Italy Extends VAT Split Payments Regime Until 2029

Background

The regime was first extended in 2017, when the European Commission authorised Italy to widen the measure to state-owned companies, companies listed on the FTSE MIB index, and companies directly controlled by local public bodies.

Since implementation, the mechanism has significantly reduced VAT fraud in transactions with public entities, although fraud has remained active in certain sectors outside the original scope. To reflect this, the Italian authorities have periodically updated the lists of public entities and companies subject to split payment.

That has driven successive extensions of the regime, in 2020, in 2023, and now until 2029.

What's Changed?

The Council of the European Union has adopted Implementing Decision (EU) 2026/1728, extending Italy's authorisation to apply the VAT split payment mechanism until 30 June 2029.

The extension takes effect from 1 July 2026, ensuring continuity. The previous authorisation, granted under Implementing Decision (EU) 2023/1552, was due to expire on 30 June 2026.

Italy had requested an extension until 31 December 2029, but the Council granted a shorter period.

What Hasn't Changed?

Scope remains unchanged. The measure continues to cover:

• Supplies of goods and services to public authorities
• Supplies to companies controlled by central and local public authorities

Companies listed on the stock exchange remain excluded from the mechanism, as they have been since 1 July 2025.

As part of this extension, Italy must report to the Commission by 30 September 2027 on the VAT refund situation for taxable persons subject to the measure, and on the effectiveness of the anti-fraud measures in place.

How Does The Split Payment Mechanism Work?

Under split payment, VAT is not collected by the supplier and then remitted to the tax authorities. Instead, the customer pays the VAT element directly into a blocked account held by the tax administration, bypassing the usual output and input VAT flow.

The legal basis for the derogation is Articles 206 and 226 of the EU VAT Directive, which allow Member States to depart from the general VAT payment and invoicing rules in sectors with significant evidence of VAT fraud.

Italy is not the only Member State using this tool. Poland operates a similar split payment mechanism, currently authorised until February 2028, targeting sectors particularly exposed to fraud.