2023 Changes to Italian VAT Procedures

Sep 4, 2023 | Italy

It has been announced that the Italian Parliament has approved a number of reforms to the Italian VAT system, which aim to modernize the current tax regime as well as making VAT compliance easier. They have also extended their temporary cut to the VAT rate on domestic and industrial gas, which will continue to be at a reduced rate of 5% until October 2023.

Consolidation of VAT rates
One way in which these changes are having effect, is by using the new EU VAT rate setting freedoms to enable member states to have three reduced VAT rates, as well as a zero-rated category. This falls in line with the smaller changes agreed in 2022. One of these VAT rates is currently set to be at 4%, but this will only be for specific goods and services including some foodstuffs, books and social agricultural supplies, a second rate at 5% which includes some foodstuffs and social services; however, these two rates may be consolidated – this is yet to be determined.

VAT Groups
The use of VAT groups would be a simplification on existing rules, where by related companies may group together to use the same VAT number and in effect zero-rate the transactions between themselves, this would reduce cash flow issues and aid with simplifying the reporting compliance currently required to be followed.

VAT Deductions
From the reforms, there are three main changes to the deduction of VAT of purchases, these include the pro-rate calculations on mixed-use goods, new rules surrounding real estate developments and residential buildings and lastly, the right to deduct VAT on invoices dated in previous periods.

Exemptions and Exceptions for Specific Goods
In line with new EU rulings, the Italian reforms will allow for the import and resale for art and collector items to use the margin scheme if opted in. In addition, for sales of real estate there will be additional exemptions available. Both of these have yet to be confirmed what the exact legislation will allow.

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