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.
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:
Exception:
The benefit may be claimed again if the property that previously qualified for the benefit is sold within two years.
Inportant:
Without the benefit
If the preferential rate cannot be applied, the VAT rate of 10% generally applies.
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:
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:
In this case:
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:
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.