A Guide to Sales Tax in Italy for Businesses and Individuals

Sales tax in Italy can be a complex and daunting topic, but don't worry, we've got you covered. In Italy, sales tax is known as IVA (Imposta sul Valore Aggiunto), which translates to Value Added Tax.

For businesses, IVA rates in Italy range from 0% to 21%, with a standard rate of 22% for most goods and services. This rate can vary depending on the type of product or service being sold. Businesses must also pay an additional 4% rate, known as IVA ridotta, for certain goods and services.

As a business owner, you'll need to register for an IVA number with the Italian tax authorities, known as the Agenzia delle Entrate. This is a straightforward process that can be completed online or through a tax consultant.

If you're a visitor to Italy, you're eligible for tax-free shopping, which means you can shop without paying the Value-Added Tax (VAT).

You can get a VAT refund when shopping in Italy if you live outside the EU, and the Italian government believes this can help boost tourism in the country.

The minimum spending threshold for tax-free shopping in Italy has been lowered from €154.95 to €70.01, making it easier for visitors to qualify.

Companies that have received an Italian VAT registration must follow strict rules, including including certain information in their invoices.

Italian VAT invoices must include specific information, such as the tax point for imports, which is when the goods are imported according to the relevant import documents.

The super-reduced VAT rate of 4% applies to certain goods, including TV licences, newspapers, periodicals, books, and certain medical equipment.

If you're eligible for tax-free shopping, make sure to keep your receipts and follow the necessary procedures to get your VAT refund.

If you're planning a trip to Italy and want to know how to get a VAT refund, you'll be happy to know that the minimum purchase amount required for a refund has decreased to €70.01.

To be eligible for a VAT refund, you must be a visitor to Italy or the EU, and you must be leaving the territory to go home or to another non-EU country. This means that if you're continuing your travels in the EU, you should wait until you're in the last countries you're visiting.

The VAT rate in Italy is 22%, but there are also reduced rates for certain goods and services, such as 4% for listed food, drinks, and agricultural products.

Before you leave Italy, you'll need to complete a refund form, which can be obtained from the shop where you made your purchase. You'll need to show your U.S. passport and provide proof that you're leaving the EU within the required time.

If you're using a company like Global Blue, Planet, or Tax Refunds for Tourists, they can help you submit the documents and track your claim online. However, if you're trying to claim the refund on your own, you won't be able to do so online.

Here are some important documents you'll need to get a VAT refund in Italy:

It's worth noting that there may be an administrative fee associated with getting a VAT refund in Italy.

To get a VAT refund in Italy, you need to meet certain rules. You must be a visitor, not a resident, and have a minimum purchase amount of €70.01 or more.

There's no minimum spend to get a VAT refund, as long as your total purchase price tag is higher than €70 EUR. This change brought considerable opportunities for American tourists in Italy.

You can't claim a VAT refund on goods you consume while in Italy, such as food and drinks. And, if you're continuing your travels in the EU, you should wait until you're in the last countries you're visiting.

To claim a VAT refund, you'll need to provide proof that you're a visitor, such as your U.S. passport. You'll also need to fill in a form with the necessary details and show your ticket as proof you're leaving the EU within the required time.

Here's a list of what you'll need to claim a VAT refund:

Remember, you might be asked to show your ticket as proof you're leaving the EU within the required time. And, in some cases, the shop itself will refund the IVA (VAT) to you, while in other cases, they'll use a third-party to coordinate the refund.

In Italy, the Value Added Tax (VAT) rates are quite specific. The standard rate is 22%, while reduced rates of 10% and 5% apply to certain items.

Some items are exempt from VAT altogether, such as foodstuff, water supplies, and medical equipment for disabled persons, which are taxed at 4%, 5%, and 10% respectively.

Here's a breakdown of some specific items and their corresponding VAT rates:

It's worth noting that some expenses are not fully deductible, such as input VAT on meals and beverages, which is 0% deductible, and entertainment expenses, unless they involve purchasing goods worth less than €25.82.

In Italy, the standard VAT rate is 22%. This rate applies to all other taxable goods and services, unless they fall under a reduced or super-reduced rate.

