The flat-rate tax scheme is an optional preferential tax regime that can be chosen by landlords letting residential property. It was introduced in 2011 with the aim of simplifying the taxation of rental income and, in many cases, reducing the tax burden on the landlord.
In practice, the flat-rate tax scheme allows you to pay a fixed tax on the rental income – that is, on the rent received – instead of the standard IRPEF tax. IRPEF is the personal income tax and operates with progressive rates ranging from 23% to 43%: the higher the total income, the higher the tax liability may be. The flat-rate tax scheme, on the other hand, uses fixed rates.
The flat-rate tax scheme is a ‘substitute tax’, as it replaces IRPEF on rental income, regional and local surcharges, registration tax and stamp duty normally payable on the tenancy agreement.
The flat-rate tax scheme can only be chosen by individuals in respect of residential properties not used for business or professional activities. It does not apply to subletting agreements or to properties located abroad.
The property must be intended for residential use, such as a flat or a house. Ancillary facilities, such as garages, cellars or parking spaces, may also be included if they are connected to the let property.
The flat-rate tax does not apply to commercial properties, such as offices, shops or industrial units, nor does it apply to tenancies entered into as part of a commercial activity.
The main flat-rate tax rates vary depending on the type of contract:
21% standard residential tenancy agreements, for example open-market tenancies (4+4)
10% agreed-rent tenancies (3+2 years) with a certificate of compliance in the following cases:
Please note that a ‘agreed rent’ tenancy is a locally-based agreement in which the rent is not freely set by the parties, but must comply with specific parameters defined by local agreements between landlords’ and tenants’ associations.
26% short-term tenancy agreements, i.e. those not exceeding 30 days. In this case, the tax rate may be reduced to 21% for one property chosen by the taxpayer.
The choice of the flat-rate tax scheme must be notified to the Revenue Agency. As a rule, this is done at the time of registering the tenancy agreement, using form RLI within 30 days of the date of signing or the commencement of the tenancy, whichever is earlier. In the case of short-term tenancies, the notification is made directly in the tax return.
An important point to note is that, by opting for the flat-rate tax scheme, the landlord waives the right to increase the rent. This also applies to the ISTAT/ASTAT adjustment linked to inflation. This waiver must be notified to the tenant by registered letter with acknowledgement of receipt or via certified email (PEC), unless it is already clearly stated in the contract.
The tax due is paid in accordance with the standard deadlines for income tax, i.e. through final payments and instalments.
This option is not binding for the entire duration of the tenancy agreement but may be revoked or re-opted for each year.
Whether it is advantageous depends on the landlord’s specific circumstances: their total income, the applicable tax rate (standard or reduced) and the presence of deductible expenses (e.g. renovation costs) or tax-deductible items (e.g. social security contributions or pension fund contributions).
For this reason, it is always advisable to assess on a case-by-case basis whether to opt for this scheme or to retain the standard tax regime.