VIES compliance and VAT reverse charge in Italy
The European Union VAT rules applied in Italy
Which are VIES compliance and EU VAT rules in Italy
In Italy, those who intend to carry out sales and purchases with traders based in EU countries must obtain a prior authorization from the Revenue Agency and subsequently to get the enrollment in the computer archive of VAT entities operating in the Community (VIES = VAT Information Exchange System) only if they meet the required requirements. This obligation applies to all subjects that engage in business, art or profession in the territory of the Italy or establish there a permanent establishment.
The obligation to enroll in Italy at VIES was introduced by Art. 27 of Decree Law no. 78/2010, to adapt the Italian tax legislation to EU directives.
There are two different ways to subscribe to VIES, depending on whether the taxable person:
is going to start the activity (so that he must therefore submit the declaration of starting) or
is already active.
1) Operators starting an activity must complete the "Intracommunity transactions" field I° of the forms:
- AA7 for subjects other than individuals (ie corporations);
- AA9 for sole proprietorship and self-employed workers.
2) Operators who are already in activity must use the Entratel / Fisconline's telematics services or have to use an authorized broker (accountant).
In both cases the registration has immediate effect, starting from the time of the VAT application or from the receipt of the electronic application for VIES registration.
Entry to the VIES is free of charge, no sum is required to access the database or to obtain the publication of the VAT number.
Cancellation from VIES can take place:
- by the will of the person concerned; in this case he must submit a specific communication using the telematic services, either directly or through an authorized broker (accountant); the Revenue Agency will exclude VIES upon receipt of the notice of withdrawal;
- on the initiative of the Revenue Agency:
a) following the negative outcome of the audit activity regarding the correctness and completeness of the data provided;
b) as a result of the failure to submit the sample Intrastat for 4 consecutive quarters, this implies the deletion of the relevant VAT ID from VIES, which takes effect from the 60th day following the communication by the competent office.
The Revenue Agency shall carry out checks on the VAT ID holders on the accuracy and completeness of the information provided by them (Articles 22 and 23 of EU Regulation 904/2010 and Article 35 paragraph 15-bis of Presidential Decree 633/72).
These subjects are periodically checked, also by inspection to the place of the activity, to verify the veracity of the data declared at the time of the request for allocation of VAT / inclusion in the VIES database.
These checks are made within 6 months from the date of inclusion of VAT ID in the VIES database, they can be repeated if:
- there are changes in the risk elements considered;
- there are inconsistencies between the data declared by the taxpayer and those resulting from the Revenue Agency.
If, on the basis of these checks, it is found that the taxpayer has no the requirements, the Revenue Agency may notify the taxpayer of a VAT ID deletion and exclusion from the VIES database. Cessation takes effect from the date of registration in the Tax Registry of the notification of this decision.
If, on the other hand, on the basis of the checks carried out, it is established that the taxpayer holding the VAT ID, notwithstanding the possess of the requirements, has carried out sales and / or purchases with operators in EU countries by committing VAT fraud, the Revenue Agency may notify the taxpayer of a cancellation order from the VIES database, disabling the VAT ID. Cancellation takes effect from the date of registration in the Tax Registry of the notification of this decision.
The taxpayer excluded from the VIES database may subsequently submit a new application for registration to the VIES (directly or indirectly by certified email) to the Revenue Agency.
VAT reverse charge in Italy
The VAT reverse charge in Italy is a particular mechanism concerning the application of value added tax (VAT) where the tax liability is transferred from the seller to the buyer.
The legal reference of the reverse charge VAT in Italy is Article 17, paragraphs 5 and 6 of dpr 633/1972 (so called "VAT decree").
How does VAT reverse charge work in Italy? The VAT reverse charge is a technical accounting mechanism in which:
- the seller issues invoice without charging the VAT (as it should normally do);
- the buyer integrates the invoice received at the concerning VAT rate for the type of transaction (normally is 22% but also lower rates for any cases) billed and at the same time proceeds with the double entry in the purchase register (purchase invoices) and in the sales register (invoices issued).
Practical example of the reverse charge mechanism:
- in a sale transaction between two parties the buyer is liable to VAT;
- the invoice is issued for € 1.000 with VAT exemption as per Article 17 dpr 633/1972;
- the seller will then issue an invoice without VAT, in the accounts will be recorded the following double entry: "credit to Company A: Revenue for the Sale of Goods / Service Provision";
- the buyer, on the other hand, will receive an invoice of € 1.000 but will register it by integrating it with VAT at 22%;
- in accounting, the buyer will then record two transactions: the purchase and the self-invoice; the buyer highlights the VAT both in giving and in having, thus neutralizing the transaction.
In summary: the VAT reverse charge in Italy consists of issuance of a self invoice, so that the buyer is charged to pay VAT to the Revenue Agency instead of the seller.
The buyer will charge the VAT on the sale to the final consumer, which is the real taxpayer of the VAT.
The VAT reverse charge finds its original and natural application in EU trade.
In Italy as in other EU member states, the reverse charge VAT is applied mainly to construction sector, but also in other areas such as:
- investment gold sales;
- sales of gold materials;
- sales of semi-finished products or purity of 325 thousandths or more;
- provision of services, including labor supply, made in the construction sector by subcontractors in relation to undertakings which carry out the business of building or restructuring real estate or in relation to the principal contractor or another subcontractor;
- sales of terminal equipment for terrestrial public radio communications;
- sales of personal computers and their components and accessories;
- sales of stone materials and products, directly from quarries and mines;
- sales of buildings or parts of buildings for which the transferor has expressly indicated the option for payment of VAT in the relevant act.
The VAT reverse charge does not apply to the provision of services to a general contractor to whom the contractor is entrusted with the entire work.
As a result of VAT reverse charge, the following occurs:
- the buyer is in charge for the payment of VAT if he is liable to VAT in the territory of Italy;
- the invoice is issued by the seller without VAT;
- on the invoice the words "Reverse accounting" are annotated;
- the invoice is accompanied by the indication of compliance with art. 21;
- the buyer has to add in the invoice with the indication of the VAT rate and its cash value, it must be entered in the invoice register (as per Articles 23 or 24) within the month of receipt or subsequently, but at least within 15 days after receipt and with reference to the relevant month;
- the invoice, for the purpose of deduction, is also recorded in the Purchase Register (Article 25).