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Value Added Tax (VAT) Guidelines: Italy

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published on 23 March 2022

 

 

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »



1. VAT Scope, VAT Rates and VAT Exemptions

The VAT law does not contain a definition of a taxable person. Individuals and companies are taxable if they carry on a business or profession or an artistic activity. Importers are taxable regardless of their activity. VAT is levied at all levels of the supply of goods and services that takes place in Italy and on acquisitions from other EU Member States. VAT is also levied on the importation of goods from outside the EU.
 
To define if a supply will actually be classified as a taxable supply it is necessary to consider the particular case. Supply does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies, for example (and by no means exhaustive), condi­tional sales, private use of business assets (or more generally for purposes other than those of the business). 
 
The standard VAT rate is 22 percent, the reduced VAT rates are 10 percent and 4 percent and will be applicable, for example, for specific foods and services. VAT rates (i.e., ordinary and reduced rates) might increase in the next years. How­ever, it should be noted that the increase of VAT is postponed from year to year: The Law Decree No. 34/2020, containing emergency measures in response to Covid-19 pandemic, abolished the increase in the VAT rate until and including year 2022. 
 
There are some rules for VAT exemptions as well. It will be distinguished between VAT exemptions with input VAT recovery (so-called zero rated supplies) and VAT exemption without an input VAT deduction (exempt supplies). Zero rated supplies, for example, are: Exports and EU supplies, Sales to regular exporters under the condition of filing appropriate documentation (dichiarazione d’intento). VAT exempt supplies without input VAT deduction are, for example, Finance and Insurance.
 
If a business sells goods to a customer who is registered for VAT purposes in another EU Member State and the sale involves the removal of those goods from Italy (either by the supplier or the customer) to that EU Member State, then the business does not need to charge VAT and should zero rate the supply as an intra-Community dispatch of goods. The supplier must obtain its customer’s VAT identification number and quote it on the invoice. The supplier should also obtain evidence of the goods leaving Italy.
 
If a business exports goods to a customer (business or private) outside of the EU and the supplier arranges for the goods to be transported the supplier does not need to charge VAT. If the services are provided to business customers (B2B services) established in another EU Member State or outside of the EU, then the service is out of the scope of Italian VAT. If the services are provided to non-entrepreneurial customers (B2C services) they are taxed in Italy if the supplier is established in Italy. Please note, however, that this general rule is subject to many exceptions that must be analyzed on a case-by-case basis. 

 

2. VAT registration and simplifications

If an entrepreneur performs taxable supplies in Italy, it will be required to register and account for Italian VAT. The Italian Tax Authorities will provide a local VAT registration number (Partita IVA). No VAT registration threshold exists in Italy.
 
Entrepreneurs in Italy intending to make intra-Community transactions must additionally be included in the VIES, i.e. VAT information exchange system. The intention to perform such transaction can be declared either in the VAT registration form or after registration by filing a specific form with the Italian tax authorities. In case the entity is not included in the VAT system the intra-Community sales will be considered as Italian sales therefore subject to Italian VAT. Certain entities are not required to submit periodical VAT returns and are not liable for Italian VAT; for example non-taxable legal entities and small entrepreneurs with revenues not exceeding EUR 65,000 per year.
 
The registration rules, which apply to Italian entities, also apply to non-Italian entities providing taxable supplies in Italy. However, the exemption for small entrepreneurs does not apply to non-resident taxpayers.
 
There are some simplification rules to avoid a registration for VAT purposes in Italy:
  • Reverse Charge: For several supplies of goods or services the Reverse Charge mechanism is applicable in Italy. In that case, the recipient of the supply (not the supplier) is liable to VAT.
  • Intra-Community triangulation
  • OSS: OSS simplifies the VAT obligations for sellers of goods and services to private consumers (B2C) through­out the EU, as it allows them to opt at will for registration in one EU Member State, thus including Italy. This will be valid for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to consumer customers within the EU. Such new centralised, digital European VAT clearance system is denominated One Stop Shop (OSS).
  • IOSS: A new special scheme for distance sales of low value goods imported from third countries has been created to simplify the declaration and payment of VAT on distance sales imported goods. It is named Import One Stop Shop (IOSS). 
  • Consignment stock: Where a company stores stock at the customer’s premises under its control the customer accounts for VAT on the supply as an acquisition.

