Italian Property Purchase Tips - Leaving a Deposit: Acconto vs. Caparra

| Wed, 04/13/2011 - 10:03

This article discusses: Italian Property.

Sponsored article written by Italian lawyer, Nick Metta, partner of Italian law firm Studio Legale Metta.

Have you found the right Italian property and you’re ready to put down a deposit? Prior to turning over any money it is essential to know if the deposit is referred to in Italian as an “acconto” or a “caparra”. The English word “deposit” is frequently used to translate both of these Italian terms. It is true that both an acconto and a caparra are a type of deposit, but the differences between them are quite significant from a legal perspective. Under Italian law there is a substantial disparity for both civil and tax matters. Furthermore, the caparra itself can be qualified in two different ways, each having different legal implications.

Let’s take a look at how these differences come into effect if the purchase does not go smoothly.

Effects Under Civil Law

In a situation where one of the parties, either the vendor or the buyer, is in breach of contract (e.g., backs out of the transaction without a valid reason), the following results occur based on whether the buyer had left an acconto or a caparra as a deposit.

The Acconto

If the deposit is termed an acconto in the contract, it is treated as a mere installment of the total purchase price. Therefore, if the transaction is cancelled, the acconto is refunded to the buyer, no matter who caused the breach of contract. However, if the buyer is the one in breach of contract and the vendor can prove to have suffered damages as a result, the vendor can ask to be compensated for the damages by retaining all or a portion of the deposit. Additionally, the vendor could ask to be compensated for more than the deposit if it is possible to prove that the damages amount to more than what the buyer left as an acconto. Should the vendor be the party in breach of contract, the buyer is entitled to ask for the deposit to be refunded, and can furthermore claim compensation for losses that can be proven to be a consequence of the transaction not going through.

The Caparra

If the deposit is termed a caparra, it is important to confirm which type of caparra it is: the caparra confirmatoria, or the caparra penitenziale. For both the caparra confirmatoria and penitenziale, in a situation of breach of contract by either party, the deposit is considered a penalty to be paid by the breaching party, i.e., the one who does not want to proceed, to the fulfilling party. The caparra provides supplemental security for the buyer in that, if the vendor is in breach of contract, the buyer is entitled to ask for twice as much as the deposit amount that had been paid. This means that the buyer automatically gets the deposit returned and, additionally, is automatically entitled to claim a sum equal to the amount of the deposit, with no need to prove any damages. An important aspect of the caparra is that that the obligation to pay the penalty is automatic. In contrast with the acconto, if the deposit is a caparra, there is no need to prove that any damage has been incurred to get double the deposit refunded.

Now let’s look at the difference between the caparra confirmatoria and the caparra penitenziale. The caparra confirmatoria gives the fulfilling party (the one who wants to proceed) the right to force the breaching party (the one who does not want to proceed) to go through with the transaction and live up to the terms of the agreement. Instead of forcing the transaction to go through, it is possible for the fulfilling party to ask for compensation higher than the sum automatically received, i.e., twice the deposit, should it be possible to prove there were losses due to the transaction not going through.

The caparra penitenziale gives both parties the right to back out of the deal subject to a pre-established penalty, which is equal to the deposit. In this case, if one of the parties does not want to proceed, the only option for the fulfilling party is to claim the penalty payment. In other words, if the vendor backs out, the buyer gets double the deposit returned. If the buyer backs out, the deposit is not returned. In contrast with the caparra confirmatoria, the caparra penitenziale does not give the fulfilling party the right to claim compensation for losses, or force the transaction to go through.

Effects Under Tax Law

The Acconto

Should the vendor be an individual, as opposed to a company, not subject to the value added tax (VAT), an acconto deposit paid by the buyer would be subject to a 3% registration tax. This tax is paid to the Italian state at the time of filing the deposit contract with the Italian tax office for registration purposes. Should the vendor be subject to VAT, as is the case with companies selling properties, an acconto deposit would be subject to VAT at a rate of 4%, 10% or 20%, depending on whether the buyer is respectively purchasing a property as a primary residence, holiday home, or a property classified as luxury.

The Caparra

Should the buyer’s deposit instead be termed a caparra, it would be subject to 0.5% registration tax to be paid when the deposit contract is filed with the tax office for registration. This applies for both the caparra confirmatoria and the caparra penitenziale. Even if the transaction is subject to VAT because the seller is a VAT subject, no VAT would apply to the caparra deposit payment. But, this doesn’t mean the buyer has avoided paying VAT as it would be paid at the time of signing the final deed with respect to the full purchase price at the applicable rate, 4%, 10% or 20%, depending as indicated above. Therefore, the option between acconto and caparra should also be factored into the buyer’s planning of the investment’s financial structure.

For both the acconto and the caparra, the proportional tax (either 3% or 0.5% as indicated above) that is paid when filing the deposit contract for registration is usually deducted from the transfer taxes to be paid on completion. However, should the seller be a VAT subject, deduction typically is not possible.

Given the differences outlined above, it is typically advisable for a buyer to leave a caparra deposit as opposed to an acconto as they have more options should the deal not go through. With the caparra (both confirmatoria and penitenziale) the buyer postpones the VAT payment to completion and benefits from more protection in case of breach of contract by the vendor. It is important for the preliminary purchase contracts (commonly called preliminare or compromesso in Italian) to specify these details. A tried and true piece of advice is: Prior to leaving any deposit or signing any document, it is essential to know what you are signing and, specifically, which type of deposit you are leaving. The rights stated above are guaranteed under Italian law, but only if the deposit has been categorized accordingly.

An important fact to remember during an Italian property purchase negotiation is that under Italian law only written terms are valid. Also, any amount of money paid as deposit, if not expressly qualified as caparra, shall be treated as mere acconto. This means that even if there is only an English version of the contract for your reference, it is advisable to have an Italian version stating that the latter shall be valid for all purposes under the law. If the English version only refers to a “deposit”, your rights will be contestable. To protect your rights, it is essential to clarify in the Italian contract what the deposit actually is: an acconto, a caparra confirmatoria, or a caparra penitenziale.

Some final advice for Italian property purchasers getting ready to put down their deposit: Be an informed buyer. Read your contracts carefully and have them translated as necessary to fully understand what you are signing prior to putting pen to paper, and hand to wallet.

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Please check this space on the ItalyMag website regularly as, on a bimonthly basis, we will be publishing editorials on various aspects of Italian property.

Previous articles in this series:

- Getting Money Out of Your Italian Property – 11 January 2011;

- Save More Than 50% on Rental Property Taxes – 31 January 2011;

- Good News for Italian Property Owners: You Don’t Need an Italian Will - 21 February 2011;

- Italian Inheritance Hunters and The American Uncle- Mar 10th, 2011.

Nick Metta is a partner at the Italian law firm, Studio Legale Metta. Nick is head of the firm's international department which addresses matters of Italian law involving international parties in areas such as Italian real estate, property financing and Italian inheritance law.

The Italian law firm Studio Legale Metta is a boutique firm of Italian Attorneys. Established more than 120 years ago, the firm handles domestic and international casework throughout Italy.

This article does not represent legal advice. Users are encouraged to seek independent counsel for advice concerning their individual needs for legal assistance.

Studio Legale Metta has paid for this article. Copyright of Studio Legale Metta, 6 April 2011.