Non-residents and VAT-relevant transactions in Italy: Direct VAT identification or fiscal representative?

Are you a non-resident entity in Italy wishing to carry out VAT-relevant transactions in Italy? You may be required to appoint a fiscal representative or register for VAT purposes in Italy, i.e. obtain an Italian VAT number.

When is it mandatory? 

The appointment of a fiscal representative or the opening of a so-called direct VAT identification (identificazione diretta ai fini IVA) allows non-resident companies/operators that are neither established in Italy nor have a permanent establishment there to exercise their rights and fulfil their obligations under Italian VAT legislation in connection with VAT-liable transactions carried out in Italy.

Such appointment of a fiscal representative or the opening of a direct VAT identification is compulsory whenever a foreign company/operator carries out a VAT-liable transaction in Italy and (i) the related VAT obligations fall on that foreign company/operator itself, (ii) the transaction is carried out vis-à-vis persons not required to apply the reverse charge mechanism (inversione contabile), or (iii) it is otherwise required due to specific needs connected with intra-Community trade.

Relevant examples include:

• sales of goods to private individuals in Italy (for example in the context of fairs or markets);
• sales of goods located in Italian warehouses to foreign subjects (for example sale of a machine located in Italy to another foreign company);
• supplies of real estate services territorially relevant in Italy rendered to private individuals (for example, painting works on privately owned property);
• exceeding the threshold of Euro 10,000 for e-commerce activities (once this amount is exceeded, VAT registration in Italy is required);
• introduction of goods into special VAT “warehouses” (Article 50-bis of Presidential Decree 633/72);
• distance sales of goods subject to excise duty in Italy;
• specific cases of triangular or quadrangular transactions.

Appointment of a fiscal representative in Italy and subsequent fulfilments

In accordance with Article 17(3) of Presidential Decree 633/1972, non-resident entities must fulfil their obligations and exercise their rights by appointing a tax representative resident in Italy.

To appoint a tax representative – who may be a natural or legal person – the non-resident company is required to provide the following documents: 

• an original power of attorney, signed by the legal representative, appointing the tax representative, bearing a notarial apostille (the notary issuing the apostille must be a signatory to the Hague Convention);
• an up-to-date extract from the companies register, dated no more than six months prior, likewise bearing a notarial apostille (the notary issuing the apostille must be party to the Hague Convention); for Germany, Belgium, Denmark, Estonia, France, Ireland and Latvia it is sufficient for the extract to be signed and stamped by an official of the foreign Chamber of Commerce or by a notary;
• identity documents of the legal representatives.

The appointment of the tax representative must take place before the date on which the first transaction relevant for VAT purposes is carried out in Italy and must be notified to the other contracting party before the transaction is carried out. 

The person appointed as fiscal representative must open a VAT position on behalf of the principal. Once this is done, the foreign company — acting through its fiscal representative — becomes subject to all the rights and obligations set out under Italian VAT law.

In practice, this means filing the declaration of commencement of business activities (Form AA7 or AA9), applying for an Italian VAT number and filing the annual VAT return. The Italian VAT number must appear on all invoices.

Subjective requirements and financial guarantee obligation

To take on the role of fiscal representative, subjective requirements of reliability and good standing are required as well as a financial guarantee.

The fiscal representative must meet a subjective requirement of reliability and good standing (in short: absence of relevant criminal convictions, even if not final, and absence of ongoing disqualification or interdiction measures). This must be certified by means of a self-declaration made in lieu of affidavit, submitted to the competent Italian Revenue Tax Agency.

The financial guarantee (surety insurance, bank guarantee or security deposit in government bonds or securities guaranteed by the State) is required where the representative acts on behalf of more than one foreign entity. The amount of the financial guarantee, ranging from a minimum of Euro 30,000 up to a maximum of Euro 2,000,000, depends on the number of foreign entities represented.

The procedure for direct VAT identification and subsequent fulfilment

If the foreign entity is resident in a Member State of the European Union or in a non-EU country with which a reciprocal administrative assistance agreement in the field of indirect taxation is in force, it may opt for the procedure of direct VAT registration in Italy (direct VAT identification), as introduced into Italian law by art. 35-ter of Presidential Decree 633/1972, in implementation of EU Directive No. 2000/65/EC.

Unlike in the case of a fiscal representative, under the direct VAT identification the foreign entity operates directly, without intermediaries, obtaining its own Italian VAT number.

Before carrying out a transaction relevant to a specific area in Italy, you must submit the following documentation when applying for VAT registration in Italy:

• the duly completed ANR/3 form;
• the original certificate of VAT registration in the State of establishment/residence, together with a sworn translation into Italian;
• the original extract from the foreign Chamber of Commerce register, likewise with a sworn translation into Italian;
• a signed self-declaration describing the activity planned in Italy and the reasons for the direct registration in Italy, pursuant to Article 47 of Presidential Decree 445/2000;
• a copy of the signatory’s valid identity document.

The application must be submitted exclusively to the Italian Tax Revenue Agency – Operational Centre of Pescara (Centro Operativo di Pescara, via Rio Sparto no. 21, I-65100 Pescara), either by hand delivery to the office or by postal service with acknowledgement of receipt.

The office assigns the applicant a VAT number, which must be stated in the tax returns and in all documents relevant for VAT purposes. From this point on, the identified taxpayer may exercise the right to deduct input VAT and claim a refund of any credit surplus, but may not offset such credits against debts relating to other taxes.

Periodic obligations

Both the fiscal representative and the directly identified entity must manage:

• accounting management for VAT purposes;
• preparation of periodic VAT settlements and related reporting;
• payment of any VAT liability (monthly or quarterly);
• drafting of the annual VAT declaration.

It should also be considered that Italy has introduced mandatory e-invoicing. Although fiscal representations and direct identifications are excluded from this obligation, they are nevertheless indirectly involved (for example, as counterparties of Italian operators that are subject to the e-invoicing requirement).

Fiscal representative, direct VAT identification or permanent establishment

These are three alternative positions. Therefore, the non-resident entity with a permanent establishment in Italy cannot also operate through a fiscal representative or direct VAT identification.

For the purposes of direct taxation, a permanent establishment refers to a permanent place of business through which an enterprise resident in one country carries on its activity, in whole or in part, in another country. Three requirements must be met, (i) the existence of a place of business, (ii) the spatial and temporal permanency of the latter and (iii) the conduct of the business activity in Italy in and by means of said fixed base. 

Particular attention must be paid, as the non-resident foreign entity can only avail itself of the simplifications provided by the system for fiscal representations and direct VAT identifications if does not already have a permanent establishment in the country.

These are but a few points to take into consideration. Should you be planning to carry out VAT-relevant transactions in Italy, it is important to familiarize yourself with the specific requirements and regulations.

Are you interested in learning more about the figure of the fiscal representative or the direct identification for VAT purposes in Italy? Contact us, we will be happy to provide our support.