VAT

Vat--Value added tax--or Iva--Imposta sul Valore Aggiunto, in Italian language, is a consumption tax that applies to the supply of goods and services carried out in Italy by entrepreneurs, professionals, or artists and on importations carried out by anyone. In some cases, also Intra-Community acquisitions are subject to Vat.

 

VAT rates

Whilst the EU sets the broad parameters for VAT rates, including setting the minimum standard VAT rate at 15%, Italy still sets most of the rates.

The current rates are:

Rate	Type	Which goods or services
22%	Standard	All other taxable goods and services
10%	Reduced	Some foodstuffs; water supplies; some pharmaceutical products; domestic passenger transport; admission to cultural events; some social housing; renovation and repair of private dwellings; some construction work on new buildings; some supplies of new buildings (non-luxurious); some agricultural supplies; hotel accommodation; restaurants; admission to certain sports events; energy products (excluding district heating); firewood; collection of domestic waste; some waste water treatment; alcoholic beverages in bars and cafes; take away food; cut flowers and plants for decorative use and food production
5%	Reduced	Some foodstuffs; some social services; certain passenger transport
4%	Reduced	Some food products; certain medical equipment for disabled persons; certain books; newspapers and some periodicals; e-books with an international standard book number (ISBN) ; online journals newspapers; TV licence; some social housing; some agricultural supplies; certain social services; motor vehicles for the disabled; construction work on new buildings (for first housing); supplies of new buildings (for first housing)
0%	Zero	Intra-community and international transport

 

 

 

Calculating turnover subject to VAT

Value added tax is charged on supplies of goods or services carried out within the territory of Italy in the exercise of a business, trade or profession, and on imports carried out by any person. In general, businesses must charge VAT to their customers and pay it to the tax authorities. At the same time they can deduct from the VAT due the VAT they paid their suppliers on their purchases. VAT due is paid on a monthly or quarterly basis.

 

The VAT turnover of a business, art or profession is defined as ‘turnover’ and consists of the sum of the taxable amounts of the supplies of goods and services that the entity makes, records or is required to record in a calendar year. Turnover comprises mainly transactions subject to VAT, non-taxable transactions and exempt transactions.

 

In general, VAT is due only on taxable transactions and is applied at different proportional rates depending on the type of transaction carried out.

 

VAT registration

What are the Italian VAT registration thresholds?

As with most EU countries, there is no Italian VAT registration threshold for non-resident traders.  A VAT registration, if required, is due prior to the provision of any supplies.  It is important to follow this requirement as the recovery of back-dated input VAT is difficult in Italy.  If the supplies are the sale of goods over the internet, then there is a distance sales VAT registration threshold of €35,000 per annum.

 

VAT registration is mandatory in Italy for persons engaging in the following activities:

1.business or agricultural activity

2.or an artistic or professional activity on a regular basis.

Registration involves the acquisition of a VAT number; this is an 11-digit code that must be displayed on every invoice or other commercial document issued or received in the course of business.

 

Non-resident persons

Non-resident persons intending to start a business, art or profession must discharge their VAT obligations in Italy if they also perform activities for final consumers or non-commercial entities that are not VAT-registered. At the same time, they will be able to exercise the rights arising from the tax, such as the right to deduct VAT on purchases and to claim refunds.

 

Foreign operators are not required to register for VAT in Italy if their customers in Italy are exclusively other VAT entities established in Italy. For example, registration is not necessary if an entity not established in Italy sells goods to other traders only and not to final consumers. In this case, all VAT obligations will be borne by the Italian operator.

 

How to register for VAT

Non-resident entities that need to register for VAT in Italy can choose one of the following options:

1.appoint a tax representative established in Italy and with Italian VAT number

2.register directly for VAT in Italy, i.e. obtain an Italian VAT number.

This second option is only available to entities residing in other EU countries or in a third country with which reciprocal agreements are in place.

In either case, the foreign operator remains a non-resident entity for VAT purposes.

 

Lastly, any non-resident entity may set up a fixed establishment in Italy. The fixed establishment must register for VAT as a resident entity.

 

VAT return

Each year, taxpayers who carry out a business, art or profession must submit an annual VAT return covering all the transactions carried out in the previous year.

The annual return determines the taxpayer’s position in terms of the difference between input VAT and output VAT for the entire calendar year, and any VAT refunds due to the taxpayer. Any periodic payments are also taken into account, as well as any tax credit resulting from the previous year’s annual return and not claimed back or used to offset other taxes.

If the annual VAT return shows that the taxpayer owes VAT, the amount due must be paid by the legal deadline.

 

If the taxpayer is owed a refund, they can claim it either through:

1.offsetting against taxes and other contributions due, if the requirements are met

2.offsetting against the periodic VAT payments of the following year, provided that the amount claimed is entered in the appropriate line of the annual VAT return

3.through a refund if legal requirements are met.

