Italy’s tax authorities published a resolution on 2 May 2024 in which they confirm a reciprocity agreement between Italy and the UK relating to VAT refunds following Brexit. Based on this agreement, Italian taxable persons can directly request a VAT refund for purchases made in the UK and UK taxable persons can request a refund for purchases in Italy. The reciprocity agreement became effective on 7 February 2024 and applies retroactively as from 1 January 2021.
Further, certain rules no longer apply, including article 38-bis2 of Italy’s Presidential Decree No. 633/1972 (Italy’s transposition of the 13th EU Directive into its domestic law): "Persons established in other member states of the Community who are subject to tax in the state in which they have their domicile or residence shall apply for a refund of the tax paid on the importation of goods and purchases of goods and services, provided the VAT is deductible under Articles 19, 19-bis1 and 19-bis2, in accordance with the provisions of this article."
According to the 13th EU Directive (under which companies outside the EU that are not VAT-registered within the EU can recover VAT provided specific requirements are met), the VAT refund procedure can be applied only if reciprocity conditions exist between the relevant countries. Article 38-ter of the above Presidential Decree states that: "The provision of the first paragraph of Article 38-bis2 also applies, subject to reciprocity, to persons engaged in a business, art or profession, established in states outside the Community, limited to the VAT on purchases and imports of movable goods and services inherent in their activity."
The reciprocity agreement resolves the uncertainty with respect to VAT refund claims and makes it easier for:
The agreement effectively equalises the treatment of UK taxable persons and EU taxable persons, since in both cases, it is now possible to request a VAT refund in Italy without having a VAT number or appointing a VAT representative in Italy. In accordance with the 13th EU Directive, a VAT refund must be requested by filing Form VAT 79 with the tax office by 30 September of the calendar year following the year to which the refund relates.
Francesco Grandolfo
Marco Bonfiglio
BDO in Italy
Implications of Brexit
Following the UK’s departure from the EU effective 1 January 2021, the UK became a third country with respect to the EU, meaning that both UK and Italian businesses had to appoint a local VAT representative to obtain a refund of VAT paid in the other country (the VAT representative requirement can be avoided if a reciprocity agreement is concluded between Italy and a non-EU country or if the non-EU business participates in the EU One Stop Shop or Import One Stop Shop).Further, certain rules no longer apply, including article 38-bis2 of Italy’s Presidential Decree No. 633/1972 (Italy’s transposition of the 13th EU Directive into its domestic law): "Persons established in other member states of the Community who are subject to tax in the state in which they have their domicile or residence shall apply for a refund of the tax paid on the importation of goods and purchases of goods and services, provided the VAT is deductible under Articles 19, 19-bis1 and 19-bis2, in accordance with the provisions of this article."
According to the 13th EU Directive (under which companies outside the EU that are not VAT-registered within the EU can recover VAT provided specific requirements are met), the VAT refund procedure can be applied only if reciprocity conditions exist between the relevant countries. Article 38-ter of the above Presidential Decree states that: "The provision of the first paragraph of Article 38-bis2 also applies, subject to reciprocity, to persons engaged in a business, art or profession, established in states outside the Community, limited to the VAT on purchases and imports of movable goods and services inherent in their activity."
The reciprocity agreement resolves the uncertainty with respect to VAT refund claims and makes it easier for:
- Italian taxable persons to recover VAT receivable in the UK under UK rules; and
- UK taxable persons to recover VAT receivable in Italy under the combined provisions of the above articles in Italy’s Presidential Decree.
BDO insight
It should be noted that the reciprocity agreement applies retroactively to the Brexit effective date, i.e., 1 January 2021.The agreement effectively equalises the treatment of UK taxable persons and EU taxable persons, since in both cases, it is now possible to request a VAT refund in Italy without having a VAT number or appointing a VAT representative in Italy. In accordance with the 13th EU Directive, a VAT refund must be requested by filing Form VAT 79 with the tax office by 30 September of the calendar year following the year to which the refund relates.
Francesco Grandolfo
Marco Bonfiglio
BDO in Italy