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Italy relaxes VAT bad debt rules

Italy is to loosen the requirements on taxpayers to reclaim output VAT on invoices which have subsequently not been paid by customers – bad debts.

Currently, taxpayers may only reclaim VAT paid on bad debts once their customer has been declared bankrupt by the Italian Courts. This may take many months, and has been highlighted during the COVID-19 crisis as being unfair and a negative cashflow issue.

Per Decree Law no. 73, suppliers will instead be allowed to recover the VAT when legal proceedings to close a customer commences. This applies from 16 May 2021.  The affected taxpayer will be able to issue a revising credit note once their customer is subject to liquidation or bankruptcy proceedings.  Should the customer eventually pay the VAT due, the supplier should issue a fresh debit note.


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