Optimizing Real Estate Management with Italian Simple Companies: Key Advantages and Tax Benefits for Foreign Partners

Article published in the magazine We Wealth of May 4, 2023

The simple company is a suitable corporate model for efficient real estate management, as it allows for non-commercial enjoyment activities

The simple company offers advantages in protecting and managing real estate. This form (art. 2249 c.c.) is suitable if the activity is limited to leasing properties. However, if the activity also includes the provision of services, it becomes commercial and requires other corporate models.

The simple company has several advantages that allow for better protection and management of real estate.

Minimal bureaucratic requirements: No minimum capital is required for its establishment (Article 2253 of the Italian Civil Code). In a simple company, any asset or service can be contributed, subject to economic valuation, and helpful in achieving the corporate purpose. Since it cannot carry out commercial activities, the company does not generate business income. The simple company does not need to keep corporate books, nor does it need to prepare and file financial statements. There is no shareholders’ meeting in the simple company.

Flexibility in organizing relationships between partners and administrators: To establish a simple company, at least two partners are needed, including individuals, partnerships, corporations, and entities (such as associations and foundations). This allows for the partnership to include individuals or legal entities from a foreign country. The simple company has a personalized management system: the company statute can be freely constructed according to the partners’ needs. This company is characterized by unlimited personal liability and joint liability of all partners for corporate obligations. Using a specific agreement, the personal liability of partners who have not acted on behalf of the company can be excluded, provided that the agreement is made known to third parties; otherwise, the agreement is ineffective.

Tax advantages: The tax advantages of the simple company stem from the fact that it does not generate business income and is not fiscally autonomous for its partners. Income is directly attributed to the partners according to the rules provided for individuals and is taxed in the same tax year, regardless of the timing of collection. The participation of foreign companies can offer additional tax benefits, as the simple company is transparent for direct tax purposes, and if provided for by law, the income can be transferred to the foreign parent company without withholding tax on dividends in Italy. The income that the simple company receives from selling real estate (other than building land) held for more than five years is excluded from taxation. This means that if there is a capital gain at the time of sale (provided it occurs after five years), the sums received and distributed to the partners will not be subject to tax, with the consequence that the partner will pay nothing to the treasury.

The mere enjoyment and management of the real estate is qualified by Italian law as a non-commercial activity and can only be carried out in the form of a simple. The Italian simple company can have foreign resident companies as partners who benefit from the tax advantages of Italian tax legislation. Article 67, paragraph 1, letter b) of the Tuir excludes from the formation of taxable income the proceeds from the sale of real estate held by the simple company for more than five years. This means that such capital gains are not taxed at the level of the simple company, nor the level of the partners for transparency if they are distributed to them.

Suppose the partner of the simple company is a foreign company. In that case, it does not suffer taxation for the proceeds it receives from the sale of real estate by the Italian simple company in which it holds shares, provided such assets have been held for more than five years.

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