IN-DEPTH GUIDE TO THE ITALIAN VALUE ADDED TAX (IVA)

Transcription

1 IN-DEPTH GUIDE TO THE ITALIAN VALUE ADDED TAX (IVA) BY BIC SARDEGNA SPA 1

2 LIST OF CONTENTS THE REQUIREMENTS... 3 THE COMPANIES SUBJECT TO VAT TAXATION... 3 THE CLASSIFICATION OF ACTIONS... 3 THE TAX BASE CALCULATION AND ITS RATES... 4 THE CONCEPTS OF DEDUCTION, COLLECTIBILITY AND REIMBURSEMENT... 4 PAYING THE VAT... 5 THE PERIODIC PAYMENTS... 6 THE VAT DOWN PAYMENT... 7 THE VAT FULL PAYMENT... 7 THE OBLIGATION TO SUBMIT THE VAT STATEMENT... 8 THE OBLIGATION TO SUBMIT THE VAT TAX RETURN STATEMENT... 9 PAYING WITH A F24 FORM

3 INTRODUCTION This guide is designed to explain how the Value Added Tax (IVA) works. THE REQUIREMENTS GUIDE TO THE ITALIAN VALUE ADDED TAX The VAT is an indirect tax on consumption. The legal basis of this tax is Presidential Decree 633/1972, the full text of which is available at the following link: In order to determine whether the goods and services are subject to VAT, check whether the company complies with the following requirements as provided by the law. Here's the full list: subjective requirement: the sale of goods or service provision must be performed as part of the ordinary self-employed of corporate activity; objective requirement: the activity must refer to sales of goods or service provision; territorial requirement: the operations are carried out in Italy. For the VAT to be applied to the sale of goods or the provision of services, all of the three above-mentioned requirements must be met at the same time. For example, legal advice or the sale of a car may be included as services subject to VAT. THE COMPANIES SUBJECT TO VAT TAXATION VAT is applied also to you company. Considering the requirements above, any company selling goods or services, that carried out the sale of goods or service provision as part of the entrepreneurial activities carried out on the Italian territory, is included in the list of companies subject to VAT taxation. Also self-employed professionals are required to pay the Italian Value Added Tax. This guide, however, will not deal with this specific case, since it is different from corporate activities. THE CLASSIFICATION OF ACTIONS In order to better understand the Italian VAT system, an entrepreneurs should be well acquainted with the categories that the operations carried out by the company belong to. In addition, it is important to establish their significance for the calculation of the tax. In particular, the following categories should be taken into account: taxable operations; non-taxable operations; 3

4 tax-free operations; operations excluded from the VAT application. All taxable transactions are subject to VAT application and all accounting and tax obligations should be complied with, as provided for by the law. All non-taxable transactions are not subject to VAT application but the relevant accounting and tax obligations should be complied with. VAT-free transactions do not provide for VAT application, but they pose a limit to the entrepreneur's right to tax deduction and are subject to accounting and tax obligations. Finally, the transactions non included do not provide for the application of VAT and do not provide for any accounting and tax obligations. The following pages will include the analysis of the concept of VAT deduction. THE TAX BASE CALCULATION AND ITS RATES VAT calculation is not difficult: take the price of a good or a service (which represents the tax base) and multiply by the percentage (or rate) provided for by the law 1. Suppose that with your company wishes to sell baked goods at a price of EUR 2, EUR 3 and EUR 5. Let's assume, for simplicity, that the rate to be applied is 4%. The taxable amount of VAT to be applied on the sales is given by the sum of the prices. In order to get the VAT value, multiply the sum by the relevant rate. For example: (EUR = 10) by 4% = EUR 4. At present, the tax law provides for three rates: 4% (referred to as minimum); 10% (referred to as reduced); 22% (referred to as ordinary). THE CONCEPTS OF DEDUCTION, COLLECTIBILITY AND REIMBURSEMENT In order to fully understand the functioning of the Italian VAT, keep in mind that you have to become familiar with three important concepts: deduction, collectibility and compensation. The deduction is a corporate right which consists of the subtraction of the VAT amount paid of the sales of goods from the total sales VAT value. 1 In the absence of the price, the so-called normal value is usually taken into account: it is the market value in conditions of ordinary competition. 4

