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Buying a property in Italy can be exciting. However, excitement can quickly turn into disappointment for foreign buyers, when they encounter the difficulties usually associated with this kind of transactions in Italy, a foreign language, a different tax and legal system and, more importantly, a different attitude to doing business.

This booklet concentrates on the legal formalities and pitfalls involved in acquiring a residential property in Italy and it is updated to August 2006.

The writer who is a qualified Italian lawyer (Avvocato) accepts no liability nor any responsibility for the advice in this booklet, unless he is actually professionally instructed on an actual Italian property acquisition. This document is intended as general introductory advice only. A professional lawyer should always be instructed in these matters, especially if the prospective buyer is not fluent in Italian and has no actual experience of doing business in Italy.

1) - INTRODUCTION
Although most exchange controls have now been repealed and foreign buyers from member states of the EU can not be discriminated against, buying a property in Italy is still a complex legal process with specialized procedures and difficulties peculiar to the Italian market. Normally, the purchase of a property in Italy is arranged in three stages:

The first stage relates to the selection of the property, survey, legal and planning searches and initial negotiations. Either directly or with the assistance of an agent (Mediatore / Agente) the foreign buyer will need to select the property, obtain some basic information and documentation, and negotiate the general terms of the purchase. Sometimes, but this is better avoided at this stage, the foreign buyer may be asked to sign a reservation agreement (Prenotazione), and pay a small deposit to the agent, as a sign of serious interest in the property.

At this stage it will also be necessary to organize a survey and also, separately all necessary searches with the local authorities (Comune), as far as local planning and building regulations are concerned. This work is usually undertaken by a local, qualified surveyor (Geometra), who should always produce a written report.

At the same time, it is advisable to check the legal status of the property in question and of its owner(s). A special search should be effected at the local land registry to check that the purported vendor has the actual power to sell the property in question, that there are no mortgages / charges nor any third parties rights, etc. This legal search is normally effected with the assistance of a local notary. It is normally complex, and it will be the task of the Italian lawyer appointed to select and instruct the local notary on the particular points of concern, considering the particular property in question.

The second stage is usually spent in negotiating, drafting, signing and exchanging the preliminary contract (Compromesso), on the basis of the outcome of the searches. This is normally a binding legal agreement to complete the purchase at some future specified date, in the offices of a local Notary Public (Notaio). In view of the fact that this is an unequivocal commitment to buy the property and pay the price, and that a deposit is payable at the time of signature, it is vital to have acquired and carefully considered all the documentation and search reports necessary to complete the purchase, or, at the very least, to have ascertained any legal and practical difficulties / problems, and agreed a timetable for the vendor to sort them out before completion.

If the preliminary contract is signed before carrying out all the searches and acquiring the relevant documentation as a matter of urgency, the foreign buyer may find that there are unexpected problems with property. Even if these problems are covered by the terms of the preliminary contract, the buyer may then find that the vendor is unwilling to deal with them or to return the deposit paid, and difficulties may follow as legal proceedings in Italy are both expensive and time consuming.

The position would be different if no preliminary contract has been signed yet. If any problem is detected with the property at this stage, the foreign buyer will be in a much stronger position with the vendor, as no contract has been signed and no deposit paid, yet and he can simply walk away from the proposed deal.

This is why it is better to collate all the relevant documents and to effect all the searches before exchange of contracts, to avoid practical difficulties at a later stage.

If the foreign buyer is buying with a mortgage (Mutuo ipotecario), it is absolutely vital to organize a binding mortgage agreement, or to formally accept an irrevocable offer before signing the preliminary contract. In any case, Italian law requires all contracts relating to land or buildings to be in writing, signed by both parties.

The third stage relates to the completion formalities, which normally take place in the offices of a local notary (Notaio). Notaries (and not just lawyers “Avvocati”) have a legal monopoly on this kind of professional work in Italy and special duty of correctly drafting the Purchase Deed (Rogito), to ensure their proper execution, registration, and payment of all Italian taxes ancillary to the completion.