 

3. Declaration requirements and penalty regime

All registered entrepreneurs are required to submit VAT returns on an annual basis. The VAT due is paid on a periodical basis (monthly or quarterly) and repayments are made on an annual basis (quarterly repayment claims are admitted in certain cases). In addition, all registered entrepreneurs are required to file a quarterly communication of VAT data concerning the periodic settlement of VAT, both in case the settlement results in credit or in debt.
 
If an entrepreneur supplies goods which are shipped from Italy to VAT registered businesses in other EU Member States, it is required to correctly complete ESL forms (Intrastat in Italy) electronically. The ESL must generally be submitted electronically monthly or quarterly depending on the amount of the respective supplies.
 
Penalty regime:
  • Late payment penalties: As a general rule, the standard penalty for amounts declared but not paid is of 30 percent. However, there exists a voluntary correction mechanism (ravvedimento operoso) that allows to sig­nificantly reduce the penalty.
  • Unfaithful VAT return: The unfaithful VAT return is subject to a penalty, ranging from 90 percent to 180 percent of the higher VAT due (the one you should have paid by filing the correct return).
  • Failure to submit a VAT return: The penalty in the event of failure to submit a VAT return ranges from 120 percent to 240 percent of the unpaid taxes, with a minimum of EUR 250. The minimum threshold of EUR 250 is also envi­saged in the event of a VAT return for which no taxes are due, with a maximum of EUR 2,000.
  • Omitted or untrue communication concerning the periodic settlement of VAT: Administrative penalties from EUR 500 to EUR 2,000 apply in case of omitted or untrue communication (that can be halved in case this is sent/corrected within 15 days from the deadline).
 

4. VAT recovery

If the business is registered for VAT purposes in Italy it is possible to declare and deduct Italian input VAT within the VAT return on the regular tax procedure under further preconditions. It is also possible to recover Italian input VAT if the entrepreneur is not registered for VAT purposes in Italy or does not have its domicile, registered office, place of management or permanent (fixed) establishment in Italy.
 
There are strict conditions and time limits for making those claims. The claim period can range between a three months and a calendar year. The application for refund must be submitted electronically via the State where the applicant is established. Within four months of sending the application, the Italian tax authorities may re­quest for additional information in order to acquire all the relevant elements on which to base the decision on the refund.
 
There are certain items that businesses cannot recover VAT on. For example:
  • Exempt supplies: where VAT relates to both taxable and exempt supplies, an apportionment is needed
  • Non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required
  • Motor cars (excluding commercial vehicles): the VAT recovery rate is limited to 40 percent for VAT incurred on expenditures on cars not wholly used for business purposes.
 
The limitation covers all the expenditures incurred on cars: the purchase of the vehicle (including contracts of assembly and the like), intra-Community acquisition, importation, leasing or hire, modification, repair or main­tenance, lubricants, fuel, and similar.
 
The restriction does not apply where the vehicle falls into any of the following categories:
  • Vehicle forms part of the taxable person’s stock in trade in the exercise of his/her activity
  • Vehicle is used as a taxi
  • Vehicle is used for instruction by a driving school
  • Vehicle is used for hire or leasing
  • Vehicle is used by sales representatives
   

5. Invoicing

There are several formal invoicing requirements, which differ according the activity and how the operations are performed. The general rules are subject to many exceptions that must be analyzed on a case-by-case basis.
If invoices do not content all of the necessary requirements or if some indications are not correct it is possible to amend these invoices via different ways, depending on the nature of the mistake, for example via cancel­lation and new issuing or amendment with an additional document and respective references to the original invoices.
 
Starting from 1 January 2019, all supplies of goods and services by businesses with a registered office or branch in Italy must be documented by an electronic invoice. Such obligation exists for all B2B, B2C and B2G transactions, with the exception of so-called “microentrepreneurs” and suppliers not resident in Italy that can opt for traditional paper invoices at will. The format, called “FatturaPA”, is a digitally structured data stream with the same information content as a paper invoice, but written in XML language. 
 
To operate via self-billing is possible, however the supplier remains responsible for the issue of the invoice. The self-billing invoice must also be submitted electronically.
 

6. Others

In Italy, companies belonging to a group may opt for a VAT Group Settlement meaning that they are able to offset the VAT credits and debts of each group company. 

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Skevi Licollari

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