Indirect tax - Italy

Imposta sul Valore Aggiunto (IVA) is the principal indirect tax in Italy.

It is a value added tax on consumption of goods and services, that is levied at each stage of the production and distribution. Liability for VAT rests with the person supplying the taxable goods or services or importing goods into Italy.

However, the supplier is allowed to deduct from its VAT liability on sales made the amount of VAT paid and properly invoiced to it in relation to purchases effected by it, or VAT paid by it at importation. The actual burden of the tax is therefore borne by the final consumer. VAT is chargeable on supplies of goods and services for a consideration made in Italy by a taxpayer acting as such.

The constituent elements of the charging provision are as follows:

• there must be a supply (either of goods or services)
• the supply must be made in Italy rather than elsewhere
• the supply must be a taxable supply (ie chargeable to VAT at the standard or reduced rates)
• the supply must be made by a taxpayer (in Italy, a taxpayer is any person carrying on a business, or an artistic or professional activity registered for VAT purposes)
• the supply must be made in the course or furtherance of a business.

In Italy the following categories of VAT rates are applicable:

• standard rate of 22%
• reduced rate of 10%
• reduced rate of 5%
• reduced rate of 4%
• zero rate.

In addition, some goods and services are exempted from the tax. Businesses that make exempt supplies are unable to recover all of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.

It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it.

Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer.

It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices. It is therefore very important to ensure that the correct rate of duty is applied.

VAT is charged on the value of the importation, including any custom duty.

Any legal or physical person who carries on a business or undertakes an artistic or professional activity independently from an employer, or who sets up a permanent establishment in Italy, must register for VAT, by filing a specific application form with the Italian tax authority. Under certain conditions, simplifications are foreseen for business subjects with a yearly turnover below €85,000.

A penalty may be imposed by Italian tax authority if a business fails to register at the correct time.

As mentioned above any legal or physical person who carries on a business or undertakes an artistic or professional activity independently from an employer, or who sets up a permanent establishment in Italy, must register for VAT, by filing a specific application form with the Italian tax authority.

The VAT registration procedure must be completed before commencing the activity (ie before performing any supply and/ or purchase of goods and/or services).

With reference to distance sales, if an EU seller carries out distance sale transactions in Italy for an overall annual amount below €10,000, it does not have to apply the VAT in Italy but in the origin country, unless it opts for the VAT taxation in Italy.

The distance sale rule does not apply to the supply of new means of transport or to the supply of goods supplied under a supply and installation contract.

Under certain conditions, simplifications are foreseen for non-resident business subjects with a yearly turnover below €85,000.

For electronically supplied/digital services to Italian private consumers local VAT is chargeable at the standard rate. To ensure compliance with this, suppliers (Extra – EU as well as EU) have the choice to either:

• register for VAT in each Member State where their customers reside
• elect to register under the EU VAT OSS (VAT One Shop Stop) simplification scheme in one Member State (where the suppliers are established) to report and pay VAT due on sales of digital services to consumers in the EU.

A European Union (EU) taxpayer, or a taxpayer established or resident in Norway or the United Kingdom, without a permanent establishment in Italy, can register for VAT in the two following alternative ways:

• via the direct identification procedure (as per art. 35-ter of the VAT Act)
• via the appointment of an Italian resident as its VAT representative (as per art. 17, para 3 of the VAT Act).

A non European Union (EU) taxpayers, without a permanent establishment in Italy, can register for VAT via the appointment of an Italian resident as its VAT representative (as per art. 17, para 3 of the VAT Act) only.

A foreign business without a permanent establishment in Italy is required to register only if its Italian supplies are towards persons who are not themselves VAT-registered in Italy or are VAT registered but not established in Italy. Foreign businesses making taxable supplies to Italian resident businesses are not requested to VAT register in Italy because, in such circumstances, the Italian purchaser of the goods or services is obliged to account for the VAT on the supplies received under the ‘reverse charge’ procedure. This is unless the VAT registration is requested for other transactions (ie intra-EU purchases of goods, intra-EU supplies of goods, exports).

All taxpayers are required to file:

• the Yearly VAT return on an annual basis (within April 30 of the following year);
• the Communication of VAT calculations on a quarterly basis within the following deadlines:
  • Q1: by May 31
  • Q2: by September 30
  • Q3: by November 30
  • Q4: by February 28 of the following year.

