Italy: VAT deduction and year-end peculiarities

VAT deduction rules are different during the year and at the end of the year, so particular attention has to be paid in order to properly detect the initial and the final terms for VAT deduction.

These rules apply both to VAT taxable persons established in Italy respectively Italian permanent/fixed establishments and to non-resident entities having a mere VAT registration in Italy (by way of direct VAT registration or appointment of a fiscal representative in Italy).

Initial term of the right of deduction: Italian VAT may be deducted starting from the time when the following 2 main requirements are jointly met:

• the VAT becomes chargeable, i.e. the underlying transaction is deemed to be performed for VAT purposes (that represents, generally, the deadline by which the related invoice should be issued); and
• the recipient has received and holds the related supporting, proper invoice.
   

Final term of the right of deduction: Italian VAT may be deducted, at the latest, within the same year when the initial term of the right of deduction started.

Consistently, focusing on the related booking in the VAT ledger, incoming invoices or customs bills must be booked before the periodical VAT computation where the VAT right of deduction is exercised and in any case within the filing term (nowadays 30.04.n+1) of the VAT return referred to the year when the invoice was received and with respect to the same year.

Operatively:

• during the year: if incoming invoices are received and booked by the 15th day of the month following the month when the underlying transaction was performed, it is possible to deduct the related input VAT by the 16th of the month following the month when the VAT became chargeable; for example: if the goods have been delivered on 28 November 2022 and the invoice is received on 30 November 2022 but it is booked on 3 December 2022, the related input VAT can be included in the VAT computation referred to November, to be settled by 16 December 2022 or (alternatively) it can be deducted in the VAT computation referred to December and in any case it must be deducted, at the latest, in the yearly VAT return referred to 2022 to be filed by 30 April 2023; conversely
• at the year-end: VAT can be deducted, at the latest, within the same year when the right of deduction arose; for example: if the goods have been delivered on 28.12.2022 and the invoice is received on 31 December  2022 but it is booked on 3 January 2023, the related input VAT must be included in the VAT computation for the month December or, at the latest, in the yearly VAT return for the calendar year 2022 to be filed by 30 April  2023; such an invoice must be booked separately (e.g. it cannot be booked together with the other input invoices received in January, but it must be booked separately, for instance, in a separate VAT purchase Ledger referred to the former year).
   

Particular attention shall be then paid to the date of receipt of purchase invoices and related proof:

• in case of e-invoices transmitted via SDI, the date of receipt is officially stated by the SDI (i.e. the exchange data system of the Italian Tax Authorities);
•  in case of paper invoices, depending on the underlying circumstances, it shall be appraised how to prove the related receipt; for instance, let’s consider “paper” invoices documenting intra-community acquisitions of goods, which imply (among else) the application of the reverse charge mechanism with both output and input VAT to be booked.
   

When drafting the yearly VAT return for 2022, to be filed by 30 April 2023, the above rules shall be kept clearly in mind, in order to have adequate cross-checks on invoices receipt and booking and avoid mistakes in the VAT deduction rules, with subsequent possible penalties (from 90% to 180% of the additional VAT in case of unfaithful VAT return).

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