Italy’s Legislative Decree No. 186/2025 updates the VAT framework for the third sector, social enterprises, and non-commercial entities, introducing a flat-rate regime for volunteering organisations, extended VAT exemptions, a 5% rate for social services, and revised rules for deductions and accounting.
Italy’s government has published Legislative Decree No. 186/2025 in the Official Journal No. 288 of 12 December 2025 as part of its ongoing tax reform under Law No. 111/2023.
The Legislative Decree No. 186/2025 introduces significant updates and rationalisations to the Value Added Tax (VAT/IVA) framework, particularly concerning the third sector, social enterprises, and non-commercial entities.
Flat-rate regime for volunteering and social promotion
The legislative decree proposes a flat-rate regime specifically for Volunteering Organisations (ODV) and Social Promotion Associations (APS). The threshold for applying this regime has been increased to EUR 85,000 in annual revenue.
Entities under this regime are generally exempt from VAT payments and most accounting obligations, such as VAT registration and the maintenance of VAT ledgers. They are still required to number and store purchase invoices and customs bills. These entities cannot charge VAT on national operations (no rivalsa) and, consequently, cannot deduct VAT paid on their own purchases.
Moving between the flat-rate and ordinary VAT regimes requires rectifying prior deductions to be declared in the final or first tax period of the change.
VAT exemptions and the third sector
The decree updates the terminology and scope of VAT exemptions originally defined in D.P.R. 633/1972 to align with the Third Sector Code.
References to “ONLUS” (Non-profit Organisations of Social Utility) are replaced by “Third Sector entities” (excluding social enterprises formed as commercial companies) regarding specific exemptions. The VAT exclusion for these certain associative entities has been extended until 1 January 2036.
The following services provided by Third Sector entities are typically exempt from VAT:
- Transport of sick or injured individuals using equipped vehicles.
- Hospitalisation and care provided by recognised clinics or Third Sector entities, including the supply of medicines and food.
- Educational and didactic services, including vocational training, re-qualification, and related lodging or food services.
- Socio-health and welfare services for vulnerable groups, such as the elderly, disabled, minors in difficulty, and migrants.
Extension of the 5% VAT rate
The decree extends the reduced 5% VAT rate to services provided by social enterprises. This applies to services such as healthcare and education.
Deductions for non-commercial entities
New rules govern VAT deductions for entities that do not perform economic activity exclusively:
- Proportional deduction: Tax paid on purchases used for both economic and non-economic purposes is only deductible for the quota attributable to the economic activity.
- Separate accounting: These entities must maintain separate accounting for activities in which they are taxable persons versus those in which they are not. Public bodies (regions, provinces, municipalities) must comply with applicable public accounting laws to meet this requirement.
