General Overview

The Value Added Tax (IVA in Italian) is a general tax on consumption that is applied in Italy and in all other European Union states.

A transaction is subject to VAT in Italy only if it is deemed to take place in Italy.

A VAT invoice must be issued for all taxable transactions (for which an invoice is required) at the time the transaction takes place. The buyer pays the VAT to the supplier in addition to the cost of the goods or services acquired. In the case of imports, the VAT is paid to customs.

However, for certain supplies of goods and services the reverse charge mechanism applies. Under the reverse charge mechanism the supplier does not charge any VAT, as it is the purchaser who accounts for it.

VAT is applied on an accrual basis. The supplier owes the tax to the tax authorities when he issues an invoice and not at the time he receives payment. However, the supplier is entitled to a credit for the VAT shown on his own suppliers' invoices, or for the VAT paid on imports, regarding any goods and services he has acquired for his business needs. The buyer is entitled to the VAT credit at the time he receives the invoice from his supplier and not at the time he makes payment.

This VAT mechanism means that the actual tax burden is only borne by the end user, who has no right to recover the VAT he has paid.

Taxable Persons

Individuals and companies are taxable if they carry out a business, a profession or an artistic activity. Importers are taxable regardless of their activity.

The Italian permanent establishment of a foreign mother company is a VAT taxable person in Italy, while a representative office is not.

Taxable Transactions

VAT is levied at all levels of the supply chain of goods and services taking place in Italy.

VAT is also levied on the importation of goods from outside the European Union.

However, as of 1 January 1993, when goods are transported from one EU Member State to another, and both the supplier and the recipient are entrepreneurs for VAT purposes, it is no longer considered an import, but an intra-Community acquisition.

VAT is not levied on the exportation of goods outside the European Union and on intra-Community supplies (they are both zero-rated).

Taxable Amount

The taxable amount for VAT is the consideration received for goods and services. For imported goods, the taxable value is the value for purposes of customs duty increased by the customs duty itself.

Rates

The general rate is 22%. Reduced rates of 10% and 4% apply in certain cases. Exports and intra-Community supplies are zero-rated.

VAT Settling

Generally, VAT paid on goods and services acquired or imported within Italy by a taxable person (input VAT), to be used for the purposes of his business, may be offset against the VAT due on sales (output VAT). In other words, the input VAT on the acquisition and importation of goods and services is deductible against the output VAT.

The general rule is that all taxable persons pay the VAT balance (the excess of the output VAT over the input VAT) on a monthly basis. However, "minor taxpayers" may opt to pay tax quarterly.

If the entrepreneur's output VAT for a particular declaration period is less than his input VAT deduction for that period, the balance is carried over to the following declaration period. Any credit balance remaining at the end of the calendar year may, at the option of the taxable person, be refunded (under certain specified circumstances), carried over to the next year or transferred to another taxable person.

Registration

Each entrepreneur must register with the tax office of the district in which the entrepreneur commences operations within 30 days of establishing a business enterprise or permanent establishment in Italy. The entrepreneur is then issued a VAT registration number. The registration number should appear on all documents relating to VAT.

Non-residents

VAT is due by all persons making taxable supplies of goods or services in Italy, regardless of their residence.

If a foreign taxable person, that does not have a permanent establishment in Italy, makes a supply that is taxable in Italy to a purchaser who is a taxable person in Italy, the VAT obligation of the foreign taxable person is fulfilled by the Italian taxable person through the reverse charge mechanism. Under the reverse charge mechanism the foreign supplier does not charge any Italian VAT, as it is the Italian purchaser who accounts for the Italian VAT. However, when the purchaser is not a taxable person in Italy, the foreign supplier has to charge the Italian VAT.

Non-residents that have no permanent establishment in Italy may appoint a representative to exercise their rights and fulfil their obligations under the VAT law. If a tax representative is appointed, he is responsible for completing all the formalities that the entrepreneur himself would be required to fulfil.

Residents of other European Union Member States may directly exercise their rights and fulfil their obligations in Italy. In this case, the competent authority  (the VAT office in Pescara) will provide a VAT number to the non-resident. However, before effecting any taxable transactions in Italy, the non-resident must first submit a declaration to the competent authority. The regime also applies to residents of non-EU states with which Italy has signed an agreement about mutual assistance regarding indirect taxes. However, no such agreements have been signed thus far.

The deduction for the VAT charged by the suppliers is available to entrepreneurs whether they reside in Italy or not. A non-resident entrepreneur, however, must have either a permanent establishment or a fiscal representative in Italy in order to be eligible for the deduction.

Nonetheless, a non-resident entrepreneur who:
- does not have a permanent establishment or a fiscal representative in Italy, and
- has not supplied taxable goods or services in Italy (unless the supply referred to goods or services for which the reverse-charge mechanism is applied, or unless the services supplied were zero-rated transportation services),
can, under certain circumstances, still request a refund of previously paid VAT on the acquisition of goods and services in Italy. However, taxable persons resident outside the European Union may claim a refund only if their country of residence grants a similar refund to Italian taxable persons (currently only Switzerland, Israel and Norway).

Only VAT on business expenditures, which would be recoverable by an Italian registered taxable person, qualifies for a refund.

Taxable persons who are residents of other European Union Member States have to apply for the refund of the Italian VAT to the tax authorities of the Member State where they are residents. On the contrary, taxable persons resident outside the European Union have to apply for the refund to the VAT office in Pescara (Italy) by 30 September of the year following the year in which the VAT was incurred.

A non-resident taxable person with a permanent establishment in Italy must claim the VAT refund through its Italian permanent establishment, even if the VAT refund does not concern a transaction carried out by that permanent establishment (i.e., a transaction carried out directly by the foreign mother company).