Do you have a VAT Credit in Italy?

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As a result of changes to the VAT processes in Italy in 2010, many companies are now finding that they are caught in a “VAT Credit Crunch”... too many credits being generated, with the prospect of refunds years away.

Circumstances giving rise to a VAT credit in Italy

Starting from February 2010, sales of goods by non established  entities (even if VAT registered in Italy) to Italian established entities are subject to VAT via the reverse charge.

Consequently, non established entities (VAT registered in Italy or not) who carry on domestic purchases or importations in Italy subject to VAT are now discovering that they are constantly in a VAT credit position.

This is also relevant for Italian companies who perform VAT zero rated transactions (e.g. International transport companies).

Why is this an important issue for your business now?

Cashflow: Accruing a VAT credit can result in funds being inaccessible for a significant period of time. Particularly amid these challenging economic conditions, efficient tax cash management and cost minimization are more important than ever.

Even after submitting refund claims, the actual cash payment from the Italian tax authorities will generally take between 1 to 4 years depending on the specific circumstances.

Administrative burden & cost: A VAT credit will result in increased accounting & procedural processes related to recording and valuing the accrual and also managing the process for claiming a refund.

Application to a wide range of businesses:  Accruing a VAT credit in Italy is relevant to both domestic and international businesses

How can EY assist you?

Our team of Indirect Tax specialists can help you to recover existing refunds as quickly as possible whilst minimizing any future VAT credits accruing in Italy:

Current status check: Establish and confirm if your business is in a VAT credit position in Italy and why.

Securing Refunds:  Assistance in ensuring that all refunds due are recovered from the tax authorities as quickly as possible.

Minimize future VAT credit: Our team will work with you to find the right solution to minimise or even eliminate a future VAT credit position in Italy.

Tailored solutions for your business:  Our VAT specialist teams offer assistance to meet the specific needs of your business.  Whether your company is based in the EU or outside, VAT registered in Italy or not, we can help you avoid or reduce the impact of the “VAT Credit Crunch.”

Our flexible solutions to minimize a VAT credit in Italy include:

  • Usual exporter approach
  • VAT Group
  • Customs / VAT warehouse
  • Special Customs regimes
  • Review of the supply-chain
  • Fixed establishment in Italy

As always, we will also work with you to develop the best future business model for your company in Italy – a strategy that complements your company’s broader business strategy.