5 Remember that the VAT on purchases is a credit for your business. The VAT on sales, however, represents a debt towards the State. To understand how VAT deduction works, follow this example: your company sells stationery and, during 2013, achieved revenues amounting to EUR 100,000. A 22% rate applies to this amount; therefore your VAT value is in debt by EUR 22,000. Also during the year, your company has purchased goods to sell them at a price of EUR 80,000. On this amount the rate is always 22%, then we will have a VAT credit of EUR 17,600. The VAT on credit can be subtracted from the VAT on debt, with the right to deduction 2 : this means that the VAT paid to the State will be 22,000 - to 17,600 = EUR 4,400. On the other hand, the concept of collectibility is connected to the time when the activity takes place that determines the basis for VAT purposes. In other words, there is a connection between the date when the VAT-related transaction is made and the obligations to comply with. If you sell a piece of real property, the relevant date is the date of the issuing of the deed. On the other hand, if you sell a piece of personal property (for example, a truck), the data of delivery or shipping serve as reference points. Finally, the payment of the price is regarded as a proof that a service has been provided (the date serves therefore as the reference date for VAT purposes). The term compensation refers to the obligation/right of a company to increase the selling price of a product by the VAT share. PAYING THE VAT The settlement is the computation of the VAT value to be paid to the State: it consists of the algebraic sum of the VAT on sales and the VAT on purchases, which results from the VAT register. For further information on the use of VAT registers, please refer to Guide to the Italian ordinary accounting management or Guide to the Italian simplified accounting management. The sum of the two amounts may be: a debt: in this case, your company must pay VAT to the State a credit: it means that the company can deduct the VAT amount to its future VAT debit. 2 When the sales are fully or partially VAT-free, the right to VAT deduction on purchases has to be adjourned with some limitations. 5

6 VAT settlements are periodic: they are made on a monthly or a quarterly basis, according to the company's turnover and taxation scheme. Quarters are counted starting from Jan 1st (the first quarter including January, February and March, the second including April, May and June, and so on). The companies which pay the VAT on a quarterly basis are also required to 1% interest on the VAT due. Let's assume that, in May, a company has a VAT value on sales of EUR 2,000 and a VAT on purchases of EUR 1,000. The algebraic sum for the purpose if VAT settlement includes: EUR 2,000 1,000 = EUR 1,000 worth VAT debit due to the State. Suppose that, during the first quarter, the company generates a VAT on sales of EUR 5,000 and a VAT on purchases of EUR 10,000. In this case, the result of the settlement calculation is: EUR 5,000 10,000 = EUR 5,000 VAT credit. The amount may be deducted from any debt accrued during the following quarters. THE PERIODIC PAYMENTS The VAT periodic payment is as follows: businesses paying VAT on a monthly basis, are required to pay by the 16th day of the month following the month of reference. For instance, a company that has to pay its January VAT debit share, it will be required to pay by February 16th. companies paying VAT on a quarterly basis, are required to pay by the 16th day of the second month following the quarter of reference. In this case, a company that has to pay VAT for the third quarter (July, August and September), has time until November 16th to settle such obligation within the legal terms. Remember that the companies which are required to settle and pay VAT on a quarterly basis must comply with the same requirements set in the ordinary accounting scheme. That is: if you operate in the tertiary sector, the turnover of your company may not exceed EUR 400,000 a year; if you operate in the trade or production sectors, the turnover of your company may not exceed EUR 700,000 a year; If the turnover of your business is lower than the two thresholds above, you can settle and pay VAT on a quarterly basis. 6

