Changes to the “Flat Tax” Scheme for Holiday Lets Tax in Italy: What You Should Know

At Expatax, our mission is to clarify complex tax matters, making them more understandable for expats and retirees. With new provisions introduced in Italy's 2024 Budget Law, the conditions for the holiday lets tax in Italy have changed significantly - for the worse. As always, if you have further questions after reading this article, our "TAX AI" at the end of the page is ready to assist.

Key Changes to the "Flat Tax" Scheme

The new rules, outlined in Article 1, paragraph 63 of the Budget Law 2024, apply to short-term leases, specifically leases for residential properties not exceeding 30 days. These changes impact the following areas:

Increase in Flat Tax Rate

The flat tax rate applicable to short-term leases entered into by individuals has been increased from 21% to 26% for those leasing more than one apartment in a tax period. This change impacts those managing multiple properties and could potentially increase the tax burden.

Withholding as an Advance

The law now requires that withholding tax is levied as an advance for subjects engaged in real estate brokerage or managing online portals if they collect or intervene in the payment of rents related to these contracts - think of Booking.com or Expedia, for instance. This change aims to ensure due tax compliance and prevent evasion.

New Compliance Requirements for Non-EU and EU Residents

The law has differentiated the compliance requirements based on the residency status of the individuals. For non-EU residents, the compliance obligations vary depending on whether they have a permanent establishment in an EU member state. For EU residents without a permanent establishment in Italy, different rules apply.

Important Note for Business Owners

It's crucial to note that these changes do not impact holiday lets run as a business and therefore taxed at standard business rates. This distinction could influence how individuals choose to structure their property leasing activities.

Potential Implications of the Changes

These changes could have a variety of effects on property owners and real estate operators. The increase in the flat tax rate could potentially make short-term leasing less profitable for those with multiple properties. On the other hand, the new withholding tax rule may cause administrative changes for real estate brokers and online platforms.

For non-EU residents operating without a permanent establishment in an EU member state, the new law may lead to additional compliance requirements that could affect profitability. The same applies to EU residents without a permanent establishment in Italy.

As a result, it's crucial for affected individuals to review their current operations and consider any necessary adjustments. Consulting with a tax professional can provide valuable insights and help minimize potential financial risks.

Conclusion

These changes to the "flat tax" scheme for holiday lets could have significant implications for those engaged in short-term property leasing in Italy. It's essential for individuals affected by these changes to seek professional tax advice to understand how these changes could affect their tax obligations and overall financial strategy. Remember, the Expatax "TAX AI" is available for further queries.