 

Who must submit the annual VAT return

The annual VAT return must be submitted by:

1.holders of VAT numbers, even if they did not carry out taxable transactions in the tax period;

2.non-resident taxpayers that registered for VAT directly or appointed a tax representative;

3.fixed establishments of non-resident entities, being taxpayers subject to VAT.

 

Entities not required to submit a VAT return

Certain categories of taxpayers, despite holding a VAT number, are exempted from submitting the annual VAT return. They include, for example, taxpayers covered by special schemes, such as those that opted for the flat-rate or ‘minimi’ (small taxpayer) scheme, etc.

 

Annual VAT return forms

The Annual VAT Return Form for 2023 must be used to file the annual VAT return for tax year 2022.

Alternatively, certain categories of taxpayers with certain characteristics can use the Base VAT Form, which must be sent to the Revenue Agency with the same procedure and by the same deadline as the annual VAT return.

 

VAT Returns deadline

Once registered for VAT, businesses must declare any taxable transactions and pay over any VAT due. From the start of 2017, Italy underwent a wholesale reform of its reporting regime.  Previously, only monthly payments were required, with an annual VAT return due the following year were required.  From 2017, quarterly VAT returns and invoice listings are required, too. Annual returns are still required.

 

The deadline for the Italian monthly report is the 16th of the following month,the deadline for quarterly filing in Italy is the sixteenth day of the second month.

. For example, Q1 VAT return deadline is 16 May.

 

 

Annual VAT return deadline

An annual VAT return is still required, and the reporting deadline is the 30 April of the year following the reporting deadline.

 

Payments deadline

Tax payers with an annual turnover above €700,000 must remit any VAT due each month.  Businesses below this amount can opt to pay quarterly, but must pay a 1% non-refundable surcharge.

 

Thresholds for using monthly or quarterly VAT returns

Quarterly VAT returns can be filed by those taxpayers whose turnover in the previous calendar did not exceed:

1.EUR 400 000 for self-employed persons and service businesses

2.EUR 700 000 for other businesses.

 

In case of error

To correct errors or omissions in the annual VAT return, taxpayers can submit an additional return, using the same form.

 

VAT exemptions

In general, the transactions that do not meet all of the following three requirements are excluded from the application of VAT:

1.requirement concerning the entity: the entity performing the transaction must habitually carry out a business or agricultural activity, art or profession and the transaction relates to the economic activity

2.requirement concerning the transaction: the transaction must consist of a supply of goods or services

3.territorial requirement: the transaction must be relevant for tax purposes in Italy.

If one or more of the above requirements is not met, as a rule the transaction is excluded from VAT, therefore the operator will not charge VAT to the customer and hence will not pay VAT to the tax authorities.

 

Italian VAT Compliance

There are strict rules for companies who have received an Italian VAT registrations.  These mirror the EU’s VAT Directive, and include:

1.Basic information required for Italian VAT invoices.

2.Process and approvals for the use of e-invoices, including compliance and control procedures with the signature and authenticity of an invoices.

3.Preparation of bookkeeping records, known as VAT Registers in Italy.  Accounting data must be retained for

4.Correct invoicing of customers for goods or services in accordance with the Italian time of supply VAT rules.

5.Treatment for credit notes and other corrections.

6.Use of approved foreign currency rates.

 

Italian VAT invoice requirements

Date of issuance and storage of Italian invoices

Italian VAT invoices must be issued on the date of the supply for goods, and up to 15 days following the month end of any supply.  Invoices must be kept until the end of the fourth year of the year following the supply.  Italy, like all EU states, allows for the use of electronic invoices under certain conditions.

 

Italian invoice requirements

Invoices must contain at least the following basic information:

1.Issue date

2.A unique invoice number

3.VAT number of the supplier

4.Fiscal representative details of the supplier if appropriate

5.Full address of the supplier and customer

6.Full description of the goods or services provided

7.Details of quantities of goods, if applicable

8.A date of the supply if different from the invoice date

9.The net, taxable value of the supply

10.The VAT rate(s) applied, and the amount of VAT broken out by rate

11.A reference to the applicable law where VAT is not charged

12.The gross, total amount of the invoice

A simplified invoice may be provided instead for transactions below €100.

 

Italian VAT reverse charge

The reverse charge mechanism is designed to reduce the frequency with which companies trading across Europe must VAT register.  It works across the EU.  Italy uses the reverse charge system less than most other EU states.

It allows any transactions to be recorded through the Italian VAT return of the customer, so alleviating the need for the foreign supplier to VAT register in Italy.

 

When is the Italian VAT reverse charge used?

The reverse charge mechanism is applied in the following circumstances:

1.Non-resident supplier with IT VAT number and customer is resident with IT VAT number

2.The supply of services to an Italian VAT registered business (2010 VAT package).

3.Other various minor situations.

 

What is the tax point for the Italian reverse charge?

The tax point (when the VAT is due) for the reverse charge is the end of the month following the month of supply.

However, if the vendor raised an invoice prior to the supply, then it is that date which should be used.