With the approval of the financing provision for 2020, Italy has revoked a fiscal measure introduced in 2019 in favour of retail leases.

The measure (called "cedolare secca") was introduced last year, with art. 1, comma 99, of Law 145/2018, and was an extension of an existing measure which is proving to be quite successful for residential leases. For residential cases, the quota may be reduced to 10% in case of rents not exceeding an agreed amount.

As far as retail units were concerned, the measure gave the landlord the chance to agree to the application of a fixed fiscal withdrawal, equal to 21% of the rent, instead of being subject to the quota applicable according to the general income of the landlord.

The measure was applicable to the retail leases for shops not larger than 600 sq.m.

The Italian Government has decided to revoke said measure for 2020, with an evident impact on the retail sector which is already suffering from a market crisis of the traditional channel.

The measure can still be applied to contracts executed in 2019 which have expressly agreed to apply the fixed tax, but it cannot be applied to new contracts.

The consequences of said measure is inevitably the increase of rents and/or key money from the landlords, with a negative impact on retailers who are increasingly struggling to make profits from their activities, especially retailers with small units.

On the other hand, the revocation of said measure does not even help the owners of vacant real estate units, as obviously the need to increase the rent will make occupancy even more difficult.

The original measure, which is still in place for residential leases, aimed to help the emersion of lease contracts which were not registered and therefore not known by the Fiscal Authority. The effect has been positive as far as residential leases are concerned.

However the same effect has not been reached in retail leases, as the contracts were already known by the fiscal authorities, due to the fact that they are linked to professional activities which are more likely to hide contracts from the Tax Authority.

However, the measure, for the reasons stated above, should have been maintained not so much to help the fiscal impact, but to help the stagnant retail economy to speed up.