Deduction limits in Italy
As a general rule, Italian VAT can only be deducted as long as the expense is fully and entirely connected to the business activity of the taxpayer.
The below items are generally deducted at the following rates:
- Input VAT on meals and beverages is 0% deductible.
- Entertainment expenses are 0% deductible unless they involve the purchase of goods with a value below €25.82.
- Input VAT on fuel, car rental expenses and gas is only deductible at a rate between 20% and 40%. Certain businesses with an activity directly related to this expense can deduct VAT at a higher rate.
- Costs related to aircraft and leisure yachts are not deductible.
- Taxi, train and other transport expenses are 0% deductible.
Deducting VAT prior to the beginning of the economic activity is only allowed under certain conditions. As a general rule, a company may recover VAT incurred prior to a VAT registration once all historic returns and VAT payments have been regularized. All late filing and late payment penalties should also be settled before deducting these amounts. A case by case analysis must be made.