VAT between the UK and Italy


Italy flagAs Italy and the UK are both in the European Union VAT Area, there are complicated VAT rules affecting business carried out between the 2 countries. This post outlines the main issues as they apply to a small UK business.

‘Italy’ in this context includes Sardinia and Sicily, but excludes San Marino, Livigno, Campione d’Italia and the Italian Waters of Lake Lugano.

The UK comprises England, Wales, Scotland, Northern Ireland, and (generally for VAT purposes) the Isle of Man but not the Channel Islands.

Italian VAT is called ‘Imposta sul valore Aggiunto’, or ‘IVA’. In January 2012 the standard rate of Italian VAT will increase to 23%, but reduced rates of 10% or 4% may apply to some supplies.

Exporting goods to Italy

A VAT-registered UK business does not need to charge VAT on goods it is sending to Italy, provided it keeps documentary proof of export. It must also obtain the Italian customer’s IVA registration number and show it on the invoice (including the IT prefix).

For VAT purposes it is physical movement of goods that is relevant, rather than the invoicing name or address. An invoice to an Italian customer when the goods are not leaving the UK will not normally be classed as an export, and UK VAT would be chargeable.

Even where VAT is not being charged, the net value of the sale must still be reported on the UK VAT return, in boxes 6 and 8. It should also be included on the EC Sales List, and the Intrastat return if the business is required to make one.

The UK business is able to reclaim any UK VAT on the goods which it is exporting, subject to the normal rules about reclaiming input VAT.

If the Italian customer is not registered for IVA, and the UK business is not registered for IVA, then UK VAT must be charged. In this case, the sale is included in box 1 and box 6 of the UK VAT return, but not box 8. It does not get included on the EC Sales List, but is liable to be reported on Intrastat. No VAT is chargeable on goods which would normally be zero-rated or exempt when supplied in the UK (for example, books, children’s clothing and some food items).

Any compulsory extra charges for freight, shipping, postage or delivery should be charged at the same rate of VAT as the rest of the items in that shipment, being either 0% if all the conditions are met, or the usual UK rate applicable to those items if not.

Regardless of whether or not VAT was charged on the sale, if the UK business accounts for VAT on the Flat Rate Scheme, it must include the value of the export in the turnover on which the Flat Rate VAT is paid. This may mean that the business is better off not being on the Flat Rate Scheme.


Every year the UK business should check whether its level of sales to unregistered customers in Italy requires it to register for IVA under the distance selling rules. Broadly, these require a UK business to register for IVA, and then charge IVA instead of UK VAT, if its sales of goods to customers in Italy who are not registered for IVA are over €27,889 in a calendar year. All such sales would then be outside the scope of UK VAT, but still reportable in boxes 6 and 8 of the UK VAT return. They would not get included on the EC Sales List, but are liable to be reported on Intrastat. Overseas registration is also optional at lower levels of sales, but as rates of Italian IVA are typically higher than the UK VAT equivalent, this is unlikely to be favourable.

Importing goods from Italy

A VAT-registered UK business importing goods from Italy should give the Italian supplier its UK VAT registration number (including the GB prefix) so that Italian IVA does not get charged. If IVA is charged, the UK business cannot reclaim it on their UK VAT return or by a direct claim to the Italian tax authorities. The best that the UK business can do in these circumstances is to confirm its VAT registration number to the Italian supplier, then ask for a full credit note and for the goods to be re-invoiced without IVA.

When a UK VAT-registered business imports goods from Italy from an Italian IVA-registered business, the UK business should pay UK VAT on the import by including VAT in box 2 of its regular UK VAT return, at the appropriate UK VAT rate. It may then reclaim that same amount from HMRC by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input tax. The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Italy. The net value of the import should be included in boxes 7 and 9 of the UK VAT return. Imports do not get shown on EC Sales Lists, but are liable to be reported on Intrastat.

If the UK business accounts for VAT on the Flat Rate Scheme, it must still pay the full UK rate of VAT (rather than the reduced Flat Rate of VAT) on imports by including them in box 2 as above. As with other expenses under the Flat Rate Scheme, the right to reclaim that VAT in box 4 is very limited.

