Firm Guides · VAT in practice

VAT in practice: rates, settlements and input VAT recovery

Value Added Tax (IVA) is the indirect tax that accompanies almost every economic transaction carried out by businesses and professionals. Understanding how it works means avoiding invoicing mistakes, paying the correct amount and not losing the right to input VAT recovery. This guide, updated to the legislation in force in 2026, explains in practical terms the fundamental mechanisms of the tax, the applicable rates, the input VAT recovery rules, the deadlines for VAT settlements and the reporting and return-filing obligations.

What is VAT and how does it work

VAT is governed by D.P.R. 633/1972 (Italian VAT decree) and, for cross-border transactions, by D.L. 331/1993. It is a tax multi-stage and non-cumulative: it applies at each step of the production chain, but only on the value added generated at that stage. The actual burden falls on the final consumer, while for economic operators it is generally neutral.

The mechanism is based on two complementary legal institutes:

• Charge-back (rivalsa) (art. 18): whoever carries out the transaction charges VAT on the invoice to the customer, collects it and pays it to the State.
• Input tax deduction (art. 19): the taxable person recovers the VAT paid on purchases related to their business activity.

The difference between Output VAT and Input VAT determines the tax to be paid or the credit to be carried forward.

VAT requirements

A transaction falls within the scope of VAT only if simultaneously three requirements are met; if one is missing it is outside the scope of VAT.

• Objective: supply of goods (art. 2) or supply of services (art. 3) for consideration.
• Subjective: transaction carried out in the course of a business (art. 4) or of arts and professions (art. 5).
• Territorial: transaction carried out within the territory of the State (artt. 7 et seq.; for generic B2B services, the relevant place is that of the customer, art. 7-ter).

Operations must be distinguished outside the scope from those non-taxable (exports, art. 8), exempt (healthcare, financial, insurance services, art. 10) or taxable: the distinction affects the right to deduct and the pro-rata.

Italian VAT rates

To be confirmed for 2026: the classification of individual goods changes with the annual budget laws. Before applying a reduced rate, check the latest version of Table A.

Deduction and non-deductibility

The right to deduct applies if the purchase is directly related (inerente) to the activity and if the downstream transaction gives entitlement to deduction. It must be exercised no later than with the return relating to the year in which the right arose.

The pro-rata

Anyone who carries out both transactions giving entitlement to deduction and exempt transactions deducts proportionally: percentage = transactions giving entitlement to deduction / total active transactions × 100.

Objective non-deductibility (art. 19-bis1)

• Motor vehicles: deduction of 40% for mixed use; 100% if the vehicle is used exclusively in the activity (sales agents, car rental, taxi). The same rule applies to fuels, maintenance and leasing.
• Entertainment expenses (spese di rappresentanza): non-deductible VAT, except for goods with a unit cost not exceeding 50 euro.
• Hotels and restaurants: deductible if related to the business and documented by an invoice; non-deductible with a simple receipt.

Periodic VAT settlements and payments

• Monthly settlement (ordinary scheme): payment by 16 of the following month.
• Quarterly by option: for prior-year turnover not exceeding 500,000 euro (services) or 800,000 euro (other activities). Payment by the 16th of the second month following the quarter, with a 1% surcharge. The fourth quarter is included in the annual balance.

VAT prepayment (Acconto IVA): by 27 December, calculable using the historical method (88% of the relevant reference payment: for monthly taxpayers, the one for December of the previous year; for quarterly taxpayers, the one due with the annual return), the forecast method or the analytical method. Annual balance: by 16 March, payable by instalments or deferrable with an increase of 0.40% per month.

Settlement examples

Example 1 – VAT payable. Issued invoices for 20,000 euros + 22% VAT (VAT payable 4,400) and purchases for 12,000 euros + 22% VAT (input VAT 2,640). VAT settlement: 4,400 – 2,640 = 1,760 euros to be paid.

Example 2 – VAT credit. Fees for 10,000 euros + VAT (VAT payable 2,200) and purchase of equipment for 15,000 euros + VAT (input VAT 3,300). A VAT credit of 1,100 euros, carried forward to the following period or claimed as a refund.

LIPE and annual VAT return

The Periodic VAT settlement communication (LIPE) transmits the summary data for each quarter:

• 1st quarter: 31 May
• 2nd quarter: 30 September
• 3rd quarter: 30 November
• 4th quarter: by the last day of February (may be omitted if the data flow into the annual return filed by the end of February)

The Annual VAT return (Dichiarazione IVA annuale) is filed electronically between 1 February and 30 April.

Reverse charge and split payment

Reverse charge

The supplier issues an invoice without charging VAT; the customer integrates it, recording it both among purchases and among sales. It applies to construction subcontracts; cleaning, demolition, installation of systems; scrap and recovered materials; gold and silver; mobile phones, microprocessors, consoles, tablets and laptops (B2B); gas and electricity to resellers.

Split payment

Provided for by art. 17-ter for transactions with the Public Administration (Pubblica Amministrazione) and publicly controlled companies: the supplier charges VAT but does not collect it, because the customer pays it directly to the Italian Treasury. To be confirmed for 2026 any possible extension of the scheme, authorised by the EU with a defined time horizon.

Transactions with foreign countries

Intra-Community transactions

• B2B supplies to EU taxable persons: non-taxable (art. 41 D.L. 331/1993), subject to registration with the VIES.
• B2B purchases from EU suppliers: subject to VAT in Italy under the reverse charge.
• Requirement to file INTRASTAT forms according to the thresholds.
• Distance B2C sales: above the annual threshold of 10,000 euro VAT is due in the consumer’s country, which can be accounted for under the OSS.

Non-EU countries

• Exports: non-taxable (art. 8).
• Imports: VAT assessed and paid at customs.
• Generic B2B services: relevant in the customer’s country, with reverse charge for the Italian customer.

The habitual exporters purchase without VAT within the limits of the plafond, by transmitting the letter of intent. The communication of cross-border transactions takes place via the SdI.

VAT credits and refunds

• Carryforward to the subsequent period (ordinary solution).
• Offsetting in F24: for the use of the annual credit over 5,000 euro, the tax compliance attestation (visto di conformità).
• Refund if the conditions under art. 30 are met (average rate on purchases higher than that on sales, non-taxable transactions exceeding 25% of the total, purchase of depreciable assets, cessation of the business). The quarterly credit is claimed using the IVA TR form.

Refunds up to 30,000 euro do not require a guarantee; above that threshold, the visto is required with a substitute declaration (dichiarazione sostitutiva) or a surety bond (fideiussione).

Common mistakes to avoid

• Deducting VAT on expenses that are not business-related or are subject to limited deductibility (cars, representation expenses, restaurant meals without an invoice).
• Applying a reduced rate without checking Table A (Tabella A).
• Failing to self-invoice/integrate invoices under the reverse charge or for intra-EU purchases.
• Forgetting the VAT advance payment (acconto IVA) due on 27 December.
• Not submitting the LIPE or submitting them with data inconsistent with the payments.
• Exceeding the ceiling of habitual exporters.
• Claiming the input VAT deduction beyond the allowed deadline.
• Confusing transactions exempt, non-taxable and out of scope, with effects on the pro-rata.

In the event of omitted or late payment, it is possible to regularize through ravvedimento operoso (voluntary disclosure and payment adjustment). This guide is for informational purposes: for the analysis of the specific case, Studio Ponchio is available.

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