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Thinking about Registering for VAT in Italy? Read This.

I’m having one of those ‘Has the time come to leave Italy?’ moments. Reading about the thousands of Italians who have left Italy, doesn’t help. Nor does being over 50. And my somewhat chaotic, happy go lucky approach to life is probably what’s driven me into a corner. That and registering for VAT in Italy.

I knew VAT registration in Italy could turn out to be the economic equivalent of suicide and had misgivings about it from the start. But being a happy go lucky type, I decided I could probably get by. I was wrong.

By the way, VAT registration in Italy can have a negative effect on relationships. I do know of one that ended largely because of the vicious combination of VAT registration obligations and a late paying client – one that should have known better. I wonder how may other relationships in Italy have come to sticky ends as a result of VAT registrations. I suspect the number is not small. Sadly, my own relationship is at risk too.

I admit it, I really had no idea of what I was letting myself in for. Hopefully, after reading this, you will.

Registering for VAT in Italy is like playing Russian Roulette with five shots in the chamber of a six shot gun – a comment from someone with a similar experience

If only I’d read this rather frightening article: 13 cose che devi sapere se apri ora la partita Iva (se no sei fottuto) – 13 things you should know before registering for VAT (if you don’t, you’re f**ked). It is in Italian and is aimed at Italians but it applies to non-Italians too. If your Italian is not good enough to understand it, find someone who knows Italian or run it though Google Translate. The article may well put you off registering for VAT in Italy and may even put you off coming to Italy in the first place. This may not be so bad for your states of financial and mental health.

VAT registration is more or less obligatory in Italy if you want to work for yourself. Unlike the UK or Germany, the VAT registration threshold in Italy is extremely low. Beware of late or irregular paying clients even, and especially, if they pay well. I know that might sound odd, but when you know that Italy’s tax man counts unpaid invoices as income and taxes one accordingly, you’ll probably understand why this can lead to problems. Low paying clients and those who don’t pay at all, are not uncommon.

In Italy, you are expected to make advance VAT payments right before Christmas. With late or non-paying clients, such payments can become problematic. And in your first year of VAT registration, you are expected to make an even bigger advance payment.

Before going down the VAT registration route in Italy, do your homework very carefully. Do a few projections and calculations as these will help you understand whether VAT registration will work or not. I did do this, but with hindsight, I should have done much more.

If you sell products or services that are paid for immediately, you may be OK. It’s that old ‘cash is king’ cliché.

Find out how supportive, or not, your bank will be. Overdrafts might help but late paying clients may still drop you in the brown and smelly stuff tax-wise. Oh and Italy’s tax man takes around 50% of your earnings and there are also pensions contributions built in too, though the pension may never be paid. Unless you are earning lots of money, around €5,000 a month, every month, you may well find you will have rather little to live on. Miss those VAT or tax payments and you’ll end up with very costly fines. Fancy ending up working solely to pay the tax man? Thought not. You may also like to note that tax debts can be inherited. That’s something to bear in mind if you have or are planning to start a family in Italy.

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To keep on top of Italy’s complex tax and VAT system, you will need to be a highly disciplined administrator. If, like me, you are not, forget about registering for VAT in Italy.

Having an accountant is more or less essential and not cheap either. Some Italian accountants are better than others. Ask around to find one who can explain all the expenses such as VAT liability, tax and pension contributions, you will face. Certain business expenses can be deducted but if you don’t have many, the 22% VAT rate is just another tax to pay. Oh, and the VAT rate may rise to 24% in the not too distant future. Got to pay off Italy’s huge and growing national dent and save Italy’s “solid” banks, you know.

By the way, VAT registration based employment contracts are not uncommon in Italy. Indeed, you may not be offered a job unless you are registered for VAT, or are prepared to do so.  You do like playing Russian Roulette, don’t you?

On paper, VAT registration is just about inevitable for the self-employed in Italy. In practice though, it can avoided, with the help of a creative accountant, or so I understand. Being paid under the table in cash, or in “work vouchers”, is not uncommon in Italy and is one, not so legal, way VAT registration can be avoided.

In summary, be very wary about tying yourself to Italy’s VAT system or else you may find yourself having one of those ‘Has the time come to leave Italy?’ moments too. You have been warned. VAT hell is not a nice place!

What is odd in Italy, the land of small businesses, is that the nation has such a draconian VAT regime. But that’s another issue. Don’t hope that it will ever change. Knowing Italy, it will not. It’s one of many ‘typically Italian problems’, otherwise known as laughably illogical situations. Such is Italy, alas.


A comment with some advice from Michael Pope via Facebook:

“It is what is it is unfortunately, like most things in Italy, the way to remain unscathed (relatively), is to know someone (who knows someone etc…..).The other alternative is to only accept cash, do not invest in your business, hide any money you may be paid in your mattress (if you are lucky enough to be paid), basically do things that make no sense in the real business world. The most irrational thing is that what is left of Italy’s death rolling economy relies so heavily on small business……go figure?”

Another, mildly edited comment on registering for VAT in Italy from P S-G whose experience was far from positive. Sound advice too:

I came to Italy in 2005 as a highly qualified professional. Degrees in both information technology and humanities; four languages; almost twenty years of work experience.

Why Rome? I lived there as a kid from age 8 to 19. Obviously, this implies that my Italian was already perfect and that any kind of major cultural clash should have been out of the question. Well, I was wrong about that.

Professionally, I had to start from the scratch because the Italian employment market doesn’t give a damn about degrees and work experience achieved abroad. For some mysterious reason they consider themselves top-notch of the world in basically everything and work is some kind of kingly gift they are graciously offering you. My services were subcontracted to various major Italian companies and some government departments. None of these jubs lead to a permanent appointment. The pay was as low as possible but still slightly above the Italian average salary. Yet it was impossible to make a living with it because the cost of living ate it up. No savings for the future, not for times of illness, not for potential periods of unemployment. To start a family was definitely out of the question.

After six years I quit the whole outstaffing thing to become an independent contractor for smaller businesses: law firms, small service companies and so on. This wasn’t any better in terms of income. But at least there weren’t any intermediaries cashing in on my work and explicitly obstructing my prospects of professional and personal growth.

After ten years of struggles I decided to leave the country for good. The effects of the economic crisis and the rise in hostility towards strangers were the straws that broke the camel’s back. You should know that if something is going wrong with the Italian economy, there are always the Germans and specifically Mrs. Merkel who can be blamed.

During the ten years I wasted in Italy I met several people who were registered for VAT. Aside from the fact that the relevant regulations change each and every year which isn’t exactly a good starting point for your own financial planning and forecasting, it is the equivalent of Russian roulette with five rounds in the cylinder.

Don’t even start to think about it unless you bring in at least 3K per month. Every month. July to September and December included. Since it is almost impossible to keep the same level in the course of the year, it is better to start with 4.5K per month which is basically three times the average Italian salary.

Keep in mind that you might want to save money for… yeah, for a lot of things that are quite normal: retirement, health insurance, buy yourself a roof over your head (which is *essential* in Italy). Yes, and family, kids, education, holidays, and a car, and so forth. You might ask how Italians can afford all this with their substandard incomes. Well, that’s another story… as Moustache said in Billy Wilder’s “Irma La Douce”.

So my advice if you’re pushing 50 and you’re ruminating about slowing down the pace a little bit? Forget about the VAT and get out of this place. ASAP. Unless you have a family that cares for you, no-one will give a shit about you once you’re old and sick.

Thanks for the advice – it sounds good.

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