General VAT rules and rates
Latest update: 12/12/2020
Calculating turnover subject to VAT
Value added tax is charged on supplies of goods or services carried out within the territory of Italy in the exercise of a business, trade or profession, and on imports carried out by any person. In general, businesses must charge VAT to their customers and pay it to the tax authorities. At the same time they can deduct from the VAT due the VAT they paid their suppliers on their purchases. VAT due is paid on a monthly or quarterly basis.
The VAT turnover of a business, art or profession is defined as ‘turnover’ and consists of the sum of the taxable amounts of the supplies of goods and services that the entity makes, records or is required to record in a calendar year. Turnover comprises mainly transactions subject to VAT, non-taxable transactions and exempt transactions.
In general, VAT is due only on taxable transactions and is applied at different proportional rates depending on the type of transaction carried out.
The mandatory VAT records are:
- the record of invoices issued
- the record of purchases
Entities using the general journal (enterprises) or the chronological journal (professionals) may choose not to keep VAT records if they enter the same information in other records.
In the record of invoices issued, the entity must record all the invoices it issues. For each invoice, the following details must be entered in the record:
- sequential invoice number
- date of issue
- customer’s data
- the taxable amount and the amount of VAT, separately at the applicable rate
Other records must also be kept, for example a record of self-billing invoices for purchases from non-resident entities.
Alternatively, it is possible to keep a cumulative record, i.e. a single record of invoices having a value below EUR 300 each, issued in one calendar month.
From 1 January 2019, transactions between entities resident or established in Italy are subject to electronic invoicing. Traders subject to VAT operating under the simplified accounting system who only issue invoices and use the data provided by the Revenue Agency are exempted from the obligation to keep VAT records.
From 1 January 2020, entities carrying out 'retail sale and similar activities' not required to issue invoices (such as shops, craft activities, hotel and restaurant services) must report their daily takings by storing and transmitting the data electronically to the Revenue Agency. These entities are therefore no longer required to keep a record of their takings showing the total value of all the transactions carried out each day.
In the input VAT record, the business must record the invoices received for purchases, single administrative documents, invoices for intra-Community acquisitions (i.e. from suppliers established in other EU countries received from their suppliers for goods and services relating to their business).
Entering the accounting documents in the input VAT record is necessary in order to claim deduction of input VAT, which applies according to the type of goods or services purchased.
The standard VAT rate in Italy is 22%.
Reduced rates are applied to specific goods and services:
- 4%, for example, for some foodstuffs, beverages and agricultural products;
- 5%, for example, for some foodstuffs;
- 10%, for example, for the supply of electricity and gas for household use, medicines, building renovation works and specified goods and services.
The full list of goods and services to which reduced rates apply is set out in Table A, Part II, Part II-bis and Part III of Presidential Decree No 633/1972.