Special VAT rules for the movement of goods

Different rules may apply in certain less-common situations:

Samples;
Movements of goods for process, repair etc;
Goods supplied on sale or return;
Excise goods;
Consignment stocks;
Triangular business transactions;
Temporary movement of goods;
Transfers of own goods between the UK and Italy within the same legal entity;
Installed or assembled goods;
Goods sent for testing;
Supplies to privileged persons in other EC states;
Call-off stocks;
Mobile phones and computer chips.

Details can be found in VAT Notice 725.

VAT on services provided in or to Italy

UK VAT may need to be charged on services performed in Italy or to clients based in Italy, depending on the type of service supplied. This is a complex area, and there are specific rules for the following services:

  • Services relating to land or property
  • Services of short-term hire of means of transport
  • Services involving physical performance and events. For example artistic, cultural, education and training, sporting, entertainment services, exhibitions, conferences, meetings
  • Supplies of admission to artistic, cultural, education and training, sporting, entertainment events, exhibitions, conferences and meetings and services related to admissions
  • Ancillary transport, valuation of/work on goods
  • Restaurant and catering services
  • Passenger transport
  • Freight transport
  • Intermediary services (generally agencies or brokers working for a commission)
  • Training services supplied to overseas governments


Italian sporting eventEverything else is covered by a general rule. This includes copyright, royalties, licences, other intellectual rights, advertising, consultants, engineers, lawyers, accountants, data processing, written translation, computer programming, software maintenance, web design, sound engineers and technicians, the supply of staff, banking and insurance.

Under the general rule, if the service is being supplied to a consumer (rather than a business) in Italy, it will be subject to UK VAT. This means that UK VAT must be charged at the usual UK rate, either standard rate, reduced rate, zero-rated or exempt. The UK business will account for VAT in the usual way.

If the service under the general rule is being supplied to a business customer in Italy, it will be within the scope of Italian VAT (UK VAT is not charged). The customer does not need to be registered for IVA for the service to qualify as being for business purposes, but some evidence of the business purpose should be obtained.

Most services are then covered by the Italian reverse-charge procedure. This means that the Italian customer has the responsibility for dealing with most of the VAT issues. If not, the UK business may need to register for IVA, and then charge and account for it, according to Italian tax law. More about registering for IVA. If the reverse-charge applies, the UK business needs to:

  • Include an appropriate statement on the invoice, such as “This supply is subject to the reverse charge”
  • Include the net value of the service in box 6 of the UK VAT return
  • From January 2010, include the service on the EC Sales List

If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of services which are not subject to UK VAT due to them being performed in Italy or to a customer based in Italy.

If the Italian customer also has a branch or premises in the UK, it is necessary to look at the whole picture to decide which location is the most direct user of the service. This should reflect commercial reality, and may be different from the contractual position. For example, if the customer has their headquarters in Milan, and all invoices are sent there, but most contact is with their office in London, it is likely that the service will be treated as supplied in the UK and subject to UK VAT.

Services relating to land or property include estate agency, conveyancing, architects, surveying, construction, property maintenance and repair work, hotel accommodation (unless a tour operator), defined exhibition stands, and property management services. If the property is in the UK, the service is liable to UK VAT regardless of the status or location of the customer. If the property is in Italy, the service is outside the scope of UK VAT regardless of the status or location of the customer. The service may be chargeable to Italian VAT, and the business may need to register for IVA.

With all these services, it is important to look at the precise nature of the underlying service being provided. A business cannot turn one type of service into another by simply changing the description on the invoice.

The UK business is still able to reclaim any UK VAT on expenses which it incurs in providing a service which is deemed to be outside the UK, providing that the service would be taxable if it was made in the UK, and subject to the normal rules about reclaiming input VAT.

VAT on services received from an Italian supplier

If a VAT-registered UK business receives a service from an Italian supplier (whether registered for IVA or not), and the place of the service according to the above rules is in the UK, the UK business may need to reverse-charge that service. This is a simplification measure whereby the UK business accounts for UK VAT on the service as part of its regular VAT returns, to save the Italian business from having to do so.

It is easily put into practice by the UK business working out what the UK VAT would normally be on the charge for that service, and then including it in box 1 of its VAT return. It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input tax. The net value of the service should be included in boxes 6 and 7 of the same UK VAT return. Where the business can reclaim all of its input VAT, there is no net cost in making the reverse-charge entries.

