I. Executive Summary
Italy is undergoing significant VAT reform and clarification, with key changes designed to align with EU directives, simplify compliance, combat fraud, and stimulate specific economic sectors. Recent developments include a major overhaul of the VAT legal framework, new rules for reverse charge and optional client VAT payment in the logistics sector, a reduced VAT rate for art and antiques, and stricter interpretations of VAT deductibility and exemptions. The nation continues to lead in digital VAT reporting, influencing broader EU initiatives. Businesses operating in Italy, especially those in logistics, art, and those with cross-border activities, must be aware of these changes and their implications for compliance and financial planning.
II. Key Themes and Most Important Ideas/Facts
1. Comprehensive VAT Reform and EU Alignment
- New Consolidated VAT Law: Italy’s Council of Ministers has approved a new consolidated VAT law and a preliminary version of a new consolidated VAT code (171 articles) in July 2025. This reform aims to unify existing VAT legislation, streamline compliance, and ensure alignment with EU VAT principles, particularly Council Directive 2006/112/EC. The government received authority to revise VAT legislation with implementation deadlines by August 2025 and completion by December 2025.
- “Italy’s Cabinet approved a new consolidated VAT law The law aims to unify current VAT legislation into one text The structure aligns with the EU VAT Directive”
- “The reform aims to ensure compliance with EU directives, increase legal certainty, simplify compliance, and improve market functioning.”
- Indirect Tax Consolidation (Excluding VAT): A separate Legislative Decree, approved on July 22, 2025 (effective January 1, 2026, per Legislative Decree No. 123 dated August 1, 2025), consolidates regulations for registration tax and other indirect taxes (mortgage, cadastral, inheritance, gift, stamp duties, taxes on financial assets), excluding VAT. This is part of a broader tax reform to simplify compliance.
2. Digitalization and Reporting Evolution
- Leadership in Digital VAT: Italy has been a pioneer in digital VAT reporting, implementing mandatory e-invoicing through its Sistema di Interscambio (SDL) platform since 2014. This system has “significantly improved transparency, reduced tax evasion, and streamlined administrative processes, serving as a model for other EU countries” for the EU’s VAT in the Digital Age (ViDA) legislative package.
- EU ViDA Legislative Package: The ViDA package, effective from April 2025, will harmonize VAT administration across the EU by introducing mandatory digital reporting requirements and standardized e-invoicing for cross-border transactions, drawing insights from Italy’s experience.
- Shift to Electronic Receipts (2027-2029): Italy is phasing in electronic receipts for electronic payments starting mid-June 2025. Resolution No. 7-00286 mandates digital receipts transmitted via SMS, email, or mobile apps, with paper receipts only upon customer request. Implementation will be staggered: Phase 1 for large businesses (January 2027), Phase 2 for businesses above a specified turnover (January 2028), and Phase 3 for all others (January 2029).
3. Changes in Specific VAT Rates
- Reduced VAT on Art and Antiques (5%): Effective July 1, 2025, Italy has reduced the VAT rate on sales and imports of works of art, antiques, and collectibles to 5% (Decree-Law No. 95/2025). This aims to “revitalize the country’s art market and making it more competitive with other European countries.” Transportation and related services remain at the standard rate. Resellers cannot use the margin scheme for items purchased under the 5% regime.
- “Crown Fine Art expects a 15% to 25% increase in shipment volume over the next year.”
- Waste Disposal and Incineration: Effective January 1, 2025, landfill and incineration services without efficient energy recovery are excluded from the 10% reduced VAT rate and are now subject to the standard rate. The applicable VAT rate is determined by the timing of payment, not service performance.
- “The ordinary VAT rate applies to services paid from January 1, 2025, regardless of when they were performed.”
- Digital Competency Certifications: Digital competence certifications not linked to a training course are not exempt from VAT. To qualify for exemption, services must be provided by recognized institutions and have an educational nature.
- Reduced VAT for Architectural Barrier Overcoming: The 4% reduced VAT rate applies only to service contracts for overcoming architectural barriers, not to mere supplies with installation of goods without a contract work agreement.
4. Logistics and Freight Transport Sector Overhaul
- New Reverse Charge and Optional Client Payment: Legislative Decree No. 84/2025 (converted into Law No. 108 on July 30, 2025, effective August 2025) extends reverse charge and VAT payment rules to freight transport contracts and logistics services.
- Pending EU Council approval for reverse charge, an optional regime allows clients to pay VAT directly to tax authorities on behalf of suppliers for subcontracting and similar contracts. This option is available from July 30, 2025, for a duration of three years, requiring joint notification by both parties using a specific form (software “ReverseChargeLogistica”).
- “Customers must pay VAT on behalf of suppliers for subcontracting and similar contracts.”
- “The regime now extends beyond contracts involving manpower or use of customer equipment. It includes carriage of goods on behalf of third parties, broadening applicability.”
- New Tax Code for Logistics Reverse Charge: A new tax code, 6045, has been established for VAT reverse charge in the logistics sector under the optional regime of Law 207 of 2024.
- Intermediaries in International Goods Transport: A new legislative decree restores the non-taxable status for services provided by intermediaries in international goods transport (import, export, transit), following a European Court of Justice ruling.
5. VAT Credit and Deductibility Rules
- VAT Credit Transfer in Reorganizations: The Italian Revenue Agency clarified that VAT credit ceilings cannot be transferred to a transferee in a business reorganization (e.g., lease, transfer, contribution) unless explicitly mentioned in the contract. This is particularly relevant when foreign entities (not VAT-registered in Italy) are involved.
