While the European Union (EU) sets the broad parameters for value added tax (VAT) rates, including setting the minimum standard VAT rate at 15%, Italy sets most of its own VAT rates. 

A small number of organisations are VAT exempt in Italy. These include non-profits, religious institutions, and some governmental bodies. Italy also allows temporary VAT exemptions for special events, such as international exhibitions and cultural events. Trade fairs are also exempt from VAT.

Businesses conducting transactions with exempt entities, or participating in or supplying exempt events, should be aware of these exemptions to ensure correct VAT rates are applied and tax obligations are correctly managed.

People living outside the EU can get a VAT refund when shopping in Italy. The Italian government believes tax-free shopping can help boost tourism in the country and help improve the competitiveness of the Italian VAT system.

In December 2023, the Italian government agreed to lower the minimum spending threshold for tax-free shopping from €154.95 to €70.01. This new spending limit came into effect from February 2024.

A VAT number is required to start a business or a professional activity in Italy, and VAT registration is obligatory for anyone involved in business, agricultural activity, or an artistic or professional activity on a regular basis.

The distance selling VAT registration threshold is €35,000 per annum. There is no VAT registration threshold in Italy for other types of non-resident traders.

There are strict rules for companies who have received an Italian VAT registration. These mirror the EU’s VAT Directive, and include:

• Information that must be included within Italian VAT invoices
• The use of e-invoices, including compliance and control procedures with the signature and authenticity of an invoice
• How bookkeeping records, known in Italy as VAT Registers, must be kept and prepared  
• The correct invoicing of customers for goods or services in accordance with the Italian time of supply VAT rules
• The treatment for credit notes and other corrections
• The use of approved foreign currency rates

The tax point — or time of supply — is the time when VAT becomes due.

In Italy, the tax point for goods is considered as the point of transfer of title, i.e., when the goods are placed at the disposal of the customer. Any VAT due should then be declared in the subsequent VAT return. In the case of transport of goods, the tax point is when the transport begins.

The tax point for supplies is the date of payment or partial payment. This is a deviation from the regular EU rules of the time of completion of the services. For immovable 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.

The tax point for imports is when the goods are imported according to the relevant import documents, or when the goods leave a duty suspension regime.

VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.

The main VAT rates in Italy are: a standard VAT rate of 22%, a reduced rate of 10%, a reduced rate of 5%, and a super-reduced rate of 4%.

The first reduced VAT rate (10%) applies to water supplies, passenger transport, admission to cultural and sports events, hotels, restaurants, and some foodstuffs.

The second reduced VAT rate (5%) applies to specific products and services, such as some foodstuffs and social services, subject to certain conditions and requirements. However, this 5% reduced rate is not as frequently used.

The super-reduced VAT rate (4%) applies to TV licences, newspapers, periodicals, books, and certain medical equipment.

Italy also has some zero-rated goods and services, including writers and composers, and social services. The sale of these goods and services must still be reported within a VAT return, even though no VAT is charged.

INon-EU businesses selling in Italy will need to appoint a fiscal representative alongside completing VAT registration and returns.

Fiscal representatives are responsible for the accurate VAT submissions of their non-EU clients.

Avalara offers a Fiscal Representative Service as part of its international VAT and GST Registration and Returns Service.

Get fiscal rep in Italy

Researching Italian VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade.

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