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ITALY - VAT CHANGES FOR NON RESIDENT COMPANIES

Since 20 February, Legislative Decree no.18/2010 has been in force which for Italy combines the three EU directives on VAT on services (directives no. 2008/8/EC, no. 2008/9/EC and no. 2008/117/EC).

The provision revolutionises the rules for identifying the place of taxation of the provision of services, and the application of VAT to the transfer of property and the provision of services carried out by a non-resident in Italy.

One of the biggest changes is represented by the general rule introduced by Leg. Dec. no. 18/2010 which establishes that the place of taxation is that in which the principal is established if he is a taxable subject of taxation, except that the rules allow special dispensation for provision of certain services.
In this way, the Italian Legislator intends to pursue the objective of fixing as the place of taxation that in which the actual utilization of the service occurs. On the other hand, for services rendered to private individuals, services are taxed in the place in which the service provider is established, in order to simplify the requirements of the economic operators.

In fact, for transactions carried out with regard to taxable persons, since application of the general criterion leads to identifying the place of taxation as that in which the principal is established, the latter must document the transaction according to the reverse charge system. When the recipient of the service is a private individual, the general criterion fixes the place of taxation as the Country of the provider, who may thus implement the requirements easily, namely by applying national VAT. In this way, the obligation to appoint a tax representative or identify oneself directly, with regard to active transactions, will only apply to transactions which, notwithstanding the general rule, are considered to be performed in the Country of the principal even when the latter is a private individual.

As anticipated, in the case of a transaction subject to VAT in Italy, either a transfer of property or provision of services carried out by a non-resident company for a taxable person established in State territory, the requirements relating to the application of VAT are incumbent on the national transferor/principal even if the non-resident is identified in Italy.

Therefore, in such a scenario a non-resident company identified directly or with a tax representative in Italy can no longer apply VAT to invoices for transactions carried out for transferors or principals who have the status of taxable persons established in Italy, and for input tax on acquisitions must submit an application for refund.

On a practical level, the fact that foreign companies identified or with a tax representative in Italy can no longer issue VAT invoices to their Italian clients will prevent them from offsetting any tax credit on acquisitions made in Italy. So they will be obliged to apply for a refund of the VAT paid.
Non-residents will therefore have to carefully assess the option of opening a subsidiary or a permanent establishment in Italy, or close the direct identification or revoke the appointment of the tax representative to activate the refund of the VAT paid on acquisitions or imports made in Italy via the refund procedure set out in article 38-bis 2 Presidential Decree 633/1972, which came into force on 1st January 2010.

The new rules stipulate that the above provisions do not apply to transactions carried out by or for non-residents, if they are rendered or received through permanent establishments in State territory. However, following the amendments introduced, a non-resident with a permanent establishment in Italy cannot contemporaneously undertake direct identification and cannot appoint a tax representative, and if there is a permanent establishment in Italy all transactions completed in Italy by the non-resident must "pass" through the permanent establishment.

For transactions carried out in Italy by non-residents for private consumers or non-commercial entities without a VAT number, a non-resident transferor/provider is obliged to identify himself (unless, in this case also, the transaction is performed through a permanent organization in Italy), thereby obtaining a VAT number, as follows:

1. Through direct identification, prior to the carrying out of the transactions for which it is wished to adopt the above system. Direct identification can be applied to persons who exercise business, artistic or professional activities in another member State of the European Union or in a third-party Country with which there exist legal instruments governing reciprocal assistance with regard to indirect taxation;
2. Alternatively, with regard to direct identification as referred to in point 1), appointing a tax representative resident in State territory, provided this precedes the passage of the property. A tax representative is jointly responsible with the party represented with regard to obligations arising from application of the rules on value added tax.The procedures referred to in 1) and 2) are alternatives, so they cannot co-exist.
   If the obligations arise from the carrying out of non-taxable transactions of transport and transport accessories only, the requirements are limited to performance of the obligations relating to invoicing.
3. To a limited extent to services rendered via electronic means by subjects domiciled or resident outside the Community, to non-taxable principals who are taxable persons domiciled in Italy or another member State, using the appropriate VAT identification obtained from one of the States of the Community.

In view of the complexity and importance of the changes introduced, it is hoped that clarification will soon be forthcoming from the Italian Revenue Office on the subject.

Studio Associato De Vecchi  is available to provide further specific clarification on the matter and for particular business sectors, and assistance with tax and corporate planning for handling VAT transactions in Italy for non-resident persons.
Milan, 22 February 2010     

For more information please contact Francesco Marconi at Studio Associato De Vecchi, Milan, Italy.

Studio Associato De Vecchi is a member of HLB International. Formed in 1969, HLB International, through its member firms, can assist clients to do business in over 100 countries, with annual billings of over US$ 1.9 billion, generated by more than 1,720 member firm partners and 13,510 staff in over 450 offices.

The above item deals only briefly with matters of a technical nature. Before considering its application to your own circumstances, HLB International and the author recommend that you obtain professional advice from a suitably qualified person. Neither nor any member firm of HLB International accepts responsibility for any step you may take, or fail to take, on the basis of the above item.

HLB International is a world-wide network of independent professional accounting firms and business advisers, each of which is a separate and independent legal entity and as such has no liability for the acts and omissions of any other member. HLB International Limited is an English company limited by guarantee which co-ordinates the international activities of the HLB International organisation but does not provide, supervise or manage professional services to clients. Accordingly, HLB International Limited has no liability for the acts and omissions of any member of the HLB International network, and vice versa.