Italy's cedolare secca on rental income: what it is, who can choose it and how to notify the tenant

What it is and who can choose it

Article 3 of Legislative Decree 23/2011 lets the owner, or the holder of a right in rem of enjoyment, of a residential unit let for residential use choose a substitute tax, the cedolare secca, as an alternative to the ordinary taxation of property income for personal income tax. It applies to the rent of the dwelling and of any appurtenances let with it. It can also be applied to contracts that do not have to be registered.

It does not apply to lets of dwellings made in the course of a business or a profession (art. 3, paragraph 6). Paragraph 6-bis covers one particular case: housing cooperatives and non-profit bodies that sublet to university students and make the property available to the municipality.

What it replaces

• personal income tax and its surcharges, on the rent;
• registration tax and stamp duty on the lease;
• the same taxes on termination and on extensions of the lease.

Registration tax and stamp duty do not apply to a guarantee given for the tenant. Stamp duty and registration tax already paid are not refunded (art. 3, paragraph 4).

What it costs

The rate is 21% of the annual rent agreed by the parties. For agreed-rent contracts (art. 2, paragraph 3, and art. 8 of Law 431/1998) on dwellings in the municipalities with housing shortages listed in Decree-Law 551/1988 and in the other high-housing-pressure municipalities identified by the CIPE, the rate is reduced to 10%. If you read older guides with different figures, check the year: for example, circular 26/E of 2011 spoke of a 19% rate for the same contracts, while the text in force today says 10%.

What the landlord gives up: updating the rent

If the landlord chooses the cedolare secca, for the whole period of the option the right to ask for the rent to be updated is suspended, even if the contract provides for it and even for the ISTAT change. The rule cannot be departed from (art. 3, paragraph 11).

The registered letter to the tenant

The option has no effect unless the landlord has first given the tenant notice by registered letter waiving the right to ask for the rent to be updated. According to circular 26/E of 2011, a registered letter handed over in person is not valid for this purpose, even with a receipt signed by the tenant, and where there are several tenants the notice must be sent to each of them.

When and how it is paid

The cedolare secca is paid by the deadline for paying personal income tax. How the option is exercised and how advances and the balance are paid is set by a provision of the director of the Agenzia delle Entrate; the law sets the advances at 100% from 2021.

What this guide does not cover

This guide reads article 3 of Legislative Decree 23/2011 and circular 26/E of 2011. It does not go into special cases (cadastral categories, sublets, tenants that are companies, mixed-use property): for those, and for changes after the sources listed here, check the text in force or consult a professional.