Real estate abroad

Double taxation, different inheritance taxes, reporting obligations, and taxation of real estate capital gains

The taxation of foreign real estate is a growing issue in the context of economic globalization. With the rise of cross-border investment and international mobility , many individuals and businesses find themselves managing real estate assets in multiple jurisdictions. We delve deeper into the issue with an overview of the main issues related to the taxation of foreign-owned real estate, examining Italian and international regulations, as well as the tax implications for owners.

For tax residents in Italy, owning real estate abroad requires filing and paying specific taxes. Italian law provides for the Tax on the Value of Real Estate Located Abroad (IVIE), introduced with the "Save Italy" Decree of 2011. IVIE is calculated on 1.06% of the property's value as determined by the foreign tax authority or, in the absence of such value, on the purchase price or market value.

In addition to the IVIE, Italian tax residents must include in their tax return (Formlo Redditi PF) any income derived from real estate located abroad, such as rental income or capital gains from sales. This income is subject to personal income tax (IRPEF) at the progressive rates established by the Italian tax system.

To avoid double taxation , i.e., the application of taxes both in the country of residence of the owner and in the country where the property is located, Italy has signed numerous international conventions. These treaties establish criteria for the distribution of taxation rights among the countries involved and often provide tax credit mechanisms.

Regarding income from real estate abroad, Article 6 of the OECD Model Tax Code should be taken as a reference, which provides that income from real estate must be taxed in the country where the property is located. This provision should not be interpreted as meaning that taxation is exclusive in one country, but rather that income from foreign real estate must be taxed both in the country where the income is sourced and in the recipient's country of tax residence.

In this case, international conventions provide that double taxation is mitigated through the application of a credit for foreign taxes in the country of tax residence. For example, if a property located in France generates income taxed in France, the tax paid in France can be deducted from the personal income tax due in Italy.

Internationally, tax rules vary significantly from country to country. In some jurisdictions, such as the United States, tax residents are required to declare their global income, including that derived from foreign real estate. In other countries, taxes can be much more favorable, thus incentivizing foreign real estate investments.

The complexity of international tax regulations makes careful tax planning essential for those who own real estate abroad. Consulting with international tax experts can help optimize investment structures, reducing the overall tax burden and ensuring compliance with the laws of all applicable jurisdictions.

For example, the use of specific legal entities, such as trusts or holding companies, can offer significant advantages in terms of taxation and asset protection. However, such strategies must be adopted carefully to avoid the risk of penalties for tax evasion or avoidance.

Foreign real estate taxation is a complex and dynamic field, influenced by constantly evolving national and international regulations. It is essential for owners to understand their tax obligations and adopt an appropriate tax planning strategy, including inheritance tax planning. Only in this way can they fully exploit the opportunities offered by global real estate investments while minimizing the risks and costs associated with taxation and the transfer of real estate through inheritance.

In an increasingly interconnected world, effectively managing the taxation and transfer of real estate abroad represents a crucial challenge for investors and an essential component of their overall financial strategy.

About the Author

Edoardo Tamagnone is a lawyer and partner at the law firm Tamagnone Di Marco Avvocati Associati. He focuses on international taxation, investment structures, and wealth planning for investors, family offices, and businesses with cross-border operations.

He works in Turin and international contexts, focusing on the intersection of law, economics, and global capital.

For specialized advice on investing abroad, you can contact us at 011-6605068

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