Value-added tax (VAT)
Italian VAT (Imposta sul Valore Aggiunto) applies to the supply of goods and services carried out in Italy by entrepreneurs, professionals, or artists and on importations carried out by anyone. Intra-Community acquisitions are also subject to VAT under certain situations.
The Italian standard VAT rate is 22%. Reduced rates are provided for specifically listed supplies of goods and services, such as:
- 4% for listed food, drinks, and agricultural products, and e-books/e-periodicals that meet certain requirements.
- 5% for certain health services, for the sale of food herbs, and for certain transport services on seas, lakes, and rivers.
- 10% for electric power supplies for listed uses and listed drugs.
Intra-Community supplies and exports are exempt from VAT under certain conditions.
Specific supplies of goods and services expressly listed in the law are exempt from VAT (e.g. hospital and medical care, education, insurance services, specific financial services, supply, leasing of particular immovable property). Other specifically listed transactions are also out of the VAT application scope (e.g. transfer of money, transfer of going concern).
Input VAT on purchases of goods and services related to business activity generally is allowed for recovery. Special limitations apply in relation to specific items (e.g. cars, entertainment expenses) and to companies carrying out both taxable transactions and transactions exempt from VAT with no right to deduct.
The filing deadline for the annual VAT return is 30 April of the following year.
2019 new VAT fulfilments
Starting from 1 January 2019, taxable persons resident or established in Italy are required to submit a cross-border monthly communication to the Italian tax authorities with the data related to the supply of goods and services provided/received to/from parties not VAT established or VAT registered in Italy. This obligation does not apply for non-established taxable persons, even if registered in Italy through direct VAT identification or a tax representative and for subjects eligible for special tax treatments ('regime di vantaggio' or 'regime forfettario').
2019 new electronic invoicing obligations
Starting from 1 January 2019, a mandatory electronic invoicing obligation is in place for the supplies of goods or services carried out between persons that are resident or established in Italy. This obligation does not apply for non-established taxable persons, even if registered in Italy through direct VAT identification or a tax representative.
A mandatory electronic invoicing obligation has also been introduced for supplies of goods between taxable persons established in Italy and taxable persons established in the Republic of San Marino. However, this obligation is not yet in force, waiting for technical rules and instruction from the Italian tax authorities.
Electronic invoices should be:
- converted into .XML format, in accordance with technical specifications referred to format currently used to send electronic invoices towards the public administration
- signed with a qualified or digital signature, and
- sent to the counterpart through the SDI (Sistema di Interscambio).
Electronic invoicing is also mandatory for business-to-consumer (B2C) transactions, where the supplier has the obligation to issue an invoice, with certain different specifications.
For the transmission of electronic invoices, the taxpayers, upon agreements between the parties, can rely on qualified intermediaries. However, the supplier will still be responsible for the issuance of the invoice in front of the tax authorities.
2019 new electronic transmission of the considerations
Taxpayers that use the so-called 'register of considerations' have the new obligation to memorise and transmit the data relating to daily considerations to the Italian tax authorities.
The obligation to memorise and transmit to the Italian tax authorities the data related to the daily considerations will come into force:
- From 1 July 2019 for subjects with a turnover exceeding EUR 400,000.
- From 1 January 2020 for the other taxpayers.
Specific exemptions have been temporarily provided to certain taxpayers with regards to the activity performed (e.g. banks, insurance companies, and certain kinds of taxpayers who carry out retail trade’s activities).
Reduced penalties for the first semester of mandatory e-invoicing regime
For taxpayers paying VAT due on a monthly basis, penalties (from 90% to 180% of VAT) are reduced to 80% until 30 September 2019 if the electronic invoice is issued within the VAT settlement of the following period.
Deadline for issuance and registration of invoices from 1 July 2019
From 1 July 2019, the invoice may be issued after 10 days from the tax point determined for VAT purposes.
In this respect, considering the fact that, for each invoice correctly transmitted on the Exchange System, the latter unequivocally attests to the effective transmission date (for all parties involved), the date provided in field 22.214.171.124 <Date> of the .XML file is the date when the transaction was carried out (it is not necessary to indicate in the .XML e-invoice the transmission date, even if the e-invoice is transmitted to the Exchange System after the taxable event).