The annual return permits the final settlement of the taxpayer’s VAT payable or receivable. It consists in disclosing the algebraic sum of all the transactions (both sales and purchases) carried out all through a solar year. It permits to establish the turnover and, therefore, whether to benefit from some simplifications for the following year. Finally it usually serves as the basis for the tax authorities’ assessments.

Moreover, all taxpayers (with some exceptions) are required to determine their VAT position before the tax authorities on either a monthly or a quarterly basis. This is done through preparing on their ledgers a VAT calculation as the difference between VAT on sales and deductible VAT on purchases, and to complying with the regular settlement obligation. Should the taxpayer be in a debt position, they are required to remit to the Treasury the payable VAT.

However, should a VAT credit result from the VAT calculation, the VAT receivable is carried forward and offset with VAT debts in the next periodical VAT calculations or, under certain conditions, asked for refund.

Taxpayers with a limited turnover (below €500,000 if they provide services or €800,000 if they supply goods) can opt for quarterly calculations provided that they increase the VAT amount to be remitted to the Treasury by 1% as interest.

The other taxpayers must determine their VAT obligations through regular computations to be effected on a monthly basis by the 16th day of the following month.

The main administrative penalties can be summarised as follows. Please note that we are considering violations occurred starting from 1 September 2024:

• failure to submit annual return or submission of return more than 90 days after the deadline, when taxes are owed: penalty of 120% of the total tax owed, with a minimum of €250
• failure to submit annual return or submission of return more than 90 days after the due date, when taxes are not owed: penalty between €250 and €2,000
• failure to submit annual return or submission of return more than 90 days after the deadline, but before (i) the expiring of the statute of limitation and (ii) before the starting of tax control, when taxes are owed: penalty of 75% of the total tax owed
• failure to submit annual return within the due date but submission before 90 days after the due date. Penalty between €250 and €2,000. Concerning the tax payment violations (i.e.: failure to pay, late payment or insufficient payment of VAT on account, of VAT resulting from periodic payments or of adjusted VAT resulting from the annual return): penalty of 25% of the unpaid amount or paid late amount. In cases where payments occur within 90 days after the deadline provided for the payments, the penalty is 12,5% of the amount paid with delay.

EC-lists (ECL) reporting

Forms INTRA-2bis and INTRA-2quater, concerning respectively intra-EU purchases of goods and purchases of generic services from entities resident in other EU member States, are now mandatory only for taxable persons required to submit Intrastat forms/EC lists on a monthly basis, whereas the obligation is no longer in place for taxable persons following a quarterly submission (without prejudice to the possibility of a quarterly submission on a voluntary basis).

The obligation to submit purchases Intrastat forms/EC lists must be complied with, only for statistic purposes, by taxable persons required to submit forms on a monthly basis:

• Form INTRA-2 bis: to be submitted by taxable persons who carried out intra-EU purchases of goods for a minimum total amount of €200,000 during at least one of the four preceding quarters;
• Form INTRA-2 quater: to be submitted by taxable persons who purchased generic services by entities in other EU member States for a minimum total quarterly amount of €100,000 during at least one of the four preceding quarters.

Moreover, it is mandatory to submit the forms INTRA-1bis and INTRA-1quater, concerning respectively intra-EU sales of goods and sales of generic services to entities resident in other EU member States.

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules:

• failure to issue an invoice subject to VAT: 70% of the VAT to be charged
• failure to issue an invoice not subject to VAT, when the failure has relevance for income tax purposes: 5% of the amount of the invoice
• failure to issue an invoice not subject to VAT, when the failure has not relevance for income tax purposes: €300
• false declaration: return in which the amount of tax indicated is less than that which is due: penalty of 70% of the increased tax
• form filled in incorrectly according to the administrative regulations, but with no effects on VAT due. Omission of information or incorrect information for the identification data of the taxpayer or his agent; for the calculation of the taxes or for anything else which is necessary regarding the carrying out of checks: penalty from €250 to €2,000.

Criminal penalties are provided in a limited number of cases if the Italian tax authority proves that the behavior of the taxpayer is fraudulent; there may be evasion of VAT liabilities or overstatement of VAT credits by, for example, the violation of accountancy rules, use of counterfeit documents and invoices, the hiding and the destruction of accountancy records.