7 THE VAT DOWN PAYMENT GUIDE TO THE ITALIAN VALUE ADDED TAX In addition to the periodic payments, a company is also required to pay a VAT down payment and a VAT full payment. The calculation of the down payment may be based on three methods: historical method: the VAT down payment is equal to 88% of the payment due for the last quarter or month of the previous year. For example, calculating the VAT value with the historical method for 2013 takes into account the payments made in December or the last quarter of the year forecast method: the VAT down payment is equal to 88% of the VAT that is expected to be paid for the last month or the last quarter of the current year. For example, a company calculates the value to be paid in the form of a down payment for the year 2013 on the basis of the month of December of the same year. transactional method: the VAT down payment is 100% of the amount generated by the settlement paid on the basis of the transactions made between December 1st and December 20th of the current year. In this case, if the settlement of the transactions made up to December 20th amounts to EUR 1,000 VAT payable, the down payment will amount to EUR 1,000. Remember that, if it is due, the VAT down payment must be paid by December 27th of each year. THE VAT FULL PAYMENT The VAT settlement is calculated by deducting the periodic payments and the VAT down payment, from the VAT due for the entire year. Here is an example: VAT full payment = total annual VAT amount - periodic payments - VAT down payment Suppose your company has a 2013 VAT debt amounting to EUR 50,000, EUR 25,000 worth of periodic payments and a VAT down payment of EUR 11,000. The balance of the VAT amount to be paid to the State is given by: EUR 50,000 25,000 11,000 = EUR 14,000. Keep in mind that if a VAT credit is accrued during the year or the previous years, it can be deducted from the current VAT due. 7

8 Suppose your company has a VAT debt amounting to EUR 10,000, EUR 3,000 worth of periodic payments and a VAT down payment of EUR 1,000. It turns out that last year the company accrued a EUR 2,000 credit. The balance of the VAT amount to be paid to the State is given by: EUR 10,000 3,000 1,000 2,000 = EUR 4,000. In addition, the company may settle VAT in a single payment or a number of instalments. The first deadline for the payment is scheduled to be on March 16th of the year following the relevant VAT settlement. Otherwise, you can choose to pay either in full or in instalments, starting from mid-june. For example, the 2013 VAT settlement may be paid by March 16th, Finally, remember that the Inland Revenue may decide upon and communicate the variations of the deadlines set for each payment. For updated information on the deadlines set by the Inland Revenue, visit the official website: THE OBLIGATION TO SUBMIT THE VAT STATEMENT The VAT statement is a tax document reporting important information on the activities carried out by the company. In particular, the statement must include: all purchase and sale transactions carried out during the year and which are relevant to VAT calculation; the amount of the VAT amount payable; the amount of the VAT amount deducted; the amount of the VAT amount due. The deadline for filling in and forwarding the VAT statement is, in principle, February 28th following the year of reference. For instance, the 2013 VAT statement must be submitted by February 28th, For further information on the VAT statement, please refer to the website of the Italian Inland Revenue: 8

9 THE OBLIGATION TO SUBMIT THE VAT TAX RETURN STATEMENT The VAT statement is another tax document that must include all the data related to the transactions and operations carried out within the Value Added Tax scope of action. In particular, the VAT statement must include: all purchase and sale transactions carried out during the year and which are relevant to VAT calculation; the amount of the VAT amount payable; the amount of the VAT amount deducted; the amount of the VAT amount due. the periodic payments; the VAT payment; other information concerning the proper application of the tax. Except from specific cases 3, the deadline for filling in and forwarding the VAT tax return forms is, in principle, September 30th following the year of reference. For instance, the 2013 VAT tax return forms must be submitted by September 30th, For further information on the VAT tax return statement, please refer to the website of the Italian Inland Revenue: PAYING WITH A F24 FORM Several taxes may be paid by means of a standard form divided into tables and sections, commonly known as F24 form. The F24 form includes different sections, depending on the nature of the tax to be paid: The Inland Revenue The National Institute of Social Insurance; The Regional Authorities; IMU and other local taxes; insurance and other social security institutions. 3 A special case is, for example, the submission of the VAT statement through an independent procedure, not included in the "Unico" form, that also includes the income tax statement, the IRAP form and the sector studies. 9

10 The form must include: the details of your business (tax code, tax residence, company name, etc.); the year and the period reference; the tax code (a 4-digit number indicating the tax); the amount to be paid to the tax authorities; possible tax credits available; the date of the payment; possible breaking down into instalments. For example, if March 16th, 2013 is the deadline to provide for the payment of the 2014 VAT full settlement and the amount is EUR 2,000, the company is required to enter the following data in the form: Section Inland Revenue - Duty Code: Year: 2012 Amount to be paid: 2,000 EUR Date: 16 March 2014 For further information on this topic, please refer to the following Inland Revenue website: 10