Acquisition of Commercial Real Estate- Part I – ITALY
Aliant Guide on Acquisiton of Commercial Real Estate was created by Aliant’s Real Estate Practice Group, where our experienced and well established lawyers from France, Italy, Finland, Cyprus, and Lithuania have answered some fundamental and up-to-date questions on how to acquire commercial real estate in their jurisdictions. If you are interested in Commercial Real Estate in any of the beforementioned countries please follow this five part series.
1) Please briefly describe the main laws governing acquisition of commercial real estate in your country.
It is always helpful to have a broad sense of the legal framework of the country you are interested doing business with in order to understand how private property is disciplined and considered.
The main laws governing the acquisition of real estate in Italy are:
- The Constitution of the Italian Republic: this is a set of 139 articles, enacted in 1948, which establish the basic ground rules of the Italian Republic. The articles are divided into three categories:
– fundamental principles
– rights and duties of the citizens, and
– organization of the Republican State.
Among other rights, it establishes the right of each individual to fully and exclusively own private property with possible limitations to such right only in very limited occasions for public interest reasons (e.g., compulsory purchase for a consideration of portions of unimproved land to build a public road).
Thus, in this respect, if you engaged competent consultants and did your due diligence well, Italy is a very “safe” country. The due diligence will have to include all legal and tax aspects, but also those related to zoning and urban planning of the target area.
- The Italian Civil Code (Royal Decree no. 262 of 1942): it is a Statute which contains a wide range of regulations, including family, inheritance, companies, and of course a complex discipline on ownership of private and communal property which owes its origins to the Roman law. It is still the main body disciplining the various types of property rights, their acquisition and transfer, purchase agreements, financings, mortgages, and leases. All good lawyers master this Statute as it contains the answers to most questions and for sure it is the foundation.
- The Unified Building Act (so called “Testo Unico dell’Edilizia”, Presidential Decree no. 380 of 2001): this body of laws contains the rules governing construction and development of real estate, including commercial real estate.
- The Unified Banking Act (so called “Testo Unico Bancario”, Legislative Decree no. 385 of 1993): It sets out the basic rules and standards and defines the competences of the credit authorities (Interministerial Committee for Credit and Savings – CICR, the Ministry of Economy and Finance and the Bank of Italy). Specifically, it delegates Italian authorities to issue secondary rules and regulations on technical matters and to adopt prudential measures also with respect to financing and certain aspects of mortgages on real estate associated with financing from the banks.
2) Are there any restrictions under your country’s legal system with regards to ownership when acquiring a commercial real estate?
In general, Italy is considered a “no restrictions” country. Any foreign individual or entity (and of course domestic) may purchase and own real estate property in Italy, including commercial, provided that the “reciprocity” condition is met. According to this principle, the acquisition/ownership is possible upon condition than an Italian citizen/entity is entitled to the same rights in the home country of the buyer/owner.
The relevant reference rule is given by Article 16 of the Provisions on the law in general (the so-called “Preleggi”), which states that “The foreigner is admitted to the same civil rights attributed to the citizen on condition of reciprocity and subject to the provisions contained in special laws. This provision also applies to foreign legal persons”.
Reciprocity is considered to exist for EU member States without any need to verify it.
Reciprocity shall be verified on a case-by-case basis, and the web site of the Italian Foreign Ministry is a good starting point:
You may want to seek legal advise on this. For example, there are unexpected countries – such as Switzerland, that present more than one aspect to be analysed when it comes down to “reciprocity”.
3) What types of ownership structures exist in your country with regards to acquisition of commercial real estate?
Besides the fact that in most cases ownership of commercial real estate is held by legal entities, the main types of ownership are:
- Proprietà– full ownership, i.e the full and exclusive right to use as well as to dispose of a real estate property in compliance with the national provisions.
- Nuda Proprietà – bare ownership, i.e. the private property is not accompanied by an actual right of use of the property to which it relates. Typically, it refers to a property of which ownership is acquired, but not the right of usufruct.
- Usufrutto – usufruct, i.e. the right of using, enjoying, and receiving the profits of the property that belongs to another subject, with the limit of not being able to transfer the full property and the duty to respect the economic destination impressed to it by the owner.
- Comunione – joint co-ownership, i.e an ownership which is divided between a number of entities or individuals where such entities or individuals have rights and obligations towards each other.
- Multiproprietà – time-sharing, a form of shared property ownership, commonly vacation property, wherein rights vest in several owners to use property for specified period each year.
- Usucapione – adverse possession, constitutes a particular method of acquisition of ownership on an original basis. The possession, if continued for a certain period of time, makes the owner acquire the ownership of the right exercised (full owner ship, usufruct…).
The most common type of ownership in case of commercial real estate is the full property (proprietà) which is usually held by a limited liability company (S.r.l.), joint-stock company (S.p.A.), and in minor cases, partnerships, the latter being transparent for tax purposes.
4) Please describe in a few steps the process of transfer of commercial real estate in your country with particular focus to the transfer of the ownership or the title to the buyer.
The process of transfer of commercial real estate assets between companies in Italy may be carried out in several different ways, depending on the context in which the transaction arises. In all cases, you should always seek the assistance of: a real estate attorney and a tax consultant, a notary (mandatory to transfer the property), a surveyor, and an accountant.
In most cases, the acquisition transaction takes place either:
through the purchase of the shares (so called ‘share deal’) or
through the purchase of a company’s business unit or going concern (so called ‘asset deal’). Other types of deals, such as mergers, may also be possible, but they are less frequent.
The main differences between the two types of deals above are:
- “Share deal“: upon purchase of the quotas (in case of limited liability companies) or the shares (in case of joint-stock companies) of the target company, the buyer indirectly acquires the entire company assets (real estate, contracts, instruments, contractual relationships, receivables, etc.) and also takes on all company’s liabilities relating to the previous management.