If the UK business accounts for VAT on the Flat Rate Scheme, it does not need to pay Flat Rate VAT on the value of the reverse-charged service, or include it on its VAT return.

The reverse-charge does not apply to services which are normally exempt or zero-rated in the UK, for example, some financial or education services.

If, exceptionally, one of the following services is charged to a UK business, but the service is effectively used and enjoyed outside the EC (for example, in Jersey), the reverse-charge does not need to be applied in the UK. The services are:

  • Supplies of the letting on hire of goods (other than means of transport);
  • Telecommunications services;
  • Radio and television broadcasting services; or
  • Electronically supplied services.

If the UK business is not registered for VAT, and the service falls under the general rule for VAT on overseas services, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.

Reclaiming Italian IVA

Italian pizzaA VAT-registered UK business which buys goods (which are not for export) or services in Italy may be able to reclaim any Italian IVA paid, by using a special refund scheme. This is available to a UK business which is not registered in Italy for IVA, which has no physical presence in Italy and does not make any supplies there. The claim is made in Italian using the specified form, and sent to the appropriate tax office in Italy together with original supporting invoices and a UK VAT66 certificate. From January 2010, claims for refunds of Italian VAT under this scheme will need to be made online.



The main contact office for information about Italian IVA is:
Agenzia delle Entrate
Via C. Colombo, 426 C/D
00145 ROMA 00187 ROMA
Italia




29 Comments (oldest first)

  1. 1.  Laura Treacher says:

    Hello,

    I am not registered for VAT as my business turnover is not high enough. I currently buy stock from Italy and pay the Italian rate of 20%.

    Is there anything I can do about this?

    29 January 2009

  2. 2.  admin says:

    Your only option is to register for UK VAT, which you are allowed to do regardless of your level of business turnover. This would mean that you would not get charged any Italian VAT, but you would have to charge UK VAT on all your UK sales. Your customers would only be able to reclaim this if they were themselves VAT registered. You would also be able to reclaim the UK VAT on all your expenses, subject to the usual rules.

    1 February 2009

  3. 3.  jane johnson says:

    Hi
    I am based in UK
    I am about to be charged for services in Italy which have occured in Italy and are not exported outside Italy. I have been told these services - mainly translation are subject to Italian VAT at 20%. How can I find out what services are Vatable in Italy and how long it will take for me to claim them back from the Italian VAT office?
    thanks
    Jane

    2 February 2009

  4. 4.  admin says:

    If the services are intellectual or intangible in nature (translation usually qualifies), and you are based in the UK, then you should not be charged Italian VAT as the service is outside its scope.

    If you are charged Italian VAT, you can only claim it back if you are registered for VAT in the UK. If you are, you should contact the Italian VAT office that deals with VAT reclaims, which is at:

    Agenzia delle Entrate
    Centro Operativo di Pescara
    Team rimborsi IVA ai non residenti
    Via Rio Sparto No 21
    65100 Pescara

    Tel: +3985 577 2359/2318/2380
    Fax: +3985 577 2325
    Email: centrooperativo.pescara.ivanonresidenti@agenziaentrate.it

    Be warned that all paperwork will usually only be in Italian, and it can take many months before a payment is issued. You can use a local agency to handle the claim for you.

    7 February 2009

  5. 5.  John says:

    Hi,
    I am about to be based in Italy and am buying stock from the UK (paying UK VAT) to sell in Italy. Is it imperative to register for IVA or is there a turnover threshold in Italy, the same as in the UK, before having to register?
    Thanks

    16 February 2009

  6. 6.  admin says:

    Italy has very recently introduced a turnover threshold of 30,000 Euros for businesses which are based in Italy.

    18 February 2009

  7. 7.  Chris says:

    Hi, I am starting a business exporting clothes from UK to Italy. I am not VAT registered but my customers in Italy are IVA registered. I am putting their IVA number on the invoice. do i need to register for VAT or can i just start business as sole trader (self-employed)? I am going to use a business name (not just my own name) and put it on the invoices; do i need to mention also my name (i.e put my name and then say ‘trading as mycompanyname’? the company name is not registered. Thanks.

