Split payment extended until 2029: no changes from 1 July 2026

On 10 July, the EU Council officially authorized Italy to extend the special split payment scheme until 30 June 2029. The extension takes effect from 1 July 2026, meaning there will be no changes to the VAT payment procedure for Public Administrations and public entities, nor to invoicing addressed to customers subject to the split payment mechanism.

What is split payment?

The split payment mechanism was introduced in 2015 with the aim of reducing tax evasion in transactions involving the Public Administration. This mechanism—an exception to the ordinary application of VAT—requires public entities, acting as purchasers or recipients of services, to pay VAT directly to the Italian Tax Authority instead of paying it to the supplier. As a result, the supplier only receives the net amount of the invoice, i.e. the taxable amount.

This ensures that VAT is paid directly into the State Treasury, eliminating the risk of tax evasion and guaranteeing timely and certain tax revenues.

Split payment mainly applies to companies supplying goods and services to:

• Public Administrations (Municipalities, Ministries, Local Health Authorities, Schools, Universities, etc.);
• Companies controlled by the State or local public authorities.

The special VAT payment regime also applies to entities, foundations, or companies in which Public Administrations hold at least 70% of the share capital. For this reason, it is not always straightforward to determine whether a customer is subject to split payment. It is worth remembering that the scheme does not apply to self-employed services subject to withholding tax (such as those provided by many freelancers), nor to taxpayers under the flat-rate tax regime or transactions subject to the reverse charge mechanism.

Split payment derogation extended until 30 June 2029: background and the new extension

The European Council first authorized Italy to introduce split payment in 2015 through Council Implementing Decision (EU) 2015/1401. This initial authorization, valid until 31 December 2017, was subsequently extended until 30 June 2020 by Council Decision (EU) 2017/784, which also expanded the application of split payment to listed companies included in the FTSE MIB index.

Further extensions were granted in 2020 and 2023. The latest one, introduced by Council Implementing Decision (EU) 2023/1552, allowed Italy to continue applying the special measure until 30 June 2026. In October 2025, Italy requested permission to maintain the split payment scheme until 31 December 2029. On 10 July, the EU Council officially approved the request, although limiting the extension to 30 June 2029 and explicitly requiring Italy to adopt anti-tax-evasion measures that would avoid the need for any further extension of the special measure.

The European decision and the issue of VAT refunds

By accepting Italy's request, the European Commission acknowledged that "the split payment mechanism, as an ex-ante measure, has proven to be highly effective and complementary to mandatory electronic invoicing" in combating tax fraud and tax evasion. Therefore, through Council Implementing Decision (EU) 2026/1728, published in the Official Journal of the European Union on 15 July, Italy is authorized to continue applying split payment without interruption until 30 June 2029, completely bypassing the 30 June 2026 deadline.

However, the EU Council also recognizes the absolute necessity of monitoring VAT refunds for taxable persons subject to split payment, who cannot

offset the input VAT they have paid against the VAT collected on their supplies of goods or services and are therefore entitled to priority VAT refunds for the tax credits relating to these transactions. Italy is therefore requested to "ensure legal certainty with regard to the tax period" and submit a report to the European Commission by 2027 addressing "the overall situation of VAT refunds to taxable persons, including in particular the average time required for refunds, and the effectiveness of the special measure and any other measures implemented by Italy to combat tax fraud and tax evasion in the sectors concerned".

The new authorization takes effect from 1 July 2026 and applies to the same categories of taxpayers already covered by the special scheme. Companies listed in the FTSE MIB index remain excluded, as the ordinary VAT regime has applied to them since 1 July 2025. Likewise, remuneration paid to professionals subject to withholding tax has no longer been covered by the split payment mechanism since 2018.