on your total taxable income.
The 950 euros will be added to your total income (for example, those from employment or Self Employment), and on these income you will have to pay personal income tax, in the percentage provided for by the bracket in which you fall.
If you fall in the lower bracket that ranges from 0 to 15,000 Euros, in this case the personal income tax to be paid will amount to 23% of your taxable income. If your total taxable income is over 15,000 euros, the first 15,000 euros are taxed at 23% and the excess at 27% (second tax bracket)
In the ordinary regime Tax rate is calculated only on the rent, any other expenses excluded.
4 Cedolare secca flat rate coupon
There is a “flat” tax rate of 21%. No additional local surcharges should be paid (municipal and regional).
It refers only to
short-term lettings stipulated from 1st June 2017
on sublet or rent out of less than 30 days, stipulated from 1 June 2017.
Cedolare secca regime with a 21% tax rate is lower than that envisaged for the first income tax bracket (23%). Short periods lettings often find it more convenient to join this scheme. The 21% tax rate is calculated on the gross fees. This means that you will pay 21% not only on the rent, but also on any other expenses (for example, reimbursements of condominium expenses or utilities).
Cedolare secca can be reduced at 10% for lettings of properties located:
in municipalities with housing shortages (article 1, paragraph 1, letters a) and b) of law decree 551/1988), or in Bari, Bologna, Catania, Florence, Genoa, Milan, Naples, Palermo, Rome, Turin and Venice and in the neighboring municipalities
in the municipalities with high housing voltage identified by the CIPE.
5 Short rentals with Airbnb, Booking and other intermediaries: the tax news from 2017
From 2017, real estate agents, intermediaries and brokers will have to comply with two new obligations:
- To submit online the personal data of the tenants to the Revenue Agency
- To pay a 21% withholding tax on the amounts received by the tenant.
These provisions apply both to online portals such as Airbnb, Booking, Tripadvisor and to traditional real estate agencies.
Please note that if you rent for short periods through intermediaries, the tax payment on these income will be charged to them (and will correspond to the withholding tax).
Make sure that rental income you receive from intermediaries is already net of taxes (and of course any other commissions) and therefore not to pay it twice.