Parliament approves tax reforms, including major VAT changes
Italy’s Parliament last week approved wholesale reform of Italian tax including a number of changes to the Italian VAT system. The reforms are aimed at modernising the tax regime, making compliance easier and attracting foreign investment.
The VAT changes include:
- Consolidation of the VAT rates
to follow the new EU VAT rate setting freedoms, agreed last year. This enables member states to have three reduced VAT rates, and a zero rate. One of these reduced rates may be below 5%, but is only permitted on a prescribed narrow range of goods or services. The combined effective rate across these rates should not be lower than 12%. - VAT Group rules
A simplification of the existing rules to permit the use of VAT groups. This is where related companies may share the same VAT number, and effectively zero-rate transactions between them. This reduces compliance and unnecessary cash flow.
- VAT exemptions
The reforms will bring Italy’s rules on VAT exemptions closer into line with EU law. Particularly for real estate transactions.
- VAT deductions
There are three main reforms on the right to deduct input VAT incurred on spend. Firstly, the pro rate calculations on mixed-use goods. Secondly, new rules for real estate and residential buildings. Thirdly, the right to deduct VAT on invoices from prior periods.
- Art and collector items
Italian rules will be brought into line with 2020/542/EU for imports and the use of the reduced rates. Resellers will also be able to opt for the margin scheme.
Learn more about Italian VAT in our country guide.
