Restoration of longer input VAT deduction period and eases e-payment reporting penalties
Italy has reversed one of its most unpopular VAT compliance changes by doubling the time businesses have to reclaim input VAT. The reform is included in Legislative Decree No. 148/2026, the latest “Omnibus Decree”, published as part of the country’s ongoing tax reform programme.
From 1 January 2027, businesses will have up to two years after the year in which the VAT deduction right arose to claim input VAT, restoring the more generous regime that existed before 2017. The decree also softens penalties for minor discrepancies in electronic payment reporting.
See more in our Italian VAT guide.
Two years to recover input VAT
Since 2017, Italian businesses have only been able to deduct input VAT until the filing deadline of the annual VAT return for the year in which the deduction right arose. This created practical problems where purchase invoices were received late, overlooked or recorded after the VAT return had already been submitted.
The new rules amend Articles 19 and 25 of the Italian VAT Act by extending the deadline to the annual VAT return for the second year following the year in which the right arose. Purchase invoices may also be recorded up to this later deadline while still being attributed to the year they were received.
The reform is expected to significantly reduce disputes over so-called “forgotten invoices” and ease year-end processing where invoices arrive after the close of the accounting period.
Reversal of the 2017 restrictions
The amendment effectively undoes the tightening introduced nine years ago, which many businesses regarded as unnecessarily restrictive.
Italy’s tax authorities had also adopted a strict interpretation of the rules. In a 2025 ruling they confirmed that taxpayers who failed to record purchase invoices before the statutory deadline could not subsequently recover the VAT through an amended VAT return, even where the invoices had been validly received.
The new legislation provides businesses with greater flexibility while reducing the administrative risk of losing legitimate VAT deductions because of timing issues.
EU court case could influence future interpretation
The timing of Italy’s reform is notable given an ongoing dispute before the Court of Justice of the European Union.
Earlier this year, the EU General Court held that input VAT could still be deducted where the substantive conditions for deduction had been met, even if the invoice was received in the following tax year, provided it arrived before the relevant VAT return was filed.
However, that judgment is now under review by the ECJ, which will consider whether the approach is compatible with existing EU VAT case law requiring possession of a valid invoice before the deduction right can be exercised. The eventual ruling may shape how Member States, including Italy, interpret deduction timing in future.
Small reporting mismatches no longer automatically penalised
The Omnibus Decree also introduces a practical concession for businesses using Italy’s electronic payment reporting systems.
Previously, any omission, delay or incorrect transmission of daily transaction data could attract an administrative penalty of EUR100 per transmission, capped at EUR1,000 per quarter, even where the error had no impact on the VAT due.
Under the new rules, no administrative or ancillary penalties will apply where the difference between electronically recorded transactions and electronic payments accepted does not exceed 5%.
The new tolerance threshold recognises that minor technical mismatches can occur without affecting VAT collection and should reduce unnecessary penalties for compliant businesses.