    13 May 2009

  8. 8.  Louis says:

    Hi there,

    we are a UK LTD selling products and services in Italy. I would like to know if we need to register for IVA and charge Italian VAT rate to our customers (at the moment our sales are less than €27,889 but they may soon increase above this figure).

    For products we mean ebook, audio and video courses. These are downloadable from our website or shipped to an italian home address (if the customer doesn’t have broadband we send them a CD which containes the relevant product encrypted by password, they then send us their machine ID and we send them the password so in way it’s almost as though as we sell them the license to view our products)

    For services we mean live events whereby our local italian instructor/life coaches teach our customers/students theoretical concepts as well as practical demos. We also have an consultation service done via email for which we charge a premium but revenues from this service are trivial.

    Finally we use italian companies and contractors who charge us italian VAT on their services for us and at the moment we are not claiming these costs back as we are not registered for VAT in the UK either.

    Thanks

    23 July 2009

  9. 9.  Keith says:

    Hi,

    Great website.

    Interesting questions on this blog - looks like I’m struggling in a similar boat - in a UK business that provides IT consultancy (which I believe to be outside the scope of IVA) over €30k a year (inside the IVA scope), and hoping not have to pay accountants in both UK and Italy!

    Any thought will be most appreciated.

    Many thanks.

    25 July 2009

  10. 10.  Claire says:

    I work for a marketing company in London, but we are managing some business in Italy which will require us to be billed by an Italian (IVA registered) company for a service which we will then charge on to our client (also Italian registered). The service is taking place in Italy (Napoli) - we are just managing the process in the UK.
    Would the Italian company invoicing us have to charge IVA and therefore we would have to look into reclaiming it? Or would the service fall outside the scope (we are a UK VAT registered company)?
    Thanks
    Claire

    2 October 2009

  11. 11.  admin says:

    Assuming that the service is advertising, and that there are no agency relationships in place:

    The Italian supplier should not be charging you IVA;

    You should account for UK VAT on the service received, under the reverse charge mechanism;

    You do not need to charge UK VAT to your Italy-based customer.

    6 October 2009

  12. 12.  Arianna says:

    Hello,

    I live in England and have been asked to do a translation for an Italian company. The company wishes to be invoiced. I am not usually a translator and this would be a one-off service.

    - Can I issue an invoice even if I am not VAT registered?
    - What would I need to put in the invoice?
    - Do I need to charge VAT to the Italian company?

    Thank you in advance.

    15 October 2009

  13. 13.  Vly says:

    We are UK VAT registered. We pay an Italian VAT registered travel agent for hotel reservation commission. Their invoice include a 20% VAT charge. Can we reclaim VAT?

    Thank you
    Vly

    10 February 2010

  14. 14.  admin says:

    As the VAT being charged is Italian VAT, it cannot be reclaimed on a UK VAT return.

    The service is likely to be covered by the reverse charging system, which means your Italian agent should not be charging you VAT in the first place. In this case, they can issue you with a credit note for the VAT they have already charged you.

    11 February 2010

  15. 15.  Malcolm says:

    Hi,
    I am, not a company, and returning to the UK from Italy. I was trying to arrange for a UK company to move my furniture. My former employee (European Commission) will reimburse me or pay directly. The Commission is insisting that UK removal companies charge VAT (i.e. IVA) at 20% as “source of supply”. Does this essentially mean that, strictly legally, no UK removal company can do backloads without being VAT registered in the foreign country?!

    Thanks, Malcolm

    7 July 2010

  16. 16.  Gareth says:

    Hi I am a U.K Business that is V.A.T registered.

    I buy in womens clothing from Italy and on the invoices no V.A.T is charged.

    I have two questions.

    How does this work when I come to do a V.A.T return?
    What do i need to pay V.A.T on? Is it the turnover I make from the sales of those goods and if this is the case I still input the V.A.T at 17.5% into my till systems? Or if this isnt the case do I input the V.A.T at 0% into my till systems meaning I dont pay V.A.T on those sales?

    Then do I also need to add the 17.5% onto the invoices I have received even though they are 0% rated from Italy?