Yes, it may be possible to reclaim the VAT incurred in certain circumstances.

Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.

The EU cross border refund scheme is available in all EU Member States and enables a business established in an EU country to recover VAT incurred in another Member State.

To be eligible to make a claim, the claimant must be a taxable person established in an EU Member State other than the one from which the claim is to be sought. In addition, the claimant:

• must not be registered, liable, or eligible to be registered in the Member State from which he is claiming the refund
• must have no fixed establishment, seat of economic activity, place of business or other residence there
• during the refund period he must not have supplied any goods or services in the Member State of refund, apart from certain limited exceptions.

The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically to the tax authority from whom the repayment is being sought.

The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT was incurred.

Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports in Italy or purchases of goods and services pertaining to their activity.

The scheme is available to any person carrying on a business established in a third country ie outside the EU, provided that in the period of the claim:

• he was not registered or liable to be registered for VAT in Italy
• he was not established in any EU country
• he made no supplies of goods and services in Italy other than certain specified exceptions
• where he is established in a third country having a comparable system of turnover taxes, unless the Italian tax authority allows otherwise, that country provides reciprocal arrangements for refunds to be made to taxable persons established in Italy. Currently, these countries are Israel, Norway and Switzerland only.

The claim has to be made by 30 September of the year following that in which the VAT was  incurred.

A VAT invoice, pursuant to Article 21, paragraph 2, Presidential Decree 633/1972, contains the following information:

• the issue date
• progressive number which identifies it in a univocal manner
• company’s name or corporate name, name and surname, residence or domicile of the seller or supplier, the tax representative as well as the location of the permanent establishment for non-resident persons
• VAT number of the seller or supplier
• company’s name or corporate name, name and surname, residence or domicile of the seller or supplier, the tax representative as well as the location of the permanent establishment for non-resident persons
• VAT number of the seller or supplier or, in case of taxable persons established in another Member State of the European Union, the VAT identification number attributed by the Member State of establishment; in case the seller or supplier resident or domiciled in the territory of the State is not engaged in the furtherance of the business, trade or professional activities, tax code
• nature, quality and quantity of the goods and services concerned by the transaction
• considerations and other data needed to determine the taxable amount, including the data related to the goods transferred with a discount, premium or allowance under Article 15, first paragraph, no. 2
• considerations related to the other goods transferred with a discount, premium or allowance
• rate, amount of tax and taxable amount with rounding up to the euro cent
• date of the first vehicle matriculation or registration in the public registries and number of kilometers travelled, hours sailed or flown, if it refers to intra-Community supply of new means of transport, pursuant to Article 38, paragraph 4, of Decree-law N° 331 of 30 August 1993, converted, with amendments, into Law N° 427 of 29 October 1993
• annotation that the same is issued on behalf of the seller or supplier, by the buyer or the client or by a third party.

The invoice should be issued also for the other types of transactions and it contains, in place of the amount of the tax, the following notes with the indication of the relevant community or national regulation:

• supplies related to goods in transit or deposited in locations subject to customs surveillance, not subject to tax pursuant to Article 7-bis, paragraph 1, with the annotation ‘not subject to taxation’
• non-taxable transactions under Articles 8, 8-bis, 9 and 38-quarter, with the annotation ‘non-taxable transaction’
• exempt without credit transactions under Article 10, except for those stated under no. 6) bearing the annotation ‘exempt transaction’
• transactions subject to the margin scheme provided for by Decree-law N° 41 of 23 February 1995, converted, with amendments, into Law N° 85 of 22 March 1995, bearing the annotation, depending on the case, ‘margin scheme
  • second-hand goods’, ‘margin scheme – works of art’ or ‘margin scheme – antiques or collectors’ items’
• transactions carried out by travel and tourism agents subject to the regime under Article 74- ter, bearing the annotation margin scheme – travel agencies.

A simplified VAT invoice can be issued where a business makes retail sales and makes a sale of goods or services for an overall amount not exceeding €400. No limit exists for small business having a turnover not higher than €85, 000.

The issuance of electronic invoices is mandatory for transactions between Italian residents (both B2G, B2B and B2C) via the Interchange System (so called Sistema di Interscambio or SdI), managed by the Italian Tax Authorities. In particular, electronic invoices are issued transmitting the same in XML format to SdI, who, on its turn, delivers the same to the customer.