Cedolare Secca, Airbnb and Short Term Rental taxation in Italy
2017 brought with it a new set of rules regarding short-term rentals (affitti brevi). These concern those who obtain income from apartment rentals and/or holiday homes as well as through intermediaries such as Airbnb and other similar online platforms (piattaforma online), all of which manage reservations and process payments online while retaining a service commission. There are a number of caveats regarding the cedolare secca in particular as well as an ongoing controversy in the European courts.
What is the cedolare secca?
The cedolare secca, sometimes “dry coupon,” is an alternative tax regime (regime fiscale) to the IRPEF. It calls for a preferential fixed rate of 21% (aliquota al 21) applied exclusively to the income generated by the lease. This simply means that Airbnb would have to take a flat 21% before passing money to the property owner.
It is available only to non-professional hosts who are “natural persons” (persone fisiche) that rent their properties using a short-term rental contract (contratto di affitto). It cannot be used by companies or “natural persons” who happen to manage accommodation facilities (strutture ricettive). Also, the cedolare secca tax regime does not allow anyone to deduct expenses. This inability to deduct any costs may result in discouraging many people from using the service to list their property.
Additionally, and at the Italian government’s suggestion, it would also make companies such as Airbnb responsible for registering contracts with the revenue agency (and incurring late penalties for delays or omitted contracts) whereas before it was the responsibility of the property owner.
What is controversial about it?
Unsurprisingly, Airbnb and other platforms were unhappy about the 2017 proposal. They quickly filed a complaint with the courts because the new laws required both agents and intermediaries to deduct 21% from rental sums received in relation to short leases (locazioni brevi) of properties in Italy. This, in effect, made Airbnb and other similar platforms tax collectors for the State as this payment was to be made directly to the revenue agency (agenzia delle entrate). Aboveall, those platforms would not be remunerated for the service of tax collection.
Airbnb ultimately appealed on the basis of antitrust, claiming that the law is anti-competitive. Airbnb claims they are being unfairly penalized, as their biggest competitor, Booking, was unaffected by the 2017 laws.
As of 2019 the collection of cedolare secca tax on rentals (cedolare secca sugli affitti) through Airbnb has been suspended. At the end of June 2020 a preliminary ruling was requested, but even at the time of writing this article no ruling has yet been made. This ruling is important for Airbnb because, if unfavorable, it will result in having to pay some €600 million in back taxes.
Waiting for judgment on the legitimacy of the Airbnb tax in no way alters the tax obligations of the property owner who leases for short periods (brevi periodi). It is still up to the property owner whether they pay the 21% of the cedolare secca rent fee (canone di locazione) or, if more convenient, to use IRPEF, covered below.
Who does it apply to?
This applies to all short-term rentals. By law, short-term rentals relate to residential properties which are leased with a regular contract for periods less than 30 days (inferiore ai 30 giorni). As mentioned above, this type of contract can be (può essere) used by people who do not rent as a business (attività d’impresa). What counts as “renting as a profession” in this sense? Generally, it concerns people who rent more than 3 properties.
It does not apply to contracts that last longer than 30 days (superiore a 30 giorni).
How much will I pay?
The money you earn as a host through Airbnb is considered taxable income (reddito imponibile) and is subject to different taxes such as VAT (partita IVA).
How much you will pay largely depends where your rental is. The standard substitute tax is calculated by applying a rate of 21% on the annual rent, but there is a reduced rate of 10% for rental contracts relating to homes in certain municipalities including: Bari, Bologna, Catania, Florence, Genoa, Milan, Naples, Palermo, Rome, Turin and Venice.
It is also possible to claim the income at personal income tax rates (IRPEF in the next section, somewhere between 23-43%), taking as taxable income the larger amount between the increased and revalued 5% cadastral income and the 5% reduced rent received that is a flat-rate reduction of expenses.
What is the difference between the cedolare secca and IRPEF?
In short, IRPEF (l'imposta sul reddito delle persone fisiche) is the standard tax regime. If you choose to make your tax declaration (dichiarazioni dei redditi) this way you will have to calculate 95% of the income derived from short-term lease contracts then add this sum to your taxable income. The tax rate for IRPEF, at the lowest bracket, is 23% which is 2% higher than those who choose to use the cedolare secca. The highest bracket pertaining to IRPEF remains at 43% while the cedolare secca tax regime (cedolare secca con aliquota) remains a flat 21%.
A bonus to using the IRPEF is that it allows you to make deductions as if you were running a business, something that is not allowed with the cedolare secca.
Is it better to rent using the cedolare secca or by opening a VAT?
This depends on how you plan to run your rental. If you are going to have a dedicated employee or offer other services in addition to renting it is more beneficial to use the cedolare secca, but if you will be doing it as a hobby or only with a single property it is generally easier to use a VAT number (partita IVA).
The VAT is better, as it has been reformed over the past few years, if you access the flat rate scheme (regime forfettario) as the tax rate is slightly lower (15%) and is subject to the same restriction of not being able to make deductions.
Are you interested in this topic? Check also our video about Airbnb compliance in Italy.
After moving back to Italy from the United States in 2013, I realized how much an accounting and tax firm was needed to help expats living in Italy to comply with the local tax regulations.