Latest update: 31/03/2023
In general, the transactions that do not meet all of the following three requirements are excluded from the application of VAT:
- requirement concerning the entity: the entity performing the transaction must habitually carry out a business or agricultural activity, art or profession and the transaction relates to the economic activity
- requirement concerning the transaction: the transaction must consist of a supply of goods or services
- territorial requirement: the transaction must be relevant for tax purposes in Italy.
If one or more of the above requirements is not met, as a rule the transaction is excluded from VAT, therefore the operator will not charge VAT to the customer and hence will not pay VAT to the tax authorities.
VAT-exempt goods or services
The transactions that fall within the scope of VAT are normally subject to VAT. However, there are also transactions subject to for VAT and VAT-exempt transactions. In both cases, all VAT obligations (invoicing, registration, reporting) still apply, but no VAT is charged to the customer.
Non-taxable transactions are the supplies of goods and services in transactions with foreign entities. They include in particular:
- transactions treated as exports
- international services or services connected with international trade
- supplies to non-EU travellers
- transactions with San Marino and Vatican City
- transactions carried out in the framework of relationships governed by international treaties and agreements
- intra-Community supplies.
Exempt transactions, on the other hand, are supplies of goods and services expressly identified by law. For example, they include healthcare, educational and cultural services and certain real estate transactions. The complete list of exempt supplies of goods and services can be found in Article 10 of Presidential Decree No 633/1972.
Exemptions for small businesses
Natural persons resident in Italy who start a business, art or profession and expect to have a gross income not exceeding EUR 65 000 per year can opt for the flat-rate scheme. This is a simplified scheme that offers exemption from most VAT obligations, including the charging of VAT to customers and its subsequent payment to the tax authorities.
The flat-rate scheme can be chosen by businesses/professionals that in the previous year
- had an annual gross income not exceeding EUR 85 000 (the previous amount of EUR 65 000 was amended by the 2023 Budget Law);
- incurred total gross expenses not exceeding EUR 20 000 for voucher-based work, employee work and payments to collaborators, including ‘project’ workers; the above cost ceiling includes all payments in the form of profits from investment to associates whose contribution consists solely of work and payments for services provided by the entrepreneur or their family members.
Lastly, persons residing in another EU State or in a state belonging to the European Economic Area that ensures an adequate exchange of information can opt for the flat-rate scheme if they derive at least 75% of their total income from Italy.