It is advisable for the foreign buyer to obtain the assistance of an Italian lawyer (Avvocato), to organise all the required searches and report on the outcome / the required action to be taken, to draft the preliminary contract, advise on exchange of contracts and to instruct the notary on completion. However the Italian lawyer on himself will not be sufficient as the assistance of other professionals as stated above, is also required.

In this section, I shall deal with these three stages, in the above order, but a foreign buyer should be warned that in view of the legal, technical and practical difficulties involved in buying a property in Italy, it is highly advisable to seek the assistance of a specialized Italian lawyer, at a very early stage, possibly before signing any document, or paying any deposit.

2) - CHOICE OF PROPERTY, SEARCHES AND NEGOTIATIONS
To begin with, the foreign buyer will need to select the area in Italy where he wishes to buy his property, decide which type of property he is going to be looking for and whether to operate directly on the open market or to seek the assistance of a local agent (Mediatore or Agente Immobiliare).

2) (i) The agent
If, as frequently happens, an agent is appointed, it is important to select the right person. Under Italian law the agent is paid a commission (Provvigione) both by the buyer and the vendor, if it is a "Mediatore", or only by the buyer if it is an "Agente Immobiliare". It is possible to agree other legal arrangements, whereby the agent is paid by the buyer or the vendor only. Usually, the Mediatore has a duty to put both parties to the sale in touch with each other, and to inform each of them of anything known to him which may be material or relevant to his clients.

Under Italian law an agent must be registered with the local Chamber of Commerce, and should also lodge with the local Chamber of Commerce a specimen of his draft terms and conditions. This will involve some form of supervision, and ensure a minimum of professional qualifications. Where the agent is not registered, he will be liable to fines and other penalties and, more importantly, may not be entitled to the commission.

Frequently, in dealing with an Italian agent a foreign buyer will be required to sign a standard agency contract, which should carefully be considered before signature. This applies especially to the terms relating to the amount of commission and the time when it will become payable. As mentioned earlier, this or other documents offered for signature frequently include a "booking" (Prenotazione) for the particular property and the payment of a deposit. The signing of these documents at such an early stage is to be avoided if possible because they tend to result in binding legal contracts to buy the property in any event. If any payment is made, the foreign buyer should ask for an invoice, a written receipt and a written contract expressly stating that any payment effected by the foreign buyer is on account of the purchase price for the property in question and will be returned if the transaction is not progressed.

Other restrictive clauses may be included, such as limitations of liability, lack of any commitments on the part of the seller, etc. The presence of these one-sided clauses is usually shown by the tell tale request to sign the same document twice. This is a requirement of Italian law for unfair, unbalanced or unusual clauses, and should be a warning to the foreign buyer not to sign the particular document.

2) (ii) The searches / survey
Italian law requires both parties to a prospective transaction to act in good faith. Thus, before any form of legally binding obligation is accepted it is normal for the vendor to pass to the buyer or their legal advisers, copy of all the documentation relating to the property, and to inform them of any material fact which may affect the decision of the foreign buyer to proceed with the purchase. This documentation will also enable the buyer to organise his searches.

Before considering any draft contract, the foreign buyer should organize a survey of the property with the assistance of a local surveyor and effect all the searches required to satisfy himself that the property is what it has been described to be and is legally saleable.

In particular, and with the assistance of a local Italian notary (Notaio) (who may later assist with the completion of the acquisition), the foreign buyer will need to check the legal title to the property, i.e.:
- that the property legally exists, it is registered as described, and belongs to the prospective seller who, in turn, must have a valid title to sell it, and
- that there are no third parties' rights, mortgages or other undisclosed / encumbrances affecting the property, (or, if there are any, they should be considered with great care).

