Anyone building, renovating or buying a flat in Italy will encounter different VAT rates and special rules. Under Italian VAT law, the standard rates are generally 22%, 10%, 5% and 4%. In the construction industry, the 4% and 10% rates are particularly relevant, whilst the 5% rate is of no practical significance. The standard rate of 22% applies whenever no preferential treatment or special rule applies. Depending on the type of building, the work carried out and the principal, client, the reverse charge mechanism may also apply.
Purchase of a flat
Here, a distinction must first be made between a “
primary residence” and a “
main residence”. The primary residence is the first property purchased, whereas the main residence is the one that is actually used predominantly.
First home “Prima casa” tax relief (4% VAT)
When purchasing a primary residence, the “prima casa” tax relief may be claimed under certain conditions. In this case, the VAT rate of 4% applies.
Conditions:
- The buyer must not own a property in the same municipality, either alone or jointly with their spouse, nor must they hold any other property suitable for residential purposes over which there are rights in rem such as usufruct, right of residence or right of use.
- The buyer must not have previously purchased any other property anywhere in the country whilst claiming the “prima casa” benefit.
- The property must be situated in the municipality where the buyer already has their residence or establishes it within 18 months of the purchase. Alternatively, it is sufficient for the buyer to work there. However, the residence does not necessarily have to be in the property itself.
Exception:
The benefit may be claimed again if the property that previously qualified for the benefit is sold within two years.
Inportant:
- The primary residence purchased under the “prima casa” scheme does not automatically have to be the same as the main residence where the buyer actually lives.
- The benefit does not apply to luxury properties (cadastral categories A/1, A/8 and A/9).
Without the benefit
If the preferential rate cannot be applied, the VAT rate of 10% generally applies.
Construction and renovation work (redevelopment)
For construction and renovation works, both the
type of work and the
type of building are decisive for VAT purposes. Italian building law distinguishes between four categories:
- routine maintenance: e.g. painting, minor repairs, replacement of floor coverings
- extraordinary maintenance: e.g. replacement of systems, bathrooms, windows or doors, without fundamentally altering the building
- Renovation / conservative restoration: measures for preservation and renewal, including work on load-bearing structures
- structural redesign: comprehensive interventions ranging from extensive alterations to demolition and reconstruction.
For residential buildings that are “redevelopment”, the preferential VAT rate of 10% applies to all types of work mentioned, regardless of whether it is a primary residence or main residence.
For commercial properties (e.g. workshops, offices, halls or warehouses), however, the reduced rate of 10% applies only to renovation and structural redesign. For routine and extraordinary maintenance, the standard rate of 22% applies.
Special rule for “significant goods” (beni significativi)
Of particular practical relevance is the provision concerning so called “significant goods”, which include, amongst others:
- Lifts and goods lifts
- Windows and doors
- Boilers
- Video intercom systems
- Air conditioning systems
- Sanitary facilities and bathroom fittings
- Security systems
If these are supplied and installed as part of routine or extraordinary maintenance work on residential buildings, the 10% VAT rate does not apply to the entire invoice amount. The concession applies only up to the value of the labour and the other, insignificant components. The portion of the significant goods exceeding this amount is subject to the standard rate of 22%.
Example:
- Total invoice: € 10,000
- of which major items, such as windows: € 6,000
- Other work, including labour: € 4,000
In this case:
- 10% VAT on the full € 4,000 of the other services,
- 10% VAT additionally on the € 4,000 for the major item,
- 22% VAT on the remaining € 2,000 of the major item.
Reverse charge in the construction industry
In the construction industry, the reverse charge is frequently applied. In such cases, the invoice is issued without VAT. A prerequisite is that the principal is a VAT-registered entity. The relevant provisions are governed by Article 17(6) of the Italian VAT Decree (Presidential Decree No. 633/72).
Reverse charge for subcontractors in the construction industry
For services in the construction industry, such as bricklaying, installations and plastering work, provided by a subcontractor, the invoice is issued to the main contractor without VAT in accordance with Article 17(6) a) of DPR 633/72.
Reverse charge for finishing and installation work on construction sites and demolition work
The reverse charge procedure was introduced for various services in the construction and ancillary construction sectors pursuant to Article 17(6) a-ter) of DPR 633/72. It applies not only to subcontractors but also to companies commissioned directly by the client.
The relevant services relating to buildings include, for example:
- Electrical installations
- Plumbing and heating installations
- Installation of lifts
- Plastering work
- Painting
- Flooring and wall cladding
- Installation of windows and doors
The key factor is that the service is carried out on a building. In the case of pure supplies of goods with incidental installation, where from a VAT perspective the supply of the goods rather than the service is the primary focus, the reverse charge does not apply.
Which reverse charge takes precedence?
A supply may fall under both the reverse charge mechanism for subcontractors under point (a) and under point (a-ter). In such cases, point (a-ter) generally takes precedence.