However for paper invoices or 'traditional' electronic invoices (i.e. those not transmitted on the Exchange System) sent within 12 days from the taxable event must contain both dates (i.e. the date of the transaction and the date when the invoice is sent to the customer).
In addition, the taxpayer must register, as a general rule, the invoices issued within the 15th day of the month following the one in which the transaction was carried out and with reference to the month of the tax point.
Abolishment of protocol on purchase invoices
The so-called 'VAT protocol number' (progressive numbering of purchase invoices and customs bills) is abolished considering that the SDI already assigns to each invoice a unique identification code.
The attribution/association of the VAT protocol on the invoice or customs bill, even if no more compulsory, may still be useful to ensure a univocal correlation between the invoice and the VAT register.
Note that the progressive numbering obligation has still to be quoted in the VAT purchase ledger pursuant to article 25 of Italian VAT law.
In order to contend with tax evasion on e-commerce and reduce the VAT gap, a new specific compliance obligation has been put in place for taxable persons who facilitate, through the use of an electronic interface such as a virtual market, a platform, a portal, or similar means (i.e. marketplaces), distance sales of imported goods or distance sales of goods within the European Union (EU).
By the end of the month following each quarter, the above taxable persons are required to transmit certain information regarding the supplies carried out by each supplier via the above marketplaces. Such a communication should regard data relating to the period from 1 May 2019 for years 2019 and up to 31 December 2020 (a confirmation is waited in this respect).
The above taxable persons are responsible for VAT due for distance sales supplies carried out via the marketplaces for which they have not transmitted, or have incompletely transmitted specific data mentioned by the law, unless they can prove that VAT was paid by the supplier.
The above communication is not yet in force (a specific act of the Director of the Italian tax authorities providing procedures and terms of the new compliance obligation will be issued; Italian tax authorities’ guidance regarding the period the communication will be related are awaited).
In addition, starting from 1 January 2021, as a consequence of implementing in Italy of provision of article 14a of the Directive 2006/112/EC, if a taxable person facilitates, through the use of an electronic interface such as a virtual market, a platform, a portal, or similar means, distance sales of mobile phones, gaming consoles, tablet PCs, and laptops:
- imported from third territories or third countries whose intrinsic value does not exceed EUR 150, and/or
- carried out within the European Union by a taxable person not established in the European Union towards a person who is not a taxable person,
the taxable person who facilitates the supply shall be deemed to have received and supplied those goods oneself.
Specific data regarding the above-mentioned distance sales of mobile phones, gaming consoles, tablet PCs, and laptops, carried out between 13 February 2019 and 1 May 2019, will have to be submitted to the Italian tax authorities by the taxable persons who are deemed to carry out such transactions (a specific act of the Director of the Italian tax authorities providing procedures and terms of the new compliance obligation will be issued; Italian tax authorities’ guidance regarding the period the communication will be related are awaited).
Reduction of timeline in order to deduct input VAT
A reduction of the time frame for the exercise of the right to deduct VAT has been introduced from 2017.
The right to deduct input VAT may be exercised at the latest with the VAT return related to the year in which the right arises and under the conditions existing at the time of such a right has arisen.
The tax authorities have provided important guidance regarding the above. Inter alia, the time from which the deadline for VAT deduction begins to run is set when the following conditions jointly happen:
- the tax point occurred, and
- a valid invoice is received by the taxpayer.
In practice, a taxpayer that purchased and paid for a service in December 2017 and receives the invoice (dated December 2017) in January 2018 can exercise the right of deduction only from the VAT settlement related to January 2018 and by 30 April 2019 (i.e. deadline for submission of the relevant VAT return). However, VAT deduction must be exercised under the conditions existing at the time of the tax point (i.e. 2017).
Conversely, in case the invoice is received in December 2017, it will be possible to register it by 30 April 2018, but it will be necessary to use a special sectional of the VAT purchase ledger related to 2017; as such, the purchase will be included in the annual VAT return of the same fiscal year.
