New Tax Free threshold to boost tourist spending in Italy

2024 looks bright for Italian retail. The budget, planned and introduced in late 2023, outlined a drop in the threshold for Tax Free shopping in Italy. International shoppers who had to spend 154.95€ to reach the minimum purchase amount now only need to reach €70 to claim back a VAT refund. This key intervention aims to incentivise international tourist flows and encourage tourists to shop while abroad in Italy.

Tax Free shopping allows customers from outside the European Union, and EU residents, to claim a VAT refund on purchases of personal goods – provided they’re intended for personal use and carried in personal luggage and taken outside of the country.

The higher threshold of €154.95 previously meant businesses with lower average transaction values and artisanal retailers missed out on spending from international shoppers looking for Tax Free deals. But the new threshold will allow retailers of all sizes to market their products with the promise of Tax Free savings. This means more opportunities to boost sales for brands who hold the coveted Made in Italy stamp.

This change to the Tax Free threshold is set to boost Italian tourism at a time of macroeconomic challenges and uncertainty throughout Europe. The Ministry of Tourism estimates the new legislation will bring an increase in foreign final demand that could reach close to €200 million.

Plus, the Ministry estimates an indirect increase in consumption and investments in Italy. This will generate an additional flow of €119 million annually to the state coffers. Rising tourist demand will fuel the increase and Italy will consequently see a boost in spending by non-European tourists along with investments in the sector.

Thanks to the drastic threshold reduction, Italy can now compete with France. While Italy follows France as a top Tax Free destination there’s still a gap in spending – and a decrease of 25.9% of spending in Italy in 2023 vs 2019. But Italy’s new VAT refund threshold now gives the country a competitive edge over France, which has a minimum purchase amount of €100.

The new regulation comes at a time of increasing travel following the Covid-19 pandemic. 2023 was the first year with no travel restrictions for Chinese tourists since 2020. And despite the slow recovery since 2019, Tax Free sales turnover in Italy increased by 7% in September 2023 vs the same month in 2022.

Although Chinese tourists’ return to Europe wasn’t as significant as expected, there was still a spending boost during Golden Week in October 2023. Chinese shoppers accounted for 26% of Tax Free shopping in Europe during the festival. Plus, Chinese shoppers are seeking out the ‘Made in…’ mark, with 63% keen to shop for products from beyond their national borders.

For Italian retailers, the new Tax Free threshold represents an opportunity not to be missed in 2024. Especially for mid-market retailers and artisans who can now market to tourists to increase store traffic – and boost sales.

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