Value added tax (IVA, Imposta sul Valore Aggiunto)

VAT is applied on the “value added” a to goods and services in the sense that, by means of a system of reimbursement of charges and deductions, tax is payable on the increase in value of goods or services in different phases of production and trade, until it reaches the final consumer who bears the full cost of the tax.

Tax assessment basis and rates There are three conditions that must be met for a transaction to be subject to VAT:

  • objective condition: there must be a transfer of goods or provision of services;
  • subjective condition: the operations must be carried out in running business or in practicing arts and professions;
  • territorial condition: the operations must be carried out within Italy.

For VAT purposes, “Italy” is considered to be the territory of the Italian Republic, excluding the Communes of Livigno, Campione di Italia and the waters of Lake of Lugano on Italian territory.

VAT substantially applies to the following operations:

  • transfer of goods made in Italy in running business or in practicing arts and professions;
  • provision of services in Italy in running business or in practicing arts and professions;
  • intra-EU purchases of goods from another EU member state in running businesses or in arts and professions;
  • purchases made by foreign countries of some services carried out in Italy in running businesses or in practicing arts and professions;
  • imports of goods from non-EU countries, made by anyone.

However, VAT does not apply to all the aforesaid operations conducted in the Italian territory. Some operations are, in fact, tax exempt, while others fall outside the scope of VAT.

The former are operations that respect the three conditions but are excluded by express provision of law, such as the sale of postage stamps and stamp duties, financial expenses, medical services, insurance operations, etc. The latter, while physically carried out in Italy, are considered by law as if they were not carried out in Italy and therefore not subject to VAT.

Rates applicable The ordinary rate is 22%.In addition to the ordinary rate, there are two reduced rates, 10% and 4%, and the “zero” rate which applies to certain so-called “non taxable” operations (exports of goods, provision of some international services or services relating to international trade, transfers of goods to another EU Member State, provision of some services connected to transfers of goods to another EU Member State).Registration for VAT purposesIf a person (individual person, partnership, company with share capital or institution) intends to carry out an operation relevant for VAT purposes in running a business or in an art or profession, he/she/it is required to apply for an Italian VAT number before implementing the operation.VAT is applied through the reverse charge mechanism by the recipient of the goods or services. If the foreign operator has a permanent establishment in Italy, he/she/it should apply for an Italian VAT number and comply to all legally required provisions, as if he/she/it were a national person.If the foreign operator does not have a permanent establishment in Italy, he/she/it may also:

  • appoint an Italian VAT tax representative, i.e. an individual person or institution resident in Italy, responsible for fulfilling the obligations and exercising the rights laid down by the regulations on VAT; or
  • identify itself directly for VAT purposes in Italy, directly fulfilling the obligations and exercising the rights laid down by Italian regulations, if resident in one of the

EU countries or in one of the non-EU countries with which Italy has reciprocal assistance agreements on indirect taxation.

The appointment of the tax representative or direct identification should follow a special procedure and should be notified to the other contracting party before making the first relevant operation for the purposes of Italian VAT. In the event goods or services are supplied directly from abroad, the transaction shall be taxable in Italy through the reverse charge mechanism by the recipient (purchaser) if it is a taxable person in Italy for VAT purposes (so called B2B transactions).

However, notwithstanding the non-resident has been identified for VAT purposes, the Italian operator shall comply with all the obligations through the above mentioned reverse charge mechanism.

This scheme is applicable even if a foreign operator has a permanent establishment in Italy, when the goods or services have been provided by the non-resident entity.

Where goods or services are supplied directly from abroad to a final consumer (so called B2C transactions) applying for a VAT identification through their Italian VAT number (VAT Rep, Permanent establishment or direct identification) will be necessary.

The VAT position of a person remains valid until the termination of all activities.

Taxpayers’ obligations

Italian regulations lay down very detailed rules on the following:

  • procedure and timing for the issue of invoices;
  • content of invoices;
  • procedure for the registration of invoices issued and received;
  • procedure for the issue of credit and debit notes;
  • calculation of VAT payable;
  • periods for settlements and payments of VAT;
  • procedure for the completion and submission of VAT returns;
  • procedure for the completion and submission of VAT communication of transactions with business entities located in countries with a privileged tax systems (Tax Haven or Black List Countries).
Other VAT systems Customs warehouses and VAT warehouseSpecial rules establish the conditions for create and use:

  • “customs warehouses” where products are held without payment of custom duties and VAT until they are removed from the warehouse;
  • “VAT warehouses” where products are held without payment of VAT only.

Special VAT systems

There are several special VAT systems that apply to anyone operating in particular sectors (e.g. agriculture, publishing, travelling, tourism, etc.).

Group VAT settlement

Groups of national companies are able to make group VAT payments, offsetting the VAT debits and credits of the various companies. In certain circumstances an EU holding is also eligible for the above indicated procedure with reference to its Italian subsidiaries.


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