Recent alterations to the Italian tax system

The adjustments to the VAT system encompass the following aspects:

HARMONIZATION OF VAT RATES

This involves aligning the VAT rates with the new freedom granted by the European Union (EU) for setting VAT rates, which was agreed upon the previous year. Member states can now have up to three reduced VAT rates and a zero rate. However, one of these reduced rates may be less than 5%, but it is restricted to a specific range of goods or services. The aggregate effective rate across these rates should not fall below 12%.

VAT GROUP REGULATIONS

The existing rules regarding VAT groups have been simplified. This enables affiliated companies to share the same VAT number and effectively apply a zero rate to transactions between them, reducing compliance burdens and unnecessary cash flow.

VAT EXEMPTIONS

The reforms are designed to bring Italy's VAT exemption regulations more in line with EU law, particularly concerning real estate transactions.

VAT DEDUCTIONS

There are three significant reforms concerning the right to deduct input VAT incurred on expenses. Firstly, pro rata calculations for mixed-use goods have been adjusted. Secondly, new regulations have been introduced for real estate and residential buildings. Lastly, the right to deduct VAT on invoices from previous periods has been addressed.

ART AND COLLECTOR ITEMS

Italian rules will be harmonized with EU Directive 2020/542 regarding imports and the application of reduced rates. Additionally, resellers will have the option to participate in the margin scheme.