VAT in Italy: Complete Introduction

How does VAT in Italy work? In this article, we explain it clearly so you can understand everything you need to know. This will be especially useful if you are planning to operate in Italy.

What are the VAT rates in Italy?

Italy applies different VAT rates depending on the type of products and services, as detailed below:

• Standard VAT rate of 22%: This is the general rate for most goods and services, except for those that are exempt or subject to a reduced rate.
• Reduced VAT rate of 10%: This applies to specific products and services such as medicines, electricity supply and certain accommodation services.
• Super-reduced VAT rates of 5% and 4%: The 5% rate applies to services of a social nature, while the 4% rate covers essential products such as food, books and certain medical equipment.
• VAT-exempt: This includes services such as medical and educational services, which are not subject to this tax.

Each VAT category applies to a specific list of goods and services. For example, essential food products, certain books and medical equipment benefit from a super-reduced VAT rate of 4%.

On the other hand, services such as restaurants and accommodation are subject to a reduced VAT rate of 10%. Products that do not fall into these categories, such as clothing or household appliances, are generally taxed at the standard VAT rate of 22%.

Here are some indicative examples:

Super-reduced VAT rate in Italy: 4%

• Selected food products: Some basic types, such as certain agricultural products.
• Medical equipment for people with disabilities: Specific products designed for assistance.
• Books: Including books in traditional paper format.
• Books on another physical medium, other than paper: Such as books in special formats.
• Newspapers.
• Periodicals: Only those that qualify under this VAT rate.
• Television licences.

Reduced VAT rate in Italy: 5% and 10%

• Food products: Including some essential food products.
• Water supplies: Rate applied to basic supplies.
• Pharmaceutical products: Medicines subject to a reduced rate.
• Passenger transport: Some specific transport services.
• Admission fees to cultural events: Tickets for events that promote culture.
• Hotel accommodation.
• Restaurants and catering services: Food and drink services.
• Admission to sporting events: For certain types of events.
• Social services: Some services of a social nature.

Standard VAT rate in Italy: 22%

• Pharmaceutical products: Those not included in the reduced-rate category.
• Medical equipment for people with disabilities: Products that do not qualify for the reduced rate.
• Child car seats.
• Books and periodicals: Some types that are not exempt or do not qualify for a reduced rate.
• Admission fees to theme parks.
• Cable and pay TV.
• Writers and composers: Some specific services.
• Admission to sporting events: Tickets that are not exempt from this VAT rate.
• Shoes and leather goods.
• Clothing and household goods.
• Hairdressing services.

VAT-exempt in Italy: 0%

• Passenger transport: In some specific cases.
• Social services: Certain exempt services.
• Medical and dental care: Services fully exempt from VAT.

Is VAT registration in Italy mandatory?

VAT registration in Italy depends on the nature and volume of the transactions carried out. There is no specific threshold that requires all companies to register, but there are certain situations where registration is mandatory. For example:

• Intra-Community transactions: The purchase or sale of goods to companies in other EU Member States may require VAT registration.
• Imports and exports: Companies that import goods into Italy or export from Italy generally need an Italian VAT number.
• Distance sales: If online sales exceed certain established thresholds, currently €100,000, it is necessary to register for VAT in Italy.
• Storage of goods: Companies that store stock in Italy, for example in Amazon warehouses, must register for VAT.

When is Italian VAT paid?

The payment of Italian VAT depends on the frequency with which VAT returns are submitted. For most companies, VAT is paid monthly or quarterly, depending on the volume of transactions in the previous year. Below you can see the different types:

In Italy, the right to deduct input VAT depends on whether the goods and services purchased are used to carry out activities subject to this tax. However, there are significant restrictions:

• Food and drinks: In general, the VAT incurred on these expenses is not deductible.
• Entertainment: VAT on entertainment expenses can only be deducted when associated with goods costing less than €25.82.
• Vehicles and fuel: VAT deduction on these expenses is limited, ranging between 20% and 40%, depending on whether the vehicle is used exclusively for business activity.
• Public transport: Costs associated with the use of taxis, trains and other means of public transport do not allow VAT deduction.

In addition, it is crucial for companies to correctly record input VAT before starting their activities in order to ensure its recovery, provided they have complied with all the necessary tax and administrative obligations.

What did you think of this short introductory guide to VAT in Italy? If you have any questions when preparing your next VAT return, and especially if you need to exchange your receipts for invoices or optimise your processes, remember that at 60dias we can help you. Contact us to find out more.