Property abroad: taxability - INFOBUILD

What tax obligations apply to real estate owned by Italian taxpayers located abroad? Italian law establishes precise rules and procedures to be followed when receiving income from real estate. Being the owner of a house or any other real estate property abroad means that Italian taxpayers residing in Italy have to fulfill a series of declaration obligations that have been emphasized by Article 4 of Legislative Decree No. 167/1990: the so-called tax monitoring.

Italian tax law provides for different rules and tax obligations depending on whether the property is rented in''rent or not. But let's understand what taxpayers' obligations are for real estate abroad.

Non-rented real estate: taxation

If real estate is not rented out, it is still counted in the total income of personal income tax (IRPEF). The value, for tax purposes, is equal to the net amount that is determined by the assessment made in the foreign country for the tax period in question. In the case of property taxed directly by a foreign country through the application of appraisal rates or similar criteria, the taxpayer must report the net value on which taxes were imposed in the foreign country. In other words, the amount''shall be reduced by the expenses incurred. For properties located abroad, Article 19, paragraph 15 ter of Legislative Decree No. 209/2011 provides for IRPEF tax exemption in case they are used as a main residence by taxpayers residing in the State. The same favorable provision applies to non-rented real estate, but property tax (Ivie) must be paid. In other words, as noted by the Tax Agency in letter No. 13 / E / 2013, even for real estate not rented abroad, the substitution effect of Ivie/IRPEF applies. This real estate should not, in other words, be subject to IRPEF tax as it is subject to Ivie tax.

Rent property for''abroad

The situation is different in the case of rented property. However, taxation follows different rules, depending on: rental payments are taxed abroad. If there is such a situation, the taxable income in Italy is the net amount determined on the basis of the valuation carried out abroad for the tax period. If, however, the rental payments were not taxed abroad, the income from the buildings is included in the calculation of taxable income in Italy in full, reduced by 5%. The legislator also introduced a solution to limit the problem of double taxation (taxes paid abroad and paid in Italy). In case of double taxation of the same income from the same real estate''provides for the recognition of a tax credit equal to taxes paid abroad. This is provided for in international agreements and in Article 165 of the Personal Income Tax Decree No. 917/85.

How to fill in the PF

After determining how to tax real estate, you need to understand how to fill out the PF income form. This particular return form is important because it allows you to include income earned from owning real estate overseas. Line RL12 must include income from land and buildings outside the country. On this line, the taxpayer must enter the net amount by which''is subject to tax on foreign income. If the property is not taxable in the foreign country, it should not be reported. However, the taxpayer should not receive income from his real estate. Property abroad that has not been taxed in the country where it is located must be listed on the French RW form. This is necessary to fulfill tax monitoring obligations and, if necessary, to pay Ivie tax. If this situation arises (payment of Ivie), the taxpayer does not even have to complete the French Form RL of the PF income form. If, on the other hand, the property is taxed abroad through the application of valuation rates or similar means but is not rented out, the taxable income - which is equal to''assessed, taking into account the expenses incurred - must be reported on the French RL form of the PF income form. The taxpayer can take advantage of a tax credit for taxes paid abroad. If the taxpayer needs to pay Ivie tax, he can also take advantage of the fungibility between Ivie and IRPEF.

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