With the assistance of a local surveyor (Geometra) the foreign buyer should check that the property:
- complies with all the applicable local planning and building regulations (Regolarita` edilizia urbanistica e catastale), and with any relevant building plan approved by the Local Authority (Comune).
- is fit for human habitation and that a certificate to this effect (Certificato di abitabilita') will be available,
and also that
- the vendor has complied with all the relevant Italian tax legislation by lodging tax returns, and paying income tax (Imposta sui Redditi) and council tax (ICI - Imposta Comunale Immobili), and any other taxes or charges which may have been due in the previous tax years.
and:
- if the vendor is a trader / commercial entrepreneur or a company, that he / it has not been adjudged bankrupt nor was / has been compulsorily wound up (Fallito), and no application to this effect are pending against him / the vendor company.
- where the property is in a block of flats (Condominio), all service charges due should have been paid up to date
- where the property is inclusive of agricultural land, that there are no tenants / neighbours having farming pre-emption rights (Prelazione agraria) nor any third parties rights over the property.

It is important to ensure that the property complies with any applicable land registry planning and building regulations, and this should be considered with great care by the buyer’s professionals. Breach of this legislation may result in the avoidance of the purchase contract and heavy penalties. In case of any breach, if the vendor has applied for the benefit of a Planning Amnesty (Condono Edilizio) as introduced by law since 1985, it will be necessary to obtain copies of all the documentation, and to check that it is complete and in order.

All required returns should have been lodged with the authorities and charges effected within the statutory deadlines. Where any breach can be remedied, any remedial action should be clearly defined

These are only some of the points to watch, but there are many others which can not be listed here, all with potentially disastrous consequences for the unwary buyer and this is why the assistance of an Italian lawyer at an early stage is advisable.

3) - THE PRELIMINARY CONTRACT (COMPROMESSO)
When all searches have been satisfactorily completed or any problem detected at an early stage, it will be necessary to agree the terms of the preliminary contract, such as the price, the amount of the deposit payable on exchange of contracts, and the date of completion. Special terms may have to be introduced to deal with any particular problems / irregularities disclosed by the searches or the documents submitted by the vendor. Any remedial action by the vendor should be clearly defined, and a time limit to complete all relevant procedures, agreed. A draft contract is normally produced and considered by both parties.

It is important to note that if the foreign buyer is undertaking any of these negotiations personally, he should be very careful in drafting his letters / E-mails / correspondence to his vendor, to avoid unwittingly entering into a legally binding preliminary contract. All the correspondence should be marked subject to contract, with the particular wording required under Italian law.

3) (i) The Preliminary contract
Normally, in Italy, a contract for the purchase of property (Compromesso) is a legally binding agreement to complete the purchase and to pay the balance of the agreed price on a specified, future, date. For this reason it is frequently called "preliminary contract" (Contratto preliminare), as another final contract / deed will be executed on completion of the acquisition.

An Italian preliminary contract (Compromesso) is a complex legal document, which should always be considered with the assistance of a specialized Italian lawyer before signature, to avoid the pitfalls that plague the property market, in Italy as anywhere else.

Basically, the foreign buyer should ensure that the contract:
- specifically defines in detail the property sold. Reference should also be made to all the parcel numbers of the relevant Local Land Registry (Catasto) and possibly a scale plan of the property sold should also be attached to the contract, and
- states the amount of the deposit paid, including a receipt for any payment made, indicating the actual, agreed total price for the property, and
- states without reservations / doubts the legally binding and unconditional commitment of the vendor to sell the property in question on or before the agreed date of completion, and
- deals with any existing mortgage or third parties' right, or other problems discovered on effecting the survey / searches or on examining the documentation submitted by the vendor
- includes all the required formal sworn declarations / details required under recent legislation issued in August 2006, to protect both the buyer and the vendor.

3) - (ii) The legal deposit
Usually (but not necessarily nor, in any event), at the time of signature of the contract, a deposit ( Caparra) will be payable, ranging between 10% and 30% of the sale price of the property.

Under Italian law the legal definition of this deposit can have serious implications for the foreign buyer. If the deposit paid is defined as "Caparra Confirmatoria" , it means that in case of default in completing on the agreed terms, the purchaser will automatically lose the whole of the deposit paid. Conversely, if the vendor is to blame, he will be under a binding legal duty to pay to the buyer twice over, the sum originally received as a deposit. In addition further sums may be payable, if it is proved that the damages actually exceed the amount of the deposit.

