In Italy, VAT (Value Added Tax) is levied on the supply of almost all types of goods and services, as well as importation from outside the European Union. The standard VAT rate in Italy is 22%. In some cases, the VAT has a reduced rate of 4% or 10% that may apply on basic products, while exports are zero-rated.
Companies are required to register for VAT immediately after incorporation. VAT returns need to be submitted to the Italian Inland Revenues (Agenzia delle Entrate) on a quarterly basis if the company’s turnover is less than € 50,000.00 or monthly basis if the turnover exceed the latter threshold.
Pursuant to EU directives and regulations, companies that trade or are planning to trade within the European Union are required to submit to the Italian Inland Revenue (Agenzia delle Entrate) a request to register their VAT number in the “VIES Register” as a condition to start trading.
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.
Registration for VAT purposes
If 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.
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 warehouse special 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.
Non-resident companies doing business directly in Italy, without a permanent establishment within the Italian territory (branch or subsidiary) can appoint an Italian VAT representative.
The Italian VAT representative (can be an individual or a company resident in Italy):
- is in charge for VAT payments in Italy;
- issues the invoices to the clients according to the Italian requirements;
- is in charge of VAT compliance;
- is in charge for deductions of VAT;
- is in charge for VAT refunds;
- is jointly liable with the represented company for VAT obligations in Italy.
Procedure to appoint a VAT Representative in Italy
- Filing with the Italian Revenue Agency (Agenzia delle Entrate) a specific application form;
- The application forms must be signed by the individual or by the legal representative of the foreign company and must identify the place where the foreign company is domiciled for bookkeeping purposes;
- Upon filing of the application form, the Italian Revenue Agency grants a VAT identification number to the VAT Representative;
- The VAT Representative will open the VAT books (i.e. purchases book and sales book);
- Only after all the above accomplishments have been carried out, the foreign company can start Italian VAT relevant transactions.
The VAT Representative in Italy of a foreign company must be appointed by means of a special proxy, to be prepared in three copies, on the basis of which the Italian proxy holder is empowered to represent the foreign company before Italian VAT Authorities. This proxy should be released on foreign company-headed paper signed by its legal representative and authenticated by a Public Notary in the foreign Country and Apostilled or legalized at the local Italian Embassy.
To avoid negative consequences from the joint liability on the VAT Representative, the foreign company is required to give the latter a special guarantee.
The signed forms required by the Italian Revenue Agency as mentioned above.
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