Tax Regulations for Short Rentals

In recent years increasing numbers of visitors have requested rentals of short duration in Lucca, often resorting to online platforms for property and tourist mediation. These platforms have made it easy for owners to let out their properties without tax or legal complications. In the meantime, hotel managers and others working in the sector have obviously not been very happy about the situation.

A new Law (50/2017), and specifically Article 4 of this law, has now introduced tax regulations for short rentals. In the past owners were not obliged to register short rentals. In the past owners were not obliged to register short rental contracts. Therefore, the Tax Office (Agenzia delle Entrate) had difficulty controlling such earnings. Consequently, a “gray area” was created where some rental contracts were able to avoid taxation.

According to Article 4 of Law 50/2017, short rentals are property rental contracts for residential use of not more than 30 days, including those calling for linen and cleaning services, stipulated by individuals acting personally, not as a business, either directly or through property mediators, including managers of online portals.

Compared to the past, this confirms that short rentals are no more than 30 days in duration (referring to rentals contracted within a year to a single party).  Moreover, for these rentals there is no obligation to register the contract. The concept of rental is amplified now to include accessory services such as cleaning and providing lines. These accessory services will no longer be considered business income.

Tax regulations

The novelty of the new tax law lies in the regime of cedolare secca. This is a flat rate income tax on letting out a house or flat, which allows for a rate of 21% for short contracts stipulated after June 1, 2017, and in specific conditions introduced for intermediaries, either online or through traditional channels.

The cedolare secca is an optional property tax system . Moreover it is a tax that substitutes for the IRPEF (tax on earnings of physical persons) and other charges. Registrations and stamp fees (ordinarily required for rental contract registrations, terminations and renewals) are not charged.

This tax system is generally selected at the time of the contract’s registration. Where there is no obligation to register the contract, as in the case of short rentals, owners may apply the cedolare secca on their tax declaration, for the tax period in which these earnings were produced.

Requirements for intermediaries

Property mediators and managers of online portals that match up potential renters with owners need to transmit information about contracts concluded by them. This new feature, introduced with the aim of reducing tax evasion, is applicable for contracts stipulated on or after June 1, 2017.

If the intermediaries earn rents or percentages on contracts, they should pay a substitute withholding tax of 21% of the rents and percentages, at the time these are received. This withholding is considered a substitute tax if the owner has chosen the cedolare secca option, or an IRPEF deposit if the owner has not chosen the cedolare secca.

So a private individual letting out a property for a short period, either directly or through intermediaries, and possibly with the provision of accessory services, will pay 21% on earnings perceived (if opting for the cedolare secca). This tax payment occurs when the annual tax declaration is made, or if intermediaries are involved, the tax is withheld and made directly by the intermediary.

The Tuscan Region’s legal system introduced new features regulating short rentals for tourist use, which will be implemented through an activating rule . In particular, this new regulation, calls for “brief” and “non-entrepreneurial” rentals and activities that consist in no more than two properties per year. In the case of more than two properties, no more than 80 tourist rentals per year.

This article was originally published in Tuscany’s Grapevine Magazine with the title ” New Tax Regulations for Short Rentals”.