Italy attracts foreigners to do business for many reasons. One of them is economic stability. According to statistics, Italy is ranked 8th in the top 10 largest economies in the world and 4th among the EU economies. Another reason is a high standard of living, access to the European market, and loyal conditions for doing business.

Nowadays, Italy is one of the largest manufacturing countries and is among the top 10 world manufacturers due to the quality of its products.

Almost any business activity in Italy requires obtaining a VAT number. 

I.V.A. – Value Added Tax in Italy 

I.V.A. – is an indirect tax, introduced in Italy in 1972, applied to the supply of goods and services provided by entrepreneurs, artisans, and liberal professions, as well as to the import of goods of any origin. 

VAT through the system of tax deductions has a full impact only on the final consumer who pays the tax. 

VAT is defined as an indirect tax, it is proportional to differentiated rates in the sense that it is applied in proportion to the value-added of goods/services, and is based on different rates, which aim to differentiate the tax burden. 

VAT in Italy applies to all goods and services that are an object of consumption since the rates of this tax are higher for those goods/services that are considered luxury goods or unhealthy. 

VAT is charged to the final consumer. Although every transaction is subject to VAT, every Italian entrepreneur can automatically deduct the tax paid on purchases at the end of the tax period. It follows from this that in the end, the tax will only burden the final consumer, who, unable to deduct anything, is fully taxed. 

Transactions that are subject to VAT in Italy: 

  • sale of services/goods in Italy, transfer of goods (results of services provided), transfer of property rights, and ownership of goods/results of work performed; 
  • transfer of goods on the territory of Italy (performance of work, provision of services) for their own needs, the costs of which are not deducted when calculating corporate income tax; 
  • import of goods into Italy.  

Entrepreneurs, artisans, freelancers, and importers are subject to VAT. 

The consumer is not legally a taxpayer, because:  

  • he/she has no tax obligations to the state and is not obliged to fulfill them; 
  • he/she has no tax relationship with the tax authority that creates the liability;  
  • his/her payment is determined by the economic case of the forward tax transfer. 

VAT-exempt transactions in Italy 

Tax-free transactions that fall within the scope of the tax and are subject to billing and registration obligations generate turnover but are not taxed. 

These transactions recover the VAT paid by the manufacturer on purchases and expenses. 

VAT-exempt transactions are export sales, similar transactions, and services related to international trade, including those that are carried out in the Vatican, San Marino, and those that are carried out following international treaties. 

VAT exemption 

Some transactions do not involve the application of VAT by Italian businessmen. Such transactions: 

  • they are not subject to tax payment; 
  • subject to billing and registration in tax books; 
  • it does not allow refunds of VAT paid by the manufacturer on purchases and expenses. 

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