Italian Government Gains Revenue by Raising VAT on Italian Property PurchasesLooking to gain revenue for the struggling Italian economy, the Monti government has taken a recent measure which will affect those looking to purchase Italian homes from developers. Effective October 2012, the VAT (in Italian called IVA or imposta sul valore aggiunto) applicable to property purchased from developers will increase from 10% to 12%. As per Italian law and common practice, this VAT burden is fully on the buyer.
Translated into concrete terms, should someone purchase a 400,000 euro Italian home from a developer by September 30th this year he would pay 40,000 euro in VAT. Should the same purchase be completed on October 1st or there after, the buyer would pay an additional 2% in VAT, which totals 8,000 euro in this example.
There are many Italian property investors who have pending transactions with developers. Some of these transactions were even started years ago and typically have been held up due to financial issues for either the developer or the buyer. If investors in this situation are still interested in acquiring their Italian property, it is advisable to expedite the purchase process and finalize the transaction prior to October 2012 in order to avoid paying an extra 2% of the property purchase price in VAT. The situations requiring the most forethought and attention are those where a financial institution needs to be involved to finance the transaction, as this can add a few months to the standard completion timing.
Investors who have not signed a preliminary contract yet, might bear in mind the 2% VAT increase as a negotiating point with the developer. There could be the possibility of splitting it equally between the parties or to neutralize it by means of a purchase price discount, which is something that is happening in certain business areas during these strained economic conditions.
If a contract is in place but the property purchase has not been formalized yet in front of a notary, it might be advisable to legally put the developer on notice that any loss that would have been avoided if the construction work had been executed on time, including the higher VAT rate applicable in September, will be exclusively on the developer.
More such measures by the government are predicted in the current and apparently worsening economic scenario.