In recent years, Italy has seen a remarkable surge in luxury real estate acquisitions by international buyers. According to recent market data, over 70% of high-end homes – defined as properties valued over €1 million – are purchased by foreign nationals. This trend isn’t just about lifestyle or heritage; it has significant legal implications for buyers and sellers alike. This article will explore why foreign interest in Italian Luxury Property is booming, and more importantly, what it means from a legal and advisory perspective.
Some may be curious as to why foreigners are dominating Italy’s luxury real estate market. Those outside of Italy find that its enduring appeal is determined by a unique mix of factors. Italy’s timeless beauty and rich culture is a major drawing point for foreign investors. In comparison to real estate in London or New York, €2-5 million goes much further in Italy, making the property market much more desirable to buyers. Additionally, investing in real estate is a sound and dependable asset amidst a time of global uncertainty.
The country is currently offering a flat-tax incentive for new residents. A flat rate of €100,000 per year on foreign income is a huge pull-factor for high networth individuals (HNWIs). Another factor drawing international buyers is the possibility of remote work. Since the pandemic, many employers allow for their employees to work fully or entirely remotely, causing many to seek second homes or primary residences in Italy.
Purchasing real estate internationally can be a legal nightmare without professional guidance, especially in Italy. For example, while many countries use title insurance, Italian property law relies on notaries and public records. Due diligence is a critical step in the buying process, especially for those unfamiliar with unregistered easements, historic preservation restrictions, agricultural or building limitations, or outstanding debts tied to the property of interest. Some buyers may choose to seek legal assistance before commiting to a real estate investment. Regardless, it is important for the buyer to be aware of all of the hurdles that come with purchasing Italian property.
Italy generally allows foreign nationals to purchase property, but some non-EU buyers face reciprocity rules based on their home country’s treatment of Italian buyers. Visa or residency status can also affect the taxation or future use of the property and certain regions may have unique restrictions – especially agricultural or coastal zones. Prior to purchasing real estate, the buyer must confirm their purchasing eligibility and prepare the proper documents, especially if they plan to purchase through a foreign company or trust.
International buyers in Italy should coordinate with both an Italian tax advisor and an accountant from their home country for a number of reasons. Purchasers may face registration or VAT (IVA) taxes, municipal taxes, and wealth tax declarations. Additionally, if the property generates income, buyers face cross-border income reporting and taxation. It is crucial for foreign buyers to have the proper infrastructure in place to maintain a strong economic standing with both Italy and their home country.
In the rise of the “house-flipping” phenomenon, Italy has placed certain restrictions on renovations for culturally important and historic properties. Many luxury homes are deemed ‘heritage properties’, including certain farmhouses in Tuscany and villas in Lake Como. A heritage property may have restrictions on renovations or sales, require ministry approval for major changes, or trigger legal responsibilities. It is important to check for restrictions with the Cultural Heritage Authority prior to purchasing property, as these restrictions are not always flagged by the real estate agent.
Inheritance and succession laws can also be a complex hurdle to jump through. Even if the purchaser is foreign to Italy, Italian succession laws may still apply. By default, Italy follows “forced heirship” rules. This means that one’s children and spouse may have automatic rights to the property upon their death, regardless of what they have written in their will. To avoid unwanted surprises, foreign owners have a number of options, such as; electing their home country’s law in their will under the EU Succession Regulation, creating an ownership structure, or drafting a legally valid Italian will.
When seven out of ten buyers in the real estate market are non-Italians, both the legal system and the buyer must adapt. To safeguard your investment, lifestyle, and legacy, the support of a dedicated legal advisor with international experience is not only recommended – it’s crucial.