If the deposit is defined as "Caparra Penitenziale " then, subject to the actual wording of the contract, it will enable either or both parties to the contract to withdraw from the transaction, by allowing the vendor to keep the deposit paid, in the case of the buyer withdrawing, or compelling the vendor to return the deposit received, where the vendor wishes to terminate the contract.

3) - (iii) The mortgage
Where the property is subject to a mortgage (Mutuo Ipotecario) or the purchase is to be completed with the assistance of a mortgage, it is essential to deal with all the necessary banking and legal arrangements before signing the contract. In Italy bank mortgages cover most of the sale price of the property, and may be agreed in Euros, or any other foreign currency. Repayment may be fixed or by floating instalments.

Obviously, where the property to be bought is already subject to a mortgage, it will be necessary to agree with the vendor that the existing mortgage will be paid off, and the corresponding entry on the Local Land Registry cancelled before completion. The assistance of a local Italian notary will be required, and the procedure may be expensive and time consuming. Alternatively, it is possible to agree with the vendor and the bank that the buyer will "take over" the mortgage (Accollo del Mutuo) , but in this case it is essential to check the state of the past repayments and the terms of the original mortgage agreement.

In the alternative, if the property is to be bought with a mortgage, it will be advisable to finalize all the arrangements (expensive and frequently protracted in time) before committing oneself to purchase the property.

3) (iv) Exchange of contracts and legal protection
When all the arrangements have been completed, and the draft preliminary contract agreed, signature of two identical original contracts should take place, both by the purchaser and the vendor. The two original signed contracts should then be exchanged. At the same time a cheque (Assegno) or a banker's draft (Assegno circolare) for the deposit will be handed over to the vendor, finalizing the formalities of this stage of the transaction.

Where a substantial time is likely to lapse between exchange of contracts and completion of the sale, it may be necessary to protect the buyer’s interest in the Italian property, by "registering" (Trascrivere) the Compromesso. This will prevent the multiple disposal to several prospective buyers, by fraudulent vendors aiming to collect several deposits for the same Italian property, and then disappearing.

In practice, a copy of the "Compromesso" will have to be lodged with the local Registration Tax Office, and a small tax paid. The benefit of this procedure is that any other (subsequent) prospective buyer on effecting ordinary searches against the particular property will be informed of the pre-existing, pending agreement to sell / buy the same to the first buyer.

Under Italian law, the first prospective buyer to register his / her Compromesso will effectively acquire a good right to complete the purchase of the same property, also against third parties.

Registration of the Compromesso with the local tax authorities will usually prevent declaring a lower value of the property in the Title Deed (Rogito), an illegal practice very common in Italy, as the Italian tax authorities will receive a copy of the preliminary contract which should state the contractual price.

This, in turn will mean that the full amount of Italian Registration Tax (Imposta di Registro) will be payable by the buyer on the transaction (Italian Registration Tax and associated minor taxes is payable at a flat rate (either 10% or 17%) on the value stated in the Title Deeds of the property being acquired). There are, however perfectly legal exceptions to this rule and for this purpose please refer to para 5 below.

3) (v) Farming pre-emption rights
Particular care should be taken with reference to any statutory farming pre-emption rights (Prelazione agraria) of tenants on the property and immediate neighbours in agricultural areas. Very old and complex Italian legislation entitles farmers, tenants and neighbours to be notified of a proposed sale of a property to third parties, and to have a priority in buying agricultural land offered for sale, in their immediate neighbourhood. The local surveyor should, as part of his searches and enquiries, before exchange of contract have informed the Italian lawyer acting for the buyer of any applicable pre-emption rights and any other unregistered third parties' rights, and immediately before or if impossible, after exchange of contracts, it will be necessary for the vendor to serve a copy of the contract on all parties having pre-emption rights, so that a decision can be made by the person entitled within the statutory term (usually 30 days).