- VAT Credit for Inactive Hotel (Seizure Case): The Italian Supreme Court overturned a ruling denying VAT deduction to a hotel company that could not meet revenue thresholds due to property seizure. Referencing EU Court of Justice principles, the Court emphasized the need to assess if economic activity justifying VAT deduction was conducted, even if revenue thresholds were not met.
- VAT Non-Deductibility for Administrator Legal Costs: The Supreme Court reaffirmed that legal defense costs for company administrators in criminal cases are not deductible for VAT purposes, as they are considered personal, not directly linked to the company’s economic activity, even if the administrator is acquitted.
- Denial of VAT Deduction for Supplier’s Failure to Remit VAT: The Italian Supreme Court upheld the denial of VAT deduction in cases where there are “close personal or corporate relationships” between a purchaser and a supplier, even if the supplier fails to remit VAT. This diverges from ECJ standards, which require objective indicators of fraud. “Companies in Italy should enhance their supplier due diligence practices, especially with suppliers having personal or family ties, to avoid potential VAT deduction denials.”
- VAT Fraud and Refunds: Tax refunds for undue VAT are excluded if the payment was made in a fraudulent context, involving prearranged acts to make fraudulent payments to the Treasury. Refunds can generally be requested within two years from payment or when the refund condition occurs.
6. Taxable Base and Transaction Clarifications
- General Electricity System Charges (OGSE): The Italian Supreme Court ruled that General Electricity System Charges (OGSE) must be included in the VAT base for electricity supply, aligning with EU VAT law (Article 78 of Directive 2006/112/EC).
- VAT on Trademark Transfers: The transfer of a trademark with related IP rights is considered a service for VAT purposes if it’s an isolated asset, not a business branch. Transfers involving businesses or business branches are outside the scope of VAT.
- VAT Implications of Transfer Pricing Adjustments: The Italian Revenue Agency clarified that transfer pricing adjustments are relevant for VAT if explicitly stipulated in contracts and directly affect the pricing of original transactions, requiring self-invoices. This emphasizes the need for a direct link between the adjustments and the underlying supply of goods/services.
- VAT on Compensation for Construction Contract Disputes: Compensation payments for additional burdens due to delays in a procurement (construction) contract are considered supplementary consideration and are therefore subject to VAT, rather than being exempt as mere penalties or damages. The Agency distinguishes between punitive compensatory functions and payments that integrate the original consideration for a delivered service.
7. Tax Administration and Compliance
- Mandatory Written Justification for Tax Inspections: Following an ECHR ruling criticizing privacy safeguard deficiencies, Italy will require clear written justification for tax inspections by the Italian Revenue Agency and Guardia di Finanza. Inspections without justification may be invalid. This amendment, if approved, will apply to future inspections.
- Updated Guidelines for Tax Control Framework: Italy’s tax authorities updated guidelines on August 7, 2025, for the tax control framework used by taxpayers in the cooperative compliance program. This framework helps in “detecting, measuring, managing, and controlling tax risks.”
- Coexistence of Separate VAT Groups: The Italian Tax Agency confirmed that an economic group can form two distinct VAT Groups in Italy, provided their perimeters remain distinct and all participants are established in Italy. This applies even if the financial link originates from a foreign entity.
- VAT Guarantee Suspension for Non-EU Businesses: A requirement for non-EU businesses operating via a fiscal representative to post a €50,000 financial guarantee to remain in VIES (introduced in April 2025) has been temporarily suspended by the Italian Council of State, pending a final ruling. This provides temporary relief for cross-border trade.
- Investment Invoices and Tax Credits: Planned changes will replace normative references with an investment identification code in purchase invoices related to tax credits for 4.0 and 5.0 investments, as a simplification measure.
- VAT Declaration Omission Penalty: The deadline for the 2024 VAT declaration was April 30, 2025, with a 90-day grace period ending July 29, 2025. Late submissions incur a penalty of “120 percent of the tax due,” with a minimum of €250, which can be reduced via “ravvedimento.”
III. Implications and Future Outlook
- Increased Compliance Burden & Opportunities: While reforms aim for simplification, the details of implementation (e.g., new reporting models for logistics, electronic receipts) will require significant adaptation for businesses. The reduced VAT on art presents a clear opportunity for market growth.
- Focus on Substance over Form: Several rulings (e.g., compensation payments, transfer pricing adjustments, VAT credit for inactive hotels) emphasize the importance of the economic substance and direct link of transactions in determining VAT treatment, rather than just legal labeling.
- Stricter Enforcement and Due Diligence: The Supreme Court’s stance on administrator liability and VAT deduction in cases of supplier fraud (especially with related parties) indicates a stricter enforcement environment, necessitating enhanced due diligence.
- Cross-Border Complexity: Clarifications on fixed establishments and VAT credit transfers in international reorganizations highlight the ongoing complexities for multinational groups, requiring careful evaluation of functional involvement and contractual terms.
- Digital Transformation: Italy’s continued push towards digitalization, from e-invoicing to electronic receipts, signals a clear direction for tax administration, which will reshape business processes across all sectors. The ongoing VAT dispute with tech giants over data as a taxable service could have far-reaching implications for digital business models globally.
- Uncertainty Remains: Several provisions, such as the full implementation of reverse charge in logistics and the final decision on the VAT guarantee for non-EU businesses, still await further EU approval or judicial rulings, leading to ongoing uncertainty for affected businesses.
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