Italy's tax system, at least when it comes to residential rentals, follows a logic that often leaves foreign readers scratching their heads.
If I rent out my own apartment through Airbnb under a short-term rental aggreement - meaning I simply provide accommodation without hotel-style services such as breakfast, drinks, daily cleaning, linen changes during the stay, welcome baskets or similar extras - the income is classified as rental income rather than business income.
And that's where the problem begins.
Unlike business income, rental income doesn't allow you to deduct your actual expenses. Airbnb now keeps €5,673 plus VAT in commissions out of my €30,000 rental income. Does the Italian tax system care? Not at all. As far as the tax authorities are concerned, those costs simply don't exist.
If I choose the "cedolare secca", Italy's flat-tax regime for residential rentals - which is generally the most attractive option for small landlords (21% on the first property used for short-term rentals and 26% from the second onward) - I cannot deduct a single euro of expenses. If I opt instead for the ordinary personal income tax system (IRPEF), with its progressive tax rates, the situation is only slightly better. I still can't deduct my real costs. The law grants only a standard 5% allowance, regardless of what I actually spend.
The only way to deduct expenses is to move outside the rental income rules altogether. In practice, that means either running the activity as a business with a VAT number or structuring it so the income falls into a different tax category.
For someone like me, who owns only one or two rental properties, setting up a business is rarely worth it. The administrative burden and tax compliance requirements are simply out of proportion to the income.
That's why many hosts operate as Bed & Breakfast or Guesthouses, where they provide hotel-style services such as cleaning during the stay and linen changes. Because those services are included, the income is no longer treated as passive rental income but under a different tax regime that allows business expenses to be deducted.
Others use different legal structures, such as subletting a property or managing one that the owner has lent them free of charge. In those situations, the income is generally classified differently, making expense deductions possible. Ironically, however, if the stay is under 30 days and the flat-tax (cedolare secca) applies, those deductions disappear once again.
The result is a system full of contradictions.
Two people can host the same guests, in the same apartment, charge exactly the same price and incur exactly the same expenses. Yet one can deduct Airbnb's commissions while the other cannot. The difference has nothing to do with the economics of the activity. It depends entirely on how the income is classified under Italian tax law.
In any fair tax system, people should be taxed on what they actually earn, not on money they never get to keep. While Italy's rules on rental income are not, in themselves, unconstitutional, the gap between taxable gross income and the landlord's real disposable income has been one of the most widely criticised features of the Italian tax system for years.
Everyone knows the problem exists. So far, no one has fixed it.