This is something which the seller must do under Italian law, however the buyer has a primary interest in ensuring full compliance with this legislation, as any breach of Italian such statutory farming pre-emption rights may result in the local tenant / neighbour who has not been duly notified, clawing the property back from the buyer up to a year after completion of the sale, thus leaving the unwitting buyer only with a legal claim against the seller.

4) - CONTRACTS FOR BUILDINGS UNDER CONSTRUCTION.
At the end of July 2005 a new raft of legislation has come into force in Italy to protect buyers of residential properties sold whilst still under construction, or "off plan".

The wrong this legislation is intended to remedy is basically the case of an innocent buyer who exchanges contracts and pays a substantial deposit on a property still to be built / being built, only to subsequently find, before completion of his acquisition, that his vendor / builder has become insolvent / has been adjudged bankrupt. Typically there will be banks and other financial institutions who have lent funds to the vendor / builder and have taken security / charges over the very same property. In such a scenario, our innocent buyer could find that his property will be sold by the banks or that the trustee in bankruptcy and the vendor / builder will not complete / sell the property, and any funds previously paid are not refunded.

Leaving aside the technicalities and complex definitions, this new legislation provides that when a house / flat is sold before being actually built (off plan) or while it is still being built the vendor / builder must deliver to the buyer:

a) a bank guarantee (Fideiussione) covering all the sums paid before completion of the sale and delivery of the property, upon exchange of contracts (Compromesso stage). This bank guarantee must provide for the bank / guarantor to refund the buyer, in case of insolvency of the vendor / builder, within 30 days of request and upon delivery of all the required documentation evidencing the sums paid the vendor / builder, and

b) a 10 year insurance policy (Polizza assicurativa indennitaria) for all latent defects of the house / consequential damages caused by its total or partial collapse, including third party damages. This insurance policy will be due upon completion of the acquisition (Rogito stage).
In addition this legislation now provides that a long list of detailed information and technical documentation has to be included and expressly listed into any preliminary contract (Compromesso) for the sale of a house under construction such as:
- a detailed list of all planning permissions
- a full set of specifications of the building being sold
- a full list of all amounts and dates of any payment due
- full details of the bank guarantee (mentioned above)
- full measurements and maps of the building being sold
- full list of deadlines to complete constructions etc.

Very useful additional buyer's protection is also provided by this recent legislation. Where the house under construction was delivered to the buyer, who took possession before both completion and the insolvency of the vendor / builder, then whether or not an application for refund under the bank guarantee is made, the buyer may also be entitled to an overriding right (Diritto di prelazione) to acquire the property. This right will enable the unfortunate buyer, to acquire the building still under construction from the trustee in bankruptcy of the vendor, with priority over any other third party.

In addition where the house under construction is to be used as the main residence of the buyer or a member of his family within 12 months of completion, provided a fair market price has been paid, it will no longer be possible for the trustee in bankruptcy of the vendor / builder to claim it back (Revocatoria fallimentare) / repossess the property.

Finally this legislation provides for the setting up of a compensation fund (Fondo di solidarieta` per gli acquirenti di beni immobili da costruire) to be financed with a levy on local builders, aiming to compensate buyers who for any reason have lost their property following the insolvency of their vendor / builder. Although the funds available are likely to be limited at least in the near future, this fund is useful additional protection for innocent buyers.

With these innovations, the drafting of a preliminary contract (Compromesso) has become very complex, and the assistance of a qualified Italian lawyer and a local surveyor is recommended.

This legislation will also discourage the illegal (but very frequent) practice of declaring a lower price in Italian Deeds of Sale (Rogito) in order to reduce Italian taxes payable on completion. Considering the risk of losing the protection of these new provisions, it will be in the buyers` interest to comply with the relevant legislation, and to declare the correct amount.

5) PRE-COMPLETION FORMALITIES, THE DEED OF SALE (ROGITO)
After exchange of contracts and before completion the parties and their advisers are usually involved in organizing the documentation and the funds required to complete the acquisition, finalizing matters already negotiated before exchange of contracts, remedying any breaches of land registry, planning or building regulations and submitting all the required documentation to the notary selected by the buyer.