- “Asset deal”: upon purchase of the company’s going concern, the buyer acquires a set of assets and contractual relationships organized for the operation of that business (real estate, plants, employees, contracts, credits, debts, etc.). The advantage of the asset deal lies in the possibility for the parties to define the perimeter of the transfer and, therefore, for the buyer, to limit the liabilities and the legal risks of the transaction.
Also, an asset deal may entail that the purchaser acquires only the real estate property. From a tax perspective, the relevant due diligence here is usually focused on the assessment of the existence of any possible real estate lien provided for by the Italian laws.
The choice between share and asset deal also implies different tax implications that have to be taken into consideration and discussed with your legal and tax advisors.
In both cases, the main steps when transferring ownership are:
- Pre-Contractual Arrangements: this phase starts with the exchange of a non-disclosure agreement, possibly followed by a letter of intent, a legal, tax, and accounting due diligence and usually ends with a non-binding offer or with a “subject to” offer to the Seller.
- Vendor Due Diligence Assessment: in this phase a more in-depth due diligence (legal and tax, but also zoning, permits, building and environment, consistency of cadastral data, presence of mortgages, encumbrances, rights of third parties, presence of rights of first refusal by third parties, etc.) is carried out by the Buyer’s consultant team to carry out the necessary pre-sale technical assessments. Usually, during this process, in addition to the other professionals above, the assistance of an Italian notary is recommended.
- Marketing and Commercial Negotiation, Representations and Warranties, Indemnities: in this phase, the real negotiation takes place. Subject of the negotiation are the value of the property adjusted to the outcome of the Due Diligence, duties and obligation of the parties, final price, extension and duration of the representation and warranties, placement of sums in escrow, etc. Because of the obligations and liabilities which arise of this phase, it is crucial that the parties are assisted by their corporate and tax lawyers and advisors.
- If these preliminary stages are concluded in a positive way, the parties may (and often will) execute a preliminary agreement for the relevant acquisition (Shares/Asset Deal), according to which the parties agree the relevant terms and conditions and undertake the obligation to complete the sale at “closing”. Closing occurs with execution of a final deed which establishes the transferring of the title of the property. The deed must be signed at the presence of a notary in order to create a Notarial Deed of Sale (the “Deed”). The Deed will just reflect the terms and conditions of the preliminary agreement. Thus, this document has a great importance and value.
- Finally, there are a series of activities in charge of the Italian Notary Public to be performed in order for the title to be registered in the Public Registers (i.e. Ufficio di Pubblicità Immobiliare former Conservatorie dei registri immobiliari), and to complete the transfer of the property right in favour of the Buyer.
- applied at a fixed rate.
5) Is the transfer of ownership in commercial real estate acquisitions subject to your country’s transfer tax, and if so, how much is the tax and who will be liable if such tax is not paid?
Yes, in general, the transfer of commercial real estate ownership is subject to a transfer tax (called Stamp Duty i.e. “Imposta di Registro”) and VAT which may vary depending on the nature of the Seller and the conditions of the transfer. The tax is due by the Buyer.
In the following chart, we have reported in short the taxes specifically applicable to the straightforward acquisition of an asset (not shares or other). The qualification of the Buyer is not relevant.
| SELLER | STATUS | REGIME | VAT % | REGISTRY & IPO-CADASTRAL TAXES |
|---|---|---|---|---|
| The Seller is the constructor of the property (also through contractors) or has refurbished it. | A) transfer occurs before the completion of the construction/remodeling works | Subject to VAT | 22% or 10% for special assets built under Law 408/49 (so called Tupini law) | 200 Euro each |
| Same as above | B) transfer occurs within 5 years of the completion of the construction/ remodeling works | Subject to VAT | ▶ 22% or ▶ 10% for special assets such as: • assets built under Law 408/49 (so called Tupini law) • assets subject to refurbishing as long as the works are completed; • schools, hospitals, clinics, etc.; ▶ 4% private parking areas subject to a specific law (Tognoli) | 200 Euro + 3% + 1% |
| Same as above | C) transfer occurs after 5 years of the completion of the construction/ remodeling works, and the Seller optsfor the sale to be subject to VAT | Subject to VAT with reverse charge if the Buyer is a VAT subject | Same as above | Same as above |
| Same as above | D) transfer occurs after 5 years of the completion of the construction/ remodeling works and the Seller opts for the sale NOT to be subject to VAT | Not subject to VAT | = = | 200 Euro + 3% + 1% |
| VAT subject other than those above (reseller) | A) the Seller opts for the VAT regime | Subject to VAT with reverse charge if the Buyer is a VAT subject | 22% | 200 Euro + 3% + 1% |
| VAT subject other than those above (reseller) | A) the Seller DOES NOT opts for the VAT regime | Not subject to VAT | == | 200 Euro + 3% + 1% |
There are also some other minor taxes such as the “imposta di bollo” to be paid on a fixed basis depending on the number of standard pages of the sale and purchase agreement.
As to the liability, the transfer tax is usually paid by the Notary at closing, meaning that by that time the Notary must have received by the Buyer the funds to pay the taxes in his/her separate dedicated bank account. In case of a tax assessments, Seller and Buyer are jointly liable.
On the other hand, the acquisition by a non-resident subject of shares in a real estate company resident in Italy is outside the scope of VAT and the deed of purchase, if executed in Italy, is subject to registration tax at a fixed amount of €200; if not executed in Italy, it is outside the scope of the registration tax.
Please follow these series for Part II where we will discuss key aspects on acquisition of commercial real estate in Finland.
If you would like to know how commercial real esate aquisition works in Italy, Lithuania, Finland and Cyprus please see the full questionnaire here.
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