The new cross-border VAT exemption scheme

Edited by Andrea Werner Beilin, Francesco Mariani and Nicola Manglaviti

On December 10, 2025, the Italian tax authorities published the Act No. 560356/2025 (hereinafter also referred to as “the Act”) related to the new provisions applicable to those who intend to adopt the new cross-border VAT exemption regime.

Before analyzing the content of the Act, it is useful to revisit the main aspects of this regime, recently clarified by the Italian tax authorities with Circular 13/E/2025 (hereinafter “the Circular letter”).

The cross-border VAT exemption scheme – union definition and main requirements

The Directive (EU) 2020/285 introduced the VAT exemption regime for small businesses. It is a special system that, according to Article 284, par. 1 of Directive no. 2006/112/EC (hereinafter “the Directive”), Member States can adopt, and under which small businesses:

• do not charge VAT on the supply of goods and services provided;
• do not deduct VAT; and
• benefit from simplifications on VAT compliance obligations.

As provided for in Article 284 of the Directive, the adoption of the regime is subject to compliance with the threshold of 85,000 euros (or the equivalent in national currency) of annual turnover. Furthermore, within this limit, Member States can set different thresholds for each sector involved based on objective criteria.

From January 1, 2025, the VAT exemption regime can operate both domestically and cross-border; paragraph 2 of Article 284 provides that Member States should grant the same exemption for the supply of goods and services carried out in their territory by taxable persons established in another Member State. In this case, the benefit is subject to compliance with certain conditions such as:

1. The annual turnover in the European Union of the taxable person concerned must not exceed 100,000 euros;
2. The amount of supplies of goods and services in the Member State where the taxable person is not established does not exceed the threshold applicable in that Member State for granting the exemption to taxable persons established therein.

The cross-border VAT exemption regime in Italy

Directive (EU) 2020/285 was implemented by Legislative Decree no. 180 of November 13, 2024, which introduced the regime in question with the new Title V, contained in Presidential Decree 633/1972 (hereinafter also referred to as the “VAT Decree”).

As defined by Article 70-terdecies, paragraph 1, letter a), VAT Decree, the exemption regime is that “regime applicable by taxable persons established in the European Union who have a turnover not exceeding certain thresholds, under which they do not charge and deduct VAT”.

For this purpose, Italy can be both the State of exemption (i.e., the State chosen by a taxable person established in the European Union to carry out supplies of goods or services under the exemption regime) and State of establishment (i.e. the State to which established taxable persons must apply to access the cross-border VAT exemption scheme). In this respect:

• in the case where Italy assumes the role of exemption State, as clarified by the Circular letter, the application of the cross-border VAT exemption regime is granted under the same conditions applicable to Italian taxable persons applying the so-called “flat-rate regime” (“regime forfettario”). Consequently, only individuals (entrepreneurs or professionals) are admitted to the regime;
• in the case Italy assumes the role of the establishment State, where allowed by the rules of the Member State of establishment, the mentioned regime can also be adopted by taxable persons who do not apply the flat-rate scheme in Italy, either by choice (having opted for the ordinary regime) or because they are entities other than individuals (e.g. companies).

With reference to the turnover and other aspects of the regime, the Italian law is aligned with the Directive. According to Articles 70-terdecies and following, the taxable person who adheres to the cross-border VAT exemption regime:

• must comply with the requirements regarding the annual turnover: neither the threshold of 100,000 euros of total turnover in the European Union nor the specific turnover thresholds set by each Member State of exemption should be exceeded. For Italy, the threshold is set at 85,000 euros annually;
• do not charge VAT, in relation to the supply of goods and the provision of services carried out within the territory of the European Union; and
• do not have the right to deduct the VAT on the purchases of goods and services related to the sales falling into the exemption regime.

Operational aspects – admission to the scheme and compliance

Access to the cross-border VAT exemption regime for taxable person established in Italy is subject to the submission of a prior notification to the Italian tax authorities (in which, among others, the business turnover in the Member States where the scheme is intended to be used are communicated) which must analyze the request.

Act no. 560356/2025, published on December 10, 2025, and issued pursuant to Article 70-terdecies, paragraph 5, VAT Decree, defines the controls carried out by the Italian Tax authorities on Italian taxpayers who adhere to the special regime in other European Member State, as provided by Article 70-octiesdecies, Presidential Decree 633/1972.

In detail, the Italian tax authorities verify the correspondence between the data declared by the taxpayer and those resulting from the following sources:

1. electronic invoices issued to taxable persons established in Italy and to public administrations transmitted to the Interchange data system (“SdI”);
2. transactions carried out with foreign taxable persons and communicated to the Italian tax authorities pursuant to paragraph 3-bis of Article 1 of Legislative Decree 125 of August 5, 2015 (so-called “esterometro”);
3. daily considerations transmitted electronically to SdI;
4. annual VAT return;
5. communications of periodic VAT settlements (“LIPE”).

Furthermore, the Italian tax authorities carry out checks on the turnover reported by the taxpayer both in the Member State of establishment and in those of exemption.

If the checks are passed, the tax authorities assign the suffix “EX” to the taxpayers which, together with their VAT number, identifies those admitted to the cross-border VAT exemption regime. The assignment assumes that the Italian tax authorities have received a positive response from the Member State in which the exemption is requested or have not received a reply within 35 days from the prior communication.

Once admitted to the regime, the VAT compliance aspects are similar to the One Stop Shop (“OSS”) referred to in Articles 74-sexies and following of the VAT decree. In particular, pursuant to Article 70-unvicies, Presidential Decree 633/1972, the taxpayer must report quarterly to the tax authorities, by the last day of the month following each quarter:

• the total amount of the supplies of goods and services performed during the quarter in the territory of the State;
• the total amount of supplies of goods and services performed during the quarter in each Member State;
• if no transactions have been carried out, the absence of such types of operations.

Finally, the Act specifies that if a foreign taxpayer adopting the cross-border VAT exemption scheme in Italy fails to submit the quarterly communication for two consecutive periods in the EU Member State of establishment, the Italian tax authorities should inform the taxable person that it will be required to register for VAT purposes in Italy and submit the annual VAT return.

Let’s Talk

For a more in-depth discussion:

Contatta Luca Lavazza – Partner

Contatta Andrea Werner Beilin – Director