VAT Rates in Italy

Italian VAT rates

See here a recent change on certain VAT rates.

Italy has opted for the reduced and super-reduced VAT rates on a number of items allowed by the VAT Directive (source: European Commission):

*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."

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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 fifth year following the period in which the annual VAT return was 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.

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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.

Italian use and enjoyment rules

Member states can introduce another exception to the B2B rule according to the place where the services have been used and enjoyed. This exception may be introduced to avoid double taxation (positive use and enjoyment rules) or avoid non-taxation (negative use and enjoyment rules) or both.

Italy has introduced the use and enjoyment rule bringing the place of supply to Italy on services in the following scenarios:

• short-term leases of means of transport, including financial leases, or similar services supplied to taxable or non-taxable persons when they are put at the customer’s disposal or used in Italy – B2B and B2C; and,
• long-term leases of means of transport, including financial leases, or other similar services supplied to non-taxable persons - B2C.

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Bad debt relief in Italy

Bad debt is possible in Italy, however, compared to other EU countries, there are several requirements to be met.

In principle, it is possible to recover the VAT on bad debt if a credit note has been issued, but additional conditions apply:

• If the adjustment results from the agreement of the parties, the credit note must be issued no later than one year from the transaction date.
• In case of bankruptcy, the credit note must be issued no later than the deadline to submit the annual VAT return of the year where the deduction right arises.
• The previous terms for issuing the credit note may be extended under certain conditions.

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