There are three reduced VAT rates: 10%, 5%, and 4%. The 10% rate applies to products and services like water supplies, pharmaceuticals, hotel accommodation, and restaurants. The 5% rate is used for children's products and certain foodstuffs.

The super-reduced VAT rate of 4% is applied to certain foodstuffs, drinks, medical equipment for disabled persons, books, newspapers, and agricultural products.

Here are the details on the reduced and super-reduced VAT rates:

Note that some items, like books and newspapers, can be subject to either the 4% or 22% rate, depending on the specific item.

In Italy, VAT deduction is only allowed if the expense is fully connected to the business activity of the taxpayer.

Input VAT on meals and beverages is not deductible at all, unless you're buying goods worth less than €25.82.

Entertainment expenses are also not deductible unless you're buying goods worth less than €25.82.

Fuel, car rental expenses, and gas are only deductible at a rate between 20% and 40%, but certain businesses may be able to deduct VAT at a higher rate or even at 100%.

Costs related to aircraft and leisure yachts are not deductible at all.

Taxi, train, and other transport expenses are not deductible.

Here's a quick rundown of the deductible rates for certain expenses:

To ensure you're in compliance with Italian sales tax regulations, it's essential to understand the registration process. In Italy, a VAT number is required to start a business or a professional activity.

Non-profits, religious institutions, and some governmental bodies are VAT exempt in Italy, including temporary exemptions for special events like international exhibitions and cultural events. Trade fairs are also exempt from VAT.

Resident businesses in Italy must register for VAT if their annual turnover exceeds €85,000. This threshold applies to businesses conducting regular activities, including agricultural activities and artistic or professional activities.

From July 1, 2021, the distance selling threshold for cross-border trade with an EU country is €10,000, requiring VAT registration in Italy. This also applies if you store products in Italy or participate in an FBA program that includes Italy.

To receive an Italian VAT number, you must submit a "Declaration of Commencement, Change of Data, or Cessation of Activity" to the Italian Revenue Agency (Agenzia delle Entra). This declaration requires identification information and details about the business activity and location.

Non-EU companies selling in Italy must appoint a fiscal representative, who will be jointly liable for the Italian VAT.

In Italy, VAT returns must be filed online on a quarterly basis, with quarterly returns due on the last day of each month following the previous tax period.

Annual returns are compulsory for all companies registered for Italian VAT, and must be filed by April 30th. You can pay your VAT due every month, but if you have a turnover of €700,000 or less, you can opt to pay quarterly with a 1% non-refundable surcharge.

The penalty for late filing in Italy is steep, ranging from €25 if submitted within 90 days of the deadline, to €248 plus up to 240% of the VAT due if you're late.

The statute of limitations is a crucial aspect of VAT returns, and it's essential to understand how it works.

Tax authorities in Italy can request payment of output VAT until the 31 December of the fifth year following the period in which the annual VAT return was due.

This means that even if you've submitted your annual VAT return on time, you could still face a request for payment of VAT up to five years later.

In some cases, the statute of limitations can be extended, for example if the annual VAT return was not submitted, or if the information requested by the tax authorities is not provided in time.

However, if you've submitted your annual VAT return on time and have all the necessary information, you can breathe a sigh of relief knowing that the statute of limitations for output VAT will not be extended.

Taxpayers can claim VAT up to 30 April of the following year in which VAT became originally deductible, which matches the due date for the Annual VAT return.

In Italy, you'll need to file your VAT returns online on a quarterly basis using the Italian Target System via the Comunicazione Liquidazioni Periodiche IVA.

Quarterly VAT returns are due on the last day of each month following the previous tax period, while annual returns are due by April 30th.

You'll need to pay the VAT due every month, unless your turnover is €700,000 or less, in which case you can opt to pay quarterly with a 1% non-refundable surcharge.

The penalty for late filing in Italy is €25 if submitted within 90 days of the deadline, or €248 plus up to 240% of the VAT due if you're late.

For late payment of Italian VAT, the fine is 30% of the VAT due, with 2.5% of interest added every year.