Previously, the right to deduct could be exercised, at the latest, with the VAT return related to the second year following the one in which the right to deduct had arisen.
Starting from 23 October 2018, the right to deduct input VAT can be anticipated at the deadline of the VAT settlement in relation to the purchase invoices received and registered within the 15th of the month following the one in which the transaction is carried out.
By way of example, input VAT deduction on a purchase invoice whose tax point occurs on 31 January 2019 can be exercised with the January VAT settlement provided that the invoice is received and registered by 15 February 2019.
This possibility is not provided (as already introduced from 2017) for invoices received related to transactions carried out in the previous year. In this case, VAT must be deducted in the year in which the invoice is received.
European VAT group
From 1 January 2019, the European VAT group rules are applicable, provided the option for was elected by 15 November 2018 (for following years, the deadline is September 30 for VAT groups effective from the following year; in the case the option is elected from 1 October to 31 December, the VAT group is effective from the second following year).
In the main, in the case of election of the VAT group:
- transactions between taxable persons participating in the VAT group are considered as not relevant for VAT purposes (apart from certain exemptions), and
- the VAT group operates as a single VATable person towards those not participating in the group itself.
There are certain conditions to be met in order to be entitled for the election.
Starting from 23 October 2018, European VAT group rules also apply to VATable persons established in Italy who participate in a Cooperative Banking Group (Gruppo Bancario Cooperativo). In this case, the group has effect from 1 January 2019 if the option was elected by 31 December 2018 or from 1 July 2019 if the option is elected by 30 April 2019.
The current VAT group settlement regime, which consists of settlement of VAT debits and credits among taxable persons meeting certain requirements in terms of chain of controls, will remain in place.
Postponement of the increase in the VAT rates
The VAT rates are increased failing the achievement of the budget targets. In particular:
The 10% VAT rate will be increased by 3% points from 1 January 2020 (i.e. from 10% to 13%).
The 22% VAT rate will be increased:
- by 3.2% points from 1 January 2020 (i.e. from 22% to 25.2%), and
- by an additional 1.3% points (i.e. 26.5%) with effect from 1 January 2021.
In addition to the new cross-border monthly communication mentioned above, VATable persons have to submit to the tax authorities, on a quarterly basis, the communications of the periodic VAT balances.
The communications of periodic VAT balances require one to submit electronically to the tax authorities, on a quarterly basis, the summary of VAT balances accounting data (also in case the entity results in a credit position). The deadlines for each quarter are 31 May, 16 September, 30 November, and the last day of February of the following year (in case the deadline is Saturday/Sunday/bank holiday, it is postponed to the first working day that follows).
The communication of periodic VAT balances of the fourth quarter where the relevant data are, alternatively, included in the annual VAT return. In this case, the annual VAT return must be submitted by the end of February of the following year (e.g. the communication of the fourth quarter of 2019 can be avoided provided the relevant data are included in the 2019 VAT return to be submitted by the end of February 2020; the standard deadline of the annual VAT return would be April 2020).
Service supply rules
Generic services supplied by a taxable person to another taxable person (business-to-business or B2B) are in the scope of the Italian VAT if the services are supplied to Italian taxable persons or to PEs of an Italian non-resident entity.
The specific rules are as follows:
- For services related to immovable property, reference must be made to the place in which the immovable property is located.
- For the transportation of passengers, the place in which the transportation takes place must be identified, including the proportion of the distance covered.
- For catering and restaurant services, the place in which the activity will be physically carried out must be identified.
- For short-term hiring, leasing, and similar means of obtaining transport services, the place in which the vehicle is used must be identified (use and enjoyment rule has been implemented on these services).
The general rule for services supplied by a taxable person to a non-taxable person (B2C) identifies the place of taxation with the country of residence of the supplier.
Several rules, in addition to the B2B general rules, exist for the following:
- Brokerage services.
- Goods transport services.
- Services related to movable goods and ancillary activities related to transports.
- Long-term hiring/leasing of means of transport services.
