Foreign E-commerce in Italy

10 October, 2023

What you need to know if you carry out remote sales in Italy

Nowadays e-commerce is becoming part of the lives of more and more people. The recent pandemic, the need to save time, the possibility of comparing and finding the best offers, the ease with which purchases are made and the post-sales management have increased the interest in e-commerce. More and more companies are inclined to have an online showroom and the possibility of reaching foreign consumers by promoting their products is more attractive.

However, selling abroad online is complicated mainly for 3 reasons: market regulation, tax aspects and logistics.

Selling online in Italy

To understand whether a foreign company becomes a subject with tax obligations in Italy, first of all, it is necessary to know whether the orders placed from Italy are occasional or the sales have a continuous nature.

In other words, every foreign company that carries out its activity continuously in Italy without the presence of a representative office, a branch, or a controlled company in Italy, must ascertain whether this activity can be defined as a “Permanent Establishment” from a fiscal point of view with the related obligations to pay taxes on profits in Italy. This also applies to foreign online businesses or foreign e-commerce.

If sales in Italy do not fall under the concept of Permanent Establishment, the foreign seller could carry out sales operations without the need for an Italian VAT number and without the obligation to pay taxes in Italy.

The concept of “permanent establishment” derives from the need to contrast the double taxation and the Italian legislation defines it in art. 162 of the TUIR and in art.5 of the Double Taxation Model Convention as a stable place of business in which the company carries out its activity in whole or in part. If the foreign activity in Italy is carried out on a non-occasional basis and profits are made from the country then we are in front of a permanent establishment.

The permanent establishment, therefore, is characterized by a significant and continuous presence in the territory of the State which can be material or physical (office/headquarters from where the activity takes place), personal (if there is an agent or representative who has the power to sign contracts on behalf of the company) or immaterial (all cases in which there is a significant presence in Italy but in absence of a physical headquarters as in the case of online activities addressed to customers in Italy).

E-commerce, then, could fall within the framework of the immaterial permanent establishment if the revenues are continuous and of a certain size, if the foreign activity continuously addresses the Italian market via Italian domains and/or pages and offer assistance services in Italian, if the economic presence of the e-commerce could be assessed as significant and continuous based on the user visits and the volume of traffic deriving from Italy. In these cases, even if not resident, the foreign digital companies have a “significant and continuous economic presence in the territory of the State” and therefore, they are subject to taxation in Italy.

In light of permanent establishment definition and characteristics, we are in front of a hidden permanent establishment when a foreign company has a significant physical or economic presence in the country that makes it subject to taxation in that country but without any formal declaration in front of the local tax authorities.

Tax representative, VAT obligations and invoicing

In order to identify itself for tax purposes in the territory the foreign company may need to obtain an Italian tax identification number or VAT number.

If the foreign e-commerce does not have a stable establishment in Italy but has an important presence on the market, the latter should appoint a tax representative who is resident in the country. In this case the tax representative will be obligated to submit the VAT returns and to pay the taxes due to the Italian tax authorities.

Furthermore, in Italy, the electronic invoicing is mandatory. The fiscally present in Italy foreign companies must be ready to issue self-invoices, as well.

A new possibility to be taken into consideration by the digital businesses is the OSS (one stop shop) regime introduced within the European Union starting from 1 July 2021. This regime is designed to simplify the VAT procedures for sales of goods and services to final consumers in other EU Member States.

Adaptation to the GDPR and to the privacy rules

The foreign e-commerce companies that sell products or services in Italy must comply with the GDPR and the rules established for guarantee the data privacy.

The General Data Protection Regulation (GDPR) establishes unified rules for the personal data protection in all EU member states and the businesses offering goods or services to EU citizens must comply with its provisions.

To ensure the full compliance of your e-commerce with the GDPR and the Italian privacy regulations, it is recommended to consult a legal expert before starting an online business addressed to the Italian customers.