The Electronic Invoicing in Italy
The mandatory use of electronic invoicing began in Italy on January 1, 2019. With this requirement, the significance of paper invoices diminished. Moreover, those who do not comply with the new regulations face sanctions. In December 2021, in response to the request of the Italian Government, the EU decided to extend the obligation until 2024.
Let’s take a closer look at the electronic invoice, which is the subject of our article.
What is electronic invoicing and how does it differ from paper invoicing?
An electronic invoice is a digital format invoice that must be created according to precise standards (by FatturaPA, in XML format), received, and transmitted through the Exchange System (SDI). This method of sending and receiving represents one of the two distinguishing features of ordinary paper invoices, with the other being the technology used, such as a computer, tablet, or smartphone.
E-invoicing was introduced with the 2008 financial law, where the European Union (EU) invited its member countries to provide a regulatory and technological framework sufficient to electronically manage all invoicing and tax control systems. Additionally, the obligation to store documents in digital format for a period of ten years was also added.
What are the advantages of electronic invoicing?
The increased effectiveness of controls aimed at combating tax evasion has resulted in significant savings. As a consequence, better allocation of existing resources for managing public expenditures has been made possible. Another aspect is the digitization of business processes. This situation, far superior to a simple increase in tax compliance efficiency, has led to a general improvement in the country’s competitiveness by adhering to the Industry 4.0 plan for the digital management of production. Furthermore, it has become a fundamental step for all companies to complete their evolution towards digitization in line with the development of the European digital market.
Most of the economic advantages stem not from lower printing and shipping costs but from the reduction and optimization of costs, avoiding manual data entry, recording errors, and losses. The full automation and integration of processes among parties lead to a decrease in risk. The benefits also include more effective controls on invoice data (automated data reconciliation and authorization processes), reducing fraud and copying, minimizing payment errors, and shortening average payment periods.
Additionally, electronic invoicing allows sending and receiving invoices without the need for printing on paper. This eliminates all printing costs, shipping costs, postage costs, and physical space costs for storing paper invoices. In summary, electronic invoicing enables sending and compiling invoices in a simple way, virtually eliminating the need for paper usage. It is a digital revolution that allows you to send everything in electronic form to customers, accountants, and anyone directly involved without the need for paper.
Italy, the country with the largest VAT gap in the EU (according to September 2018 data from the European Commission, this figure is 35.9 billion euros), was the first European country to initiate this obligation. The swift realization of the benefits of this innovation has accelerated the transition of other European countries to the e-Invoicing system.
Who issues electronic invoices?
The regulations set by the Italian government apply to all companies registered in Italy and engaging in business transactions with other VAT-registered businesses. To further elaborate on this.
The parties required to comply with e-invoicing regulations in Italy include:
Public administrations
When any public