- Electronic services supplied by extra-European Union suppliers.
- Telecommunications and television/radio broadcast services.
In addition, special rules are provided for certain services rendered to final customers established outside the European Union.
In relation to the VAT treatment of cultural, artistic, sporting, scientific, educational, recreational, and similar services, VAT is due in the country where the activities were physically carried out for B2C activities and VAT is due in the country of the recipient for B2B activities other than admission. For B2B services in respect of admission, the place of supply is where the events take place.
Time of supply for certain services
Time of supply is the time of completion in case of:
- supply of services falling under the general rule (i.e. generic supply of services) rendered by EU and non-EU taxable persons to taxable persons established in Italy, and
- supply of services falling under the general rule rendered by taxable persons established in Italy to EU and non-EU taxable persons.
In case of periodic or continuous supply of services, the time of supply is the date of maturity of the consideration.
Moreover, the above supplies of services, if performed/received by taxable persons established in Italy continuously over a period longer than one year and if no payments are carried out, even partially, in the same period, shall be considered carried out at the end of each calendar year up to completion of the same supplies.
According to the reverse-charge mechanism, the obligations related to supply of goods and provision of services carried out in Italy by non-resident taxable persons towards taxable persons established in Italy are fulfilled by the latter. The recipient of goods and/or services has to integrate the invoice received by the EU supplier or has to issue a self-invoice in case of a non-EU supplier and record it in the VAT sales register and VAT purchase register within a defined timeline.
Reverse-charge mechanism also applies to certain domestic supplies between Italian taxable persons (e.g. cleaning, demolition, equipment installation, and completion services related to the buildings).
VAT credit offset with other taxes
To offset a VAT credit against other taxes for an amount higher than EUR 5,000, it is necessary to wait until the 16th day of the month following the filing of the yearly VAT return on which the credit is shown.
Furthermore, in order to avoid abuse, taxpayers intending to offset a VAT credit for an amount higher than EUR 5,000 are required to ask their tax advisors or auditors to affix their signature to the VAT return, which is known as the ‘conformity mark’ (i.e. visto di conformità).
Specific deeds and contracts must be filed with the local registration tax office either upon signature or if specific circumstances occur, and the relevant tax must be paid.
Depending on the nature of the contract and on the assets that are the object of the contract, as well as on the form of the contract, registration tax is levied as a fixed amount or as a percentage of the value of the goods and/or rights that are the object of the contract. As a general rule, no proportional registration tax is due in the case of transactions subject to VAT.
VAT and registration tax on lease of immovable properties
Leases of residential and commercial buildings, or portions thereof, generally are exempt from VAT with no right to deduction and subject to the registration tax at a 2% or 1% rate.
Different VAT rates, VAT treatment, and registration tax treatment apply depending on the type of buildings the lease refers to (e.g. residential, commercial buildings) and the supplier (e.g. individual, constructions companies, taxable persons other than construction companies).
Specific rules apply in case of financial leases of residential and commercial buildings from a registration tax perspective.
At the moment of the importation of goods into the EU territory, customs duties are applied. The amount of customs duties to pay depends on the value and nature of the goods imported. In particular, for each kind of good, the Common Customs Tariff provides a tax rate to be applied to the value or number of the goods imported.
The correct classification of the goods is one of the most important issues to consider when an economic operator introduces goods in Italy. A wrong classification can give rise to the application of higher customs duties, and the operator could face a tax burden not due, or to the application of lower customs duties, and this situation could lead to a tax assessment by the Italian Customs Authority.
The value of the goods is represented by the transaction value, hence, the price actually paid or payable for the goods when sold for exportation to the customs territory of the EU, provided that:
- there are no restrictions as to the disposal or use of the goods by the buyer
- the sale or price is not subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued
- part of the profits of any subsequent resale, disposal, or use of the goods by the buyer will not be accrued, directly or indirectly, to the seller, and
- the buyer and seller are not related, or, where the buyer and seller are related, that the transaction value is acceptable for customs purposes.
