Supplier Exemptions for Italy

In Italy, export transactions are exempted from value-added tax (VAT).

Companies classified as regular exporters have more input VAT than output VAT. They can request their suppliers to not charge VAT on transactions for export-related goods. Italian law lets you claim an exemption if you meet certain legal requirements.

These legal requirements are:

• Your regular exporter ratio is higher than 10 percent.

• The value of goods and services purchased without VAT charges is lower or equal to your exemption limit.

• You declare all export activities to your tax authorities.

The exemption limit is the total VAT exemption amount that a regular exporter can claim to its suppliers. A regular exporter can avoid purchasing and importing of goods and services without VAT up to the determined amount or ceiling. This exemption process is considered the Letter of Intent process.

For each year, the initial exemption limit is the sum of all reported export invoices of the previous year. You can allocate your yearly exemption limit among different suppliers. To each supplier:

• Send a Letter of Intent indicating the exemption amount.

• Request them not to charge tax when they send the invoices.

At the end of the year, if your total exempt purchases of goods and services is higher than your exemption limit, you incur administrative sanctions and penalties.

Exemption Limit Types

Exemption limits are of two types:

• Annual: The exemption is manually calculated at the beginning of the year. The calculation is based on the sum of exemption limits for all the reported export invoices of the previous year. Companies can allocate the yearly exemption limit among different suppliers. Send Letters of Intent to each supplier that indicate the exemption amounts and request that they do not charge tax when they send the invoices.

• Monthly: The exemption is manually calculated at the beginning of each month. The calculation is based on operations in the previous 12 months. This method is used frequently by regular exporters as it allows for progressive increase of exports since it's calculated monthly.

Once exemption limits are defined for a legal entity, the exemption limit type cannot be changed during a calendar year.

Exemption limits can be adjusted during the year to:

• Reflect the increase or decrease in export activities.

• Changes in the VAT exemption amount as agreed with the tax authorities.

Exemption Process

The following outlines the steps in the process:

1. Define the exemption type and exemption limit for the legal entity and calendar year.

2. For a supplier, create and print a Letter of Intent specifying the limit. The Letter of Intent can also be suspended or revoked, and sent to the supplier requesting that the supplier charge VAT on invoices. An inactive letter can be returned into active status if needed.

   Note: A Letter of Intent can be created for a particular supplier site or for all sites. Define a Letter of Intent:

   1. Select the Manage Tax Exemptions task.

   2. Search for third-party tax profiles for which you want to define the Letter of Intent.

3. As a customer, receive and register the Letter of Intent. You can set the status of the letter to active, revoked, suspended, or inactive.

   Note: Register the Letter of Intent on a particular site or on all the sites.

4. Generate Letter of Intent registers and reports to track the exemption amount consumed by the suppliers.