Cedolare Secca, Airbnb and Short Term Rental taxation in Italy
What is the cedolare secca?
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?
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?
It does not apply to contracts that last longer than 30 days (superiore a 30 giorni).
How much will I pay?
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?
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?
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.