To Be or Not To Be: The Residency Conundrum

When you look at the taxes on a property purchase, you immediately notice that a big variable is your residency status. If you are an Italian resident (and it’s your “first home”, apparently meaning you have no others nearby), you are taxed at significantly reduced rates on purchase and construction costs. (I estimated we might be talking about €30,000 in our case.)

(I don’t have an official source on this, but for these purposes it seems that “are an Italian resident” means you intend to become one within 18 months. But it gets murkier, because, as I explain below, you can’t get “permanent residency status” in less than 5 years.)

flag_of_the_united_states_and_italySo, what can we and should we do? Become residents or not?

For now, let’s assume that we can. I’ve read a number of places that it can be done, with some saying, “it’s easy.” That I don’t believe, but it would be easier if Anne or I had a parent or grandparent who was an Italian citizen. I’m not finding it in the family tree.

Should We Become Elective Residents?

On the “should” questions, there are financial, practical, and emotional pluses and minuses to weigh.

I mentioned the purchase/construction tax benefit. Unknown is the impact on our income taxes. Will our total taxes, US and Italy, go up? I’m in touch with a couple of accountants, one here and one in Italy, who I hope can sort this out. If the income tax burden is higher, the residency question may resolve itself.

A big plus to being a resident is eligibility for the Italian health system. This would eliminate our need for health insurance while in Italy. From what I’ve read, the level of care in Italy is high. From my experience last year when I had to replace stolen medications, I’d agree. And I also learned that medications are dramatically cheaper.

One thing you can’t do in Italy as a non-resident is buy a car. Go figure. You can buy a house but not a car. That might be fine if we’re not there full time. I just looked at AutoEurope and they offer longer term rentals and the rates aren’t outrageous. Three months, starting this September as an example, is about $2000-$2200 for the smaller car that we’d want. (I will need to look into car insurance for an extended rental.)

Emotionally? We’re Americans. We love Italy, but what does it really mean to be a “resident of Italy”?

Can We?

Well, it’s not clear from what I can find online. Some of the confusion is caused by terminology.

I’m going to cite the official site poliziadistato.it which I have in sight right now. (Sorry. Couldn’t resist. Sigh) I’m using the English version of their site, which I’m sure is only “partially official”.

To stay more than 90 days, a non-European Union citizen needs to have a “residency permit.” (Is that 90 days in one trip or per year? Not sure.)

To get this permit, in addition to some paperwork and fees, you need a visa. This visa can only be issued outside of Italy. You need to go to the Italian embassy or a consulate in your home country to get it. (If you’re already in Italy and want to stay past 90 days, sorry. Leave, get the visa, come back.)

You can get the visa and permit for up to 2 years, if you are “self-employed.” (Does my online teaching count? How about teaching Italians English for very low rates?)

To get “permanent resident status”, you need to be “continuously resident for 5 years.” What does “resident” in this context mean? Have the “residency permit” continuously for 5 years? Be living in Italy for 5 years? And what about “continuous”? No trips out of Italy? Being there more than half the year?)

At minimum we’ll need to a trip downtown to the Italian Consulate in Chicago. More likely, we’ll need an Italian legal specialist.

I’ll keep you posted.

Image source: By Flag_of_United_States.svg: Dbenbenn, Zscout370, Jacobolus, Indolences, Technion. Flag_of_Italy.svg: see below derivative work: AwOc (Flag_of_United_States.svg Flag_of_Italy.svg) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

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The Legal Formalities of Buying a House: Part 2

Once we had a verbal agreement to buy the property, I started to read about the purchase process. I found articles online written by fellow foreigners who had been through the process, real estate and advisory firms, and lawyers.

flowchart indicating Italian purchase processNot surprisingly, they all say to use a lawyer to manage the process. What’s surprising is that they’d even need to say it, but apparently, since a lawyer isn’t required by law, some people try to save a few bucks and do it themselves. (The “savings” here would be tiny. Attorney fees for a house purchase transaction are said to rarely exceed €4,000.)

