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Italy major VAT reforms

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.


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