    I am finding this all very confusing and I was on annual accounting and have been making the payments as normal from last year’s figures, although turnover has dropped by 20%. I have just filled in the V.A.T form and there is an additional 150% still to pay from what has already been paid. Is this possible?

    (Note the company was based in the U.K as a V.A.T registered business but at the start of the year they moved their accounting to Italy head office and this is why they charge 0% on invoices.)

    Your help would be much appreciated as I don’t have the money to pay the extra V.A.T that has been incurred and it would take me a full year to be able to pay it back which I am not sure HM Customs will be too happy about.

    26 November 2010

  17. 17.  admin says:

    You need to charge 17.5% VAT on your UK sales as normal, and then pay it to Customs by including it in Box 1.

    Then because you have imported the clothing, you need to add 17.5% of the purchase cost to Boxes 2 and 4. Thus, it does not cost you anything. As it says above:

    “When a UK VAT-registered business imports goods from Italy from an Italian IVA-registered business, the UK business should pay UK VAT on the import by including VAT in box 2 of its regular UK VAT return, at the appropriate UK VAT rate. It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input VAT. The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Italy.”

    The annual accounting scheme often results in large balancing payments being required, so your scenario is possible.

    27 November 2010

  18. 18.  Adrian says:

    Hi, we are a UK VAT registered company selling to a private non IVA registered customer in Milan, I therefore need to charge him VAT, will he pay IVA when the goods land as well?

    Thank you

    6 December 2010

  19. 19.  admin says:

    No.

    6 December 2010

  20. 20.  Jason says:

    Hi, we are a US supplier to a US customer. We are purchasing goods from an Italian supplier and having the goods drop shipped to a company in the UK on behalf of the US customer. The Italian supplier is invoicing us and we are in turn invoicing the US customer. We expect to be billed by the Italian company a 20% VAT, which we will in turn invoice the 20% VAT to our US customer. Is there a way around the 20% VAT billing to either the US supplier or the US customer?

    Much Regards,
    Jason

    10 February 2011

  21. 21.  admin says:

    You need to look at whether either you or your customer is able to or is required to register for UK VAT as a Non-Established Taxable Person. That may enable you to avoid the VAT. It gets complicated, so you need specific advice.

    11 February 2011

  22. 22.  Kevin Waterworth says:

    Hi, We are in the process of purchasing a large amount of stock from Italy, but we are still currently waiting for our VAT number, is there a way we can pay the Italian IVA then reclaim it somehow when our UK VAT number has been issued?

    14 February 2011

  23. 23.  admin says:

    Not directly, but you may be able to persuade your Italian supplier to issue a credit note once everything is in place.

    14 February 2011

  24. 24.  Judith Ruddock says:

    Hi, I need some info on the Intrastat obligations. I provide translation services through my non-VAT registered UK company to clients in Italy.
    Are they obliged to notify the service for Intrastat purposes at their end, and what is my obligation from my end?
    Thanks for your help.

    28 February 2011

  25. 25.  admin says:

    Intrastat applies to goods, not services, so there is nothing to report.

    28 February 2011

  26. 26.  Louise says:

    Hi,
    I have a UK business not registered for VAT (small T.O. and selling). I would like to attend some food festivals in Rome (giant open air markets open to public not professionals) but apparently I have to register for IVA in Italy, as a non resident. However to apply I need to quote my VAT n. in the UK.
    the 30K thereshold is not available to non resident. What can I do? Thanks

    18 March 2011

  27. 27.  admin says:

    You seem to be mixing up a few different issues here. What exactly is your question?

    19 March 2011

  28. 28.  Riccardo says:

    Hi,

    we opened a non-profit CLG in Uk to manage an open-source project we’re working on. The income will be mostly from donations (privates and companies)…hopefully !

    Anyway, we’re not VAT registered, and we’d like to buy some services from Italy, I could say intellectual ones (new graphic for the web site, some graphics for the brochures), small expenses all related to services in our mind.

    Should we pay Italian IVA ? I mean, should the Italian company has to charge us the IVA ?

    Thanks a lot, and very much compliments for the site !

    8 April 2011

  29. 29.  admin says:

    As long as your Italian supplier is satisfied that you belong in the UK, they should not charge you IVA.

    8 April 2011