Split payment Italy extended until 2029: what changes for companies invoicing Italian Public Administration

Key data

Spanish and European companies working with the Italian Administration have been operating for years under the split payment mechanism. The Council Implementing Decision (EU) 2026/1728, of 10 July 2026, confirms that this exceptional system is extended until 2029, with no changes to its operation.

The measure was born in 2017 with the Council Implementing Decision (EU) 2017/784, which authorized Italy to depart from the general rules for VAT payment and invoicing contained in articles 206 and 226 of the VAT Directive 2006/112/EC. The new decision modifies that original authorization to extend its validity.

What does this regulation establish?

Split payment is an anti-fraud mechanism whereby, when a supplier issues an invoice to an Italian public body, the body divides the payment: it pays the supplier only the taxable amount (the price of the service or product) and pays the VAT directly to the Italian Tax Authority, without going through the supplier.

This is an exception to the general rule of the VAT Directive, which establishes that it is the supplier who collects the VAT from their customer and settles it later with the tax authority. The following table summarizes the contrast between the general regime and the split payment regime:

The EU Council recognizes in this decision the effectiveness of the mechanism in combating tax fraud in Italian public procurement, which justifies its extension. No changes are introduced to the operation of the system: the extension is a continuation under the same conditions.

Economic and operational impact

For companies operating with the Italian Administration, the main impact is on cash flow. By not receiving the VAT from their invoices, they cannot use it as temporary liquidity between the moment of sale and the moment of tax filing. In contracts of high amounts or with long payment terms, this difference can be significant.

From an operational perspective, the concrete implications are:

• Invoicing: Invoices issued to Italian public bodies must correctly reflect the applicable VAT, even though the supplier will not collect it. The public body is the one who manages it.
• Cash flow: The supplier's cash flow does not include the VAT from these operations. Liquidity must be planned without counting on that amount.
• Deductions: The supplier still has the right to deduct the VAT borne on their purchases related to these operations, which can generate favorable balances with the Italian or Spanish Tax Authority depending on the company's tax structure.
• Contracts: It is advisable that contracts with Italian public entities expressly reflect the split payment mechanism to avoid disputes over the amount to be collected.

This regulation does not generate changes in Spain nor does it affect operations between private companies in Italy. It only applies when the customer is an Italian public body.

Who does it affect?

• Spanish companies with supply, services or works contracts with Italian public administrations (State, regions, municipalities, autonomous bodies).
• Spanish self-employed persons providing services to Italian public entities.
• European companies from any member state that invoice Italian public bodies.
• Italian subsidiaries of multinational groups with customers in the Italian public sector.
• Tax advisors and CFOs managing cross-border operations with Italy.

The measure does not affect operations between private companies in Italy, nor exports or imports of goods unrelated to Italian public procurement.

Practical example

A Spanish technology consulting company wins a contract with an Italian ministry for €100,000 (taxable amount). The applicable Italian VAT is 22%, which amounts to €22,000 in VAT.

With the split payment mechanism in force:

• The Spanish company issues the invoice for €122,000 (€100,000 + €22,000 VAT).
• The Italian ministry transfers to it only €100,000 (the taxable amount).
• The ministry pays directly the €22,000 VAT to the Italian Tax Authority.
• The Spanish company does not manage or receive the VAT from this operation.

If the company has VAT borne in Italy for expenses related to that contract (travel, local subcontractors, etc.), it can request a refund of the favorable balance from the Italian tax administration. This is an operational aspect that should be reviewed with a tax advisor with experience in Italy.

What should companies do now?

1. Review existing contracts with Italian public bodies to confirm that they correctly reflect the split payment mechanism and that the amount to be collected by the supplier is the taxable amount, not the total including VAT.
2. Update cash flow forecasts by removing the VAT from invoices to Italian public bodies from the expected cash flow until 2029.
3. Verify the accounting and tax treatment of these operations with your tax advisor, especially if there are VAT borne balances in Italy that may be subject to refund.
4. Inform sales and administration teams working with Italian public clients that the mechanism remains unchanged until 2029, to avoid errors in invoice issuance or collection expectations.
5. No urgent action is required if you were already operating correctly under split payment: the extension does not introduce changes to the system's operation.

Official source

Consult complete regulation in official source

Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific decisions, consult a qualified professional. Source: https://eur-lex.europa.eu/./legal-content/AUTO/?uri=OJ:L_202601728