In determining whether the transaction value is acceptable, the fact that the buyer and the seller are related is not, in itself, sufficient for considering the transaction value as not acceptable. Where necessary, the circumstances surrounding the sale are examined, and the transaction value is accepted if the relationship did not influence the price.
The price actually paid or payable is the total transaction amount paid for the imported goods and includes all payments made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller.
In determining the customs value, the following items shall be added to the price, to the extent that they are incurred by the buyer and are not included in the price (list not exhaustive):
- Commissions and brokerage.
- Royalties and licence fees related to the goods under assessment.
- The cost of transport and insurance of the imported goods.
At the same time, provided that they are shown separately from the price actually paid or payable, the following items shall not be included in the customs value (list not exhaustive):
- Charges for the transport of goods after their arrival at the place of introduction into the customs territory of the European Union.
- Charges for construction, erection, assembly, maintenance, or technical assistance, undertaken after importation of imported goods such as industrial plant, machinery, or equipment.
- Buying commissions.
A reduced or zero rate of duty at importation can be applied when the goods imported have a preferential origin. The preferential origin depends on the existence of commercial agreements between the European Union and other non-EU states or by facilities provided by the European Union to non-EU states unilaterally.
The application of a reduced or zero rate of duty can even depend on the existence of preferential tariff treatment or on the existence of a particular exemption provided by law for some kind of goods.
Any person may appoint a representative in one's dealings with the Customs Authority to perform the activities and formalities laid down by customs rules. Such representation may be direct, in which case the representative shall act in the name and on behalf of another person, or indirect, in which case the representatives shall act in one's own name but on behalf of another person.
For direct representation, a forwarding agent, holder of a particular licence, must be appointed.
The representative must be established within the European Union.
The following goods are subject to excise duties:
- Energetic products (e.g. petrol, gas oil, natural gas, coal).
- Alcohol and alcoholic drinks (e.g. wine, beer, ethylic alcohol).
- Processed tobaccos (e.g. cigars, cigarettes, tobacco).
- Electric power.
The subjection of a product to excise duties has to be verified on the basis of its customs combined nomenclature code.
The tax liability, depending on the products, arises:
- at the moment of importation or production (and the excise duties must be paid at the moment in which they are released for consumption in Italy)
- when the excisable goods are used for heating or as fuel, and
- when the excisable goods are released for consumption or used for own use.
As a general rule (with exception of natural gas and coal, coke, and lignite), with reference to excise goods released for consumption during a month, the payment of the relative excise duties has to be made by the 16th day of the following month.
With reference to excise goods imported, customs rules are applied as far as the procedure and terms of payment are concerned.
The production, processing, and holding of 'excise goods', except from natural gas, coal, coke, lignite, and electric power, are subject to a suspensive regime performed through a fiscal warehouse.
In order to manage a fiscal warehouse, it is necessary to acquire a licence issued by the Italian Customs Authority, and there are specific obligations for the owner of a fiscal warehouse (e.g. provide for a particular guarantee, keep a particular accounting system for the goods stored, be subject to controls performed by Italian Customs Authority, where requested).
The Italian legislation provides for many exemptions with regards to the use of 'excise goods'.
Furthermore, under certain circumstances, a tax refund is granted to the operator who released for consumption if, afterwards, the products are not consumed in Italy.
Stamp duty taxes
Stamp duty taxes (Imposta di Bollo) apply on a certain list of deeds or documents provided for by the relevant law provision (e.g. checks, bills of exchange, statements of account, certificates, books of account, deeds of transfer of quotas, and, in some specific cases identified by the Law, invoices).
According to the kind of deed, stamp duty tax is due upon the deeds’ origin or in case of use (e.g. if the deed is filed to the Italian Registration Office). Moreover, it can be a fixed amount or as an amount proportional to the value of the deed or document.
Stamp duty tax can be paid:
- ordinarily, through a physical stamp attached on the document, or
- virtually, through electronic means (in this case, a specific authorisation from the Italian tax authorities and a specific process procedure are needed).
Even considered the mandatory electronic invoicing obligation for the supplies of goods or services carried out between persons that are resident or established in Italy, there are specific ways of payments of stamp duty tax.