5) (i) Duties and tasks of the parties, before completion
Whereas the vendor should produce his Title Deeds (Purchase Deed, or the Italian Inheritance Tax Return duly lodged with the Authorities, relating to the property), all relevant planning and building licences / certificates and all other required information, the buyer should organize a Power of Attorney (Procura) or an interpreter / translator and Italian Tax Code Number (Codice Fiscale) for all the persons (buyers) involved, and the availability of the funds required to complete.

A Power of Attorney is required when the buyer is not going to attend to the completion formalities in person, and wishes to enable someone else to attend and sign on his behalf. A Procura may also be legally required if the foreign buyer is not fluent in Italian, and therefore will not, normally be allowed by the notary to sign the completion documents, because he cannot readily understand them. In either case, through a "Procura" a third party fluent in Italian should be empowered to sign for and on behalf of the foreign buyer the completion documents.

Where the notary appointed consents, it is possible to avoid the Procura, and instead, formally translate into English or any other language of the buyer(s) the Italian title deed (Rogito). This will require the appointment of an interpreter / translator, but will enable the foreign buyer to sign the Deed of Sale (Rogito) personally. Not all Italian notaries consent to this procedure, so that one of the tasks of the Italian lawyer acting for the buyer will be to check with his client first (the foreign buyer) and then with the notary if this particular procedure is required and it is possible in the particular circumstances.

An Italian Tax Code number (Codice Fiscale) is required to enable the notary to deal with all the post-completion formalities, and to comply with the various requirements of Italian tax law applicable to the owners of real property. It can readily be obtained by applying to the local tax office in person, or by a third party, with a copy of the applicant's passport. In the case of individuals, the Codice Fiscale is a combination of sixteen letters and numbers. Usually the tax office issues a card or a passbook with all the relevant details.

Under new legislation issued in August 2006, all parties have the legal duty to provide to the notary the following information, which will be repeated in the Sale Deed, as a solemn affirmation under oath (Dichiarazione sostitutiva di atto di notorieta`):
i ) - the amount of the sale price and how such sale price has been paid or will be paid,
ii) - whether an estate agent has been appointed by either party, and if so his / her full personal details
iii) - where an estate agent was appointed, how much commission has been paid / will be paid and exactly how such payment was / will be effected, the Italian tax code (Codice fiscale) and VAT number (Partita IVA) of such estate agent.

Where these information are omitted, are incorrect or incomplete, the parties to the transaction risk the application of a much harsher form of taxation in Italy which can make the purchase much more expensive, and fines ranging between Euro 500 and Euro 10,000. It is therefore essential to obtain these information and to get them right, and again this is an essential task for the Italian lawyer appointed by the foreign buyer in this matter.

5(ii) Availability of funds on completion
As far as the funds are concerned, the foreign buyer should, at an early stage, find out from the notary dealing with the completion the amount of his fees, the taxes payable, and should calculate the amount of the funds payable to the vendor (list of completion expenses and taxes) and to the estate agent.

The foreign buyer should also be aware that in Italy it is illegal to effect any payments in cash, for each individual transaction, in excess of Euro 12,500.

For this reason it is important to timely open a bank account with a local Italian bank, so that the necessary funds may be legally transferred into Italy by bank transfer, and on the day of completion of the acquisition, the required drafts can be issued by the Italian bank and collected by the foreign buyer or his / her representative, for use in the notary’s office in a form which both legal and acceptable to the vendor and to the Italian notary. Normally bankers drafts (Assegni circolari) are organized by the buyer, in readiness for completion. These are special cheques issued directly by a bank, and they are a guarantee that funds are readily available and will be paid on presentation.

It is also important to keep in mind that for tax purposes, both in Italy and elsewhere it is important to collate the documentation / receipts showing the exact amount paid to professionals involved in the property acquisition (in addition to the property’s purchase price). Under recent legislation, which came into force in Italy in August 2006, professionals must now be paid either by bank transfer, or by cheque (A/c payee only), as it is illegal to pay professional fees in cash in most cases. There is a limited exemption, however these form of payment should always be preferred, to avoid any cash payment, as they will provide valuable additional supporting evidence of such payments, in case of any dispute with the tax authorities.

