From the 1st October 2013 the standard rate of Italian VAT (Imposta sul Valore Aggiunto – IVA) has been increased to 22%. This 1% increase was partly unexpected, although it had been announced months ago, because there had been rumours that this increase would not be implemented. At the last moment, almost by default, the 1% increase of Italian VAT has come into force at midnight of 30.09.2013.

There are three rates of VAT (Imposta sul Valore Aggiunto – IVA) in Italy.

The 4% “minimal” rate (Aliquota Minima) applies to items such as basic foods, newspapers and basic dwellings (Prima casa). The 10% “reduced” rate (Aliquota Ridotta) is levied on touristic services such as hotel and restaurant services and basic building restorations. The 22% standard rate (Aliquota Ordinaria) applies in all other cases.

Because of the rumours that this increase would not be allowed, the application of the new rate of IVA is partly “unexpected” and bound to cause problems. Also, it will be a greater incentive to evade this tax, to anyone prepared to consider tax evasion.

Because of the current economic crisis, some retailers have already announced that they will “absorb” this IVA tax increase and leave their current prices unchanged in order to protect their market shares.

How will it work ?

The “Imposta sul Valore Aggiunto ” rules (as usual) are complex, frequently changed or modified for particular cases / particular circumstances. However it is possible to give some very general indications.

Properties.

The relevant date is normally the date of the notarial deed of sale. Any sale of Italian property which is subject to IVA tax and is completed after midnight of 30.09.2013 will be subject to the new rates. The signature of the Preliminary Agreement (Contratto preliminare) being irrelevant, for Italian VAT purposes, as no legal title passes when this contract is signed.

Normally Italian properties are subject to Registration Tax (Imposta di registro) that is unaffected by the recent changes.

However where the seller is the actual builder or the professional restorer and the property is sold within 5 years of completion of building works, IVA tax will be applicable. The rates are 4% for main residential non-luxury dwellings (Prima casa), 22% for luxury properties, and 10% for all other properties. A small amount of Registration tax will also be payable at a flat rate.

Goods, commodities and chattels.

Subject to any payment on account already effected and to any invoice already issued, the new rate will apply with reference to the date of delivery / shipment. Any goods delivered or shipped after midnight of 30.09.2013 will be subject to the new rate of tax.

Professional services (Italian lawyers, accountants etc.).

Here, the application of the new rate of IVA tax will depend on the date when payment (either on account or in settlement) is effected.

It is a general requirement in Italy to issue the invoice when payment is received, irrespective of when the professional service is actually supplied. So irrespective of any quotation received from your Italian professionals, a larger amount of IVA, and a larger bottom line will apply from 01.10.2013.

This tax increase is unlikely to help revive the Italian economy.

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Claudio Del Giudice 03.10.2013