VAT in Italy
Italian VAT rates
Value Added Tax in local language is "Imposta sul valore aggiunto". The Italian VAT rates are as follows:
- Standard rate: 22%
- Reduced rates: 10% and 5%
- Super-reduced rate: 4%
Italy has opted for the reduced and super-reduced VAT rates on a number of items allowed by the VAT Directive (source: European Commission):
Foodstuff4%, 5% and 10%*
Pharmaceutical products10% and 22%
Medical equipment for disabled persons4% and 22%*
Children´s car seats22%
Passenger transport0% and 10%
Books4% and 22%*
Books on other physical means of support4% and 22%*
Periodicals4% and 22%*
Admission to cultural services (theatre, etc)10%
Admission to amusement parks22%
Pay TV / cable22%
Writers / composers0% and 22%
Restaurant and catering services10%
Admission to sporting events10% and 22%
Social services0%, 5% and 22%
Medical and dental care0%
Shoes and leather goods22%
Clothing and household linen22%
*Super-reduced rate of 4% applies on certain foodstuff items, certain medical equipment for disabled persons, books, newspaper and certain periodicals. There are expected changes on the VAT rate applicable on admission to cultural events (currently standard rated).
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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, or even at 100%.
- 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."
Italian statute of limitations
Regarding deduction of input VAT, since 1 January of 2017 taxpayers can claim VAT up to the 30 April of the following the year in which VAT became originally deductible. This date matches the due date for the Annual VAT return, hence VAT on acquisitions and imports will be deductible at the latest with the annual VAT return in the year in which the right of deduction arises.
Nevertheless, the statute of limitations covers a much longer period regarding output VAT. In this case, tax authorities can request the payment of VAT until the 31 December of the fourth year following the period in which VAT became due. The five years statute of limitation may be extended, for example, if the annual VAT return was not submitted, or if the information requested by the tax authorities is not provided in time.
Italian tax point rules
The tax point is the time when VAT becomes due. The following rules apply when determining the applicable tax point in Italy:
- General rule: Tax point arises when the goods are placed at the disposal of the customer. In case of transport of goods, tax point arises when the transport begins. For services, the tax point occurs when the payment is made. For immoveable property, the tax point arises when the contract to transfer the title of property is signed.
- Prepayments or advanced payments create a tax point. In these cases, VAT is due when the prepayment is made. Similarly, the issuance of an invoice also creates a tax point.
- Intra-Community acquisitions: Tax point occurs at the beginning of the transport. In case the transfer of title occurs after the transport is made, the tax point arises when the title of the goods is passed to the customer.
- Intra-Community supplies: Tax point occurs at the beginning of the transport or, if earlier, when an invoice is issued.
- Import: Tax point occurs when the goods are imported according to the relevant import documents or when the goods leave a duty suspension regime.
VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.