Just for fun: here’s how a British site passes on their advice: “However, it is always important to engage the services of a solicitor at this point to ensure that your interests are well catered for throughout the entire process.”

Just in case: Let me loudly proclaim that I am not qualified to nor am trying to give legal advice. I’m writing this out just to provide context and background for our transaction.

The Participants

In addition to the buyer, seller, and real estate agent(s), there are three other participants in the process.

  • Avvocato: the lawyer. You hire.
  • Geometra: like a supercharged surveyor. They examine not only the land itself, but perform other key activities. They are local and know the people and ins-and-outs of the system. You hire.
  • Notaio: oversees the final contract signing, collects the taxes and fees, and registers the sale in the property register. Employed by the government, but receives an “honorarium” from you.

The “Typical” Home Purchase Process

(Before getting into any of this, you need a tax code, a codice fiscale. It’s sort of like a Social Security Number. Your avvocato can help.)

The purchase process has two, occasionally three, steps.

The step that seems to occur relatively infrequently, based on my reading, is a written offer/acceptance done quickly after a verbal agreement. It would contain contingencies for all the possible problems that might arise in the next step and would be accompanied by a deposit of some size, maybe 10%. Most of my sources recommend against doing this, unless there is a significant concern that the property might be sold to someone else before the preliminary agreement (step 2) can be completed.

It seems that this recommendation is driven by two aspects of the law in Italy, one codified and the other reality. The codified one is that once a written agreement is signed and a deposit is paid, the parties are bound to complete the transaction or face a significant financial penalty: the buyer would forfeit the entire deposit, while the seller would be required to pay twice the deposit back to the seller. Combine this with the reality that lawsuits in Italy typically take 5-7 years to resolve and it seems nearly everyone wants to wait until more facts are known about the property before signing anything.

The Written Agreement (Compromesso di Vendita)

Either directly from a verbal agreement or following the written offer/acceptance step comes the preliminary written agreement, called the compromesso. Here, the important pre-purchase due diligence takes place. The output is a written agreement accompanied by a deposit, which does then bind the parties as I described before.
This is a private agreement between the parties that doesn’t need to be officially submitted or registered with the government.

The compromesso covers, among other things:

  • Identification of property in the national register of lands (NCT), citing register sheet and particular units of property and indicating them on a map
  • Verification that the seller does have title to the property
  • Identification of any potential limitations to purchase that might prevent getting full title, such as government obligations, liens, inheritance rights, and agricultural purchase rights*
  • Identification of any easements for roads, trails, utility lines, etc.
  • The agreed price and payment schedule. Usually, a down payment (caparra confirmatoria), typically 20-30%, is made. (This is the payment that binds the parties and activates the deposit forfeiture/double refund penalty.)
  • The date for final sale. This must be at least 60 days after the compromesso is signed

Finally, sometimes this step is combined with the next one and the sale is handled all at once.

The Completion of Sale (Il Rogito Notarile)

signing an Italian purchase contractThis is a somewhat formal meeting of the parties to “close” the transaction. The notaio, who doesn’t just show up for this meeting but has been involved in the background work, presides. One key step is the reading of the contact aloud, of course in Italian.

Just what happens here when you are not a fluent Italian speaker is a little unclear. All sources agree that some type of services from an interpreter are required. Some say that if you have the contract translated into English by an approved interpreter, you can proceed and sign the documents yourself. Others say that an interpreter need be present and that you must give power of attorney to an Italian speaker, who then signs for you.

Either way, after the documents are signed and exchanged, the notaio collects the taxes and fees that are due. Following the meeting, the notaio officially registers the new owner in the land registry.

Armed with, or hamstrung by, all of this information, it’s time for me to tackle our contract head-on, in my first meeting with our avvocato, Giovanna.

* Just to add a complication when buying property in the country, old and complex Italian legislation entitles farmers, tenants and neighbors to be notified of a proposed sale and to have priority in buying agricultural land that is offered for sale in their immediate neighborhood.

Image source: www.pixabay.com License: CC0 Public domain. Free for commercial use. No attribution required.

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