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"Vatican City is the smallest country in the world.
Encircled by a 2-mile border with Italy, Vatican City is an independent city-state that covers just over 100 acres, making it one-eighth the size of New York’s Central Park. Vatican City is governed as an absolute monarchy with the pope at its head. The Vatican mints its own euros, prints its own stamps, issues passports and license plates, operates media outlets and has its own flag and anthem. One government function it lacks: taxation. Museum admission fees, stamp and souvenir sales, and contributions generate the Vatican’s revenue."
Yes - It's a separate country to Italy - The smallest in the world.