Stamp duty tax is usually alternative to VAT; however, in case of considerations partially subject to VAT and partially not subject to VAT, the invoice is subject to stamp duty tax if the total amount of the considerations not subject to VAT exceeds EUR 77.47. Moreover, some transactions are stamp duty tax exempted (e.g. inter-Community supply of goods). For transactions that are exempted from VAT (with restriction on VAT credit) and for transactions out of scope of VAT, exceeding EUR 77.47, an amount of EUR 2 is due as stamp duty tax for each issued invoice.
Unified municipal tax (Imposta Unica Comunale or IUC)
The IUC is composed of the following different taxes:
- Imposta Municipale Unica (IMU): Real estate tax levied on the ownership of immovable properties (buildings, rural land, farmlands), except for immovable properties owned as primary private properties. The standard tax rate is 0.76%. Depending on the municipality and status of the taxpayer, the tax rate can be increased or decreased. The taxable base is generally determined on the basis of the so called ‘cadastral value’ (i.e. capitalisation of the deemed standard income that is expected to be derived from the real estate).
- Tributo per i Servizi Indivisibili (TASI): A service tax due by real estate owners and by tenants, except for immovable properties aimed as private properties (different from immovable properties falling under the cadastral category A/1, A/8, and A/9). The amount due by the tenant can range according to the Regulation stated by the municipality.
- Tassa sui rifiuti (TARI): A waste tax levied on the owner or the user of immovable properties.
Financial Transaction Tax (FTT)
Italian FTT applies to (i) cash equities, (ii) derivatives, and (iii) high-frequency trading transactions.
Cash equities FTT applies to the purchase of shares and other equity instruments issued by Italian companies, as well as securities (wherever issued) tracking those Italian shares (e.g. ADRs). The taxable base is the net daily balance of transactions on the same financial instruments by the same person on the same settlement date. The rate is 0.2% on OTC trades or 0.1% on trades executed in a regulated market (or multilateral trading facility).
Derivatives FTT applies to any derivative contract or securitised derivative, whose underlying value is directly or indirectly tied to Italian shares. The taxable base is the notional amount of the derivative (no netting applies), and it is subject to a special tax scale, on both the purchase and the sale legs; the amount is reduced to 1/5 for transactions executed on regulated markets and multilateral trading facilities.
High-frequency trading FTT applies to transactions on shares (wherever issued) and share-based derivatives (wherever the underlying share is issued) in the Italian financial markets; trades amended or cancelled within half a second are subject to a 0.02% rate, to the extent they exceed 60% of overall trades.
Digital service tax (DST)
As of FY 2019, corporations will apply a tax at the rate of 3% on the value of specific digital services, net of VAT.
The web tax is addressed to taxpayers who individually or at the group level realise during a taxable year (i.e. calendar year):
- a total amount of worldwide revenues exceeding EUR 750 million, and
- a total amount of revenues realised in the Italian territory exceeding EUR 5.5 million.
The web tax will be due by the end of the month following each quarter. An annual return is also filed by the end of the fourth month following the tax year-end.
The entry in force is expected after June 2019, being subject to the issuance of a Ministerial Decree.
The digital tax seems to be aimed to target revenues from digital services that underpin 'user participation', such as (exhaustive list):
- The placing on a digital interface of advertising targeted at users of that interface (service a).
The making available to users of a multi-sided digital interface: (a) that allows users to find other users and to interact with them (service ba) and (b) that may also facilitate the provision of underlying supplies of goods or services directly between users (service bb).
- The transmission of data collected about users and generated from users' activities on digital interfaces (service c).
Social security contributions
The Italian employer, in order to pay social security contributions for employees, must register with the Italian Social Security Administration (Instituto Nazionale Previdenza Sociale or INPS).
The total social security rate is around 40% of the employee's gross compensation (the rate depends on the work-activity performed by the company, the number of employees of the company, and the employee's position), and is shared as follows:
- Employer's charge is around 30%.
- Employee's charge is around 10%.