The notary public (Notaio) is the only professional entitled to transfer legal title to properties in Italy (apart, of course, from transfers ordered by Court Judgments). Although the notary is normally selected by the buyer, he is an independent public officer / professional charged with the duty of drafting the Purchase Deed (Rogito) finalizing the sale, ensuring that title passes legally between the parties, and registration in the Local Land Register. A notary as a public official, is under a specific legal duty to ensure proper payment of all Italian taxes payable on a sale / purchase of property.

Usually, the balance of the agreed price is tendered in the form of bankers drafts (Assegni Circolari ) by the buyer, immediately before completion. A notary is entitled to refuse to act if his fees and all Italian taxes due are not so tendered, beforehand. The notary will also, before completion, deal with the formalities relating to the discharge / cancellation of any existing vendor's mortgage. For ease of reference and to reduce costs, he usually deals with any new mortgage application by the buyer.

5) (iii) Taxes payable on completion
Italian tax legislation is very complex and subject to frequent extensive changes. It is difficult even for professional tax advisers to keep up to date with all the changes and their consequential effects. The foreign buyer is advised to check the tax implications of the proposed property acquisition well before the date of completion of the acquisition, with specialised professionals.

It can be dangerous to rely on the advice / suggestions of a possibly biased vendor or his agent. A “tax saving” may be immediate, however the consequences of a wrong decision may be long term and very expensive. Usually the Italian Revenue have years to revise and reconsider property transactions. If any irregularity is detected corrective assessments, fines and interests may be levied. In the most extreme cases a criminal prosecution may follow. Proceedings in the Italian tax courts are both uncertain, expensive and protracted in time.

This section provides only a very general outline of the taxation of properties acquisitions in Italy. It is not intended to be used and it should not be used on its own to make any decision.
The foreign buyer should not rely on the folklore that seems to have developed about taxes in Italy. Whatever may have been the position in the past, circumstances have changed in the last few years. Specialist, detailed tax advice on the particular circumstances is always advisable.

There are three main taxes are payable by a buyer on the acquisition of a property, in Italy, Registration Tax (Imposta di Registro), Stamp Duty (Imposte ipotecarie e catastali) and Italian VAT (IVA). Normally where Italian VAT is charged the other taxes are reduced to a small flat charge of Euro 168 each.

Other, different, taxes are due in Italy while letting or even simply owning and possessing the property, over the years, which are not dealt with in this booklet. On the acquisition of an Italian property the seller may be subject to Italian capital gains tax etc., however no tax is usually levied in Italy on an individual selling his property, where he has held the same property for over five years.

On the other hand the buyer of an Italian property is subject to Registration Tax ( Imposta di Registro ) and other minor charges. All together these taxes are usually levied by applying a flat rate of tax (10%) to the contract price (actual, full sale price) of buildings, as stated in the Purchase Deed. A different rate (17%) applies to agricultural land. This tax can be more than halved (reduced to 3%) if the buyer acquires the property in Italy as his main residence (Prima casa) and makes a formal statement in the Deed of Sale undertaking to take up residence at the property within 18 months of the acquisition. The buyer will also pay the notary's fees.

New tax legislation has come into force in Italy in August 2006. Under this new legislation property transactions are now subject to different forms of taxation depending on whether the property in question is actually registered for residential purposes (Immobili abitativi) or, on the other hand for commercial, professional or industrial purposes (Immobili strumentali). In this booklet I shall only deal with the properties to be used as residence or a home, falling within the first group. I shall not deal with commercial, professional or industrial property transactions.

Given that Italian Registration Tax was levied at a flat rate on the sale price declared in the Deed of Sale (Rogito) it was an established custom in Italy to declare a lower price in the Deed of Sale in order to reduce the exposure to Italian taxes.

This however, apart from being illegal exposed the buyer to serious risks. Because of this malpractice, and to avoid continual strife in the tax courts over the declared / taxable price of Italian properties, legislation was introduced in Italy in January 2006 stating that, in the case of residential properties (as defined above) provided the actual, true, commercial value is clearly stated in the Deed of Sale (Rogito), Italian Registration Tax must be levied on a different notional value, the land registry value (Valore catastale) of the same property. This new legislation has brought to an end a malpractice which had lasted for decades and shrouded the Italian property market in a veil of secrecy.

This land registry value (Valore catastale) is a notional value which can be calculated considering the coefficients and other data appearing next to the title of the particular property at the local land registry, and it is frequently only a fraction of the commercial value of the property in question. Thus provided the full commercial value of the property is clearly stated in the Deed of Sale, it is now perfectly legal and acceptable to pay tax on a different, notional and frequently lower value in Italy. This has now resulted in a totally legal and financially substantial tax saving for the buyer of Italian residential properties.

This legislation has been further amended with additional rules, which come into force in Italy in August 2006. This substantial benefit (taxation on the basis of the land registry value (Valore catastale), in the case of residential properties) is now further restricted in so far as it will apply only if both the buyer and the vendor are acting in the sale in their private capacity, and not for professional, commercial or industrial purposes, where the overall, usual rules will continue to apply.

Under the August 2006 new legislation, different rules will apply to a sale of residential properties, where the vendor is a company or a commercial entrepreneur.

In this case Italian VAT (IVA - Imposta Valore Aggiunto) may also be due by the buyer on the particular sale. The legislation on this point is very complex, but for the purposes of this booklet and as a general outline only it can be summarized as follows:
- Where the vendor company / commercial entrepreneur sells the newly built / restored residential property WITHIN 4 years of completion of the works, the following taxes will be payable:
i) IVA will be due at the alternative rates of 4%, or 10% or 20%, and
ii) Italian Registration Tax and Italian Stamp Duty will also be payable but will be limited to a small fixed amount.

- Where the vendor company / commercial entrepreneur sells the newly built / restored residential property AFTER 4 years from completion of the works, the following taxes will be payable:
i) No IVA should be charged (IVA esente), however Italian Registration Tax and Italian Stamp Duty will be payable.

Where the sale is subject to IVA this tax must be paid on the actual, full commercial value of the residential property.

The local Italian Tax Office has several years from the date of completion of the acquisition to take corrective action against both parties to the sale, where the correct sale price is not declared the correct taxes are not charged and the relevant amount of tax is not paid. Substantial fines may also levied.

The legislation introduced in August 2006 also provides that in some cases, the notarial fees chargeable on a sale should be reduced by 30%.

As already mentioned, completion of the acquisition normally takes place in the notary's office. Whereas the buyer or his / her attorney will sign and pay the balance of the agreed price by delivering the Assegni Circolari, the vendor will agree to convey the property by signing and delivering the same Title Deed (Rogito).

6) - POST-COMPLETION FORMALITIES
The main formality here, after actual completion of the sale is the registration of the new Title Deed with the Authorities so that the new buyer is registered as the new owner, and the payment of any Italian taxes due. This is the specific duty of the notary who celebrated the completion of the acquisition.

Once the purchase has been completed in the notary' office, the foreign buyer will mainly be interested in obtaining a certified copy of the Purchase Deed, as lodged with the official records of the Italian notary appointed. A sealed, certified copy of the Purchase Deed (Rogito) is usually available for collection from the notary's office within two - three months from the date of actual completion, after all taxes have been paid.

Formal notice of the sale should be given by the vendor to the local police authorities (Questura), by using a form usually supplied by the notary.

Finally, it will be necessary to arrange for new contracts (Volturazione delle utenze) with the main utilities (power, water, gas, telephone, etc.), and where the property is in a block of flats, to inform the condominium manager (Amministratore del condominio) of the transfer of the flat to the foreign buyer.

The foreign buyer will then be able to enjoy his / her newly acquired Italian property.

Dr Claudio Del Giudice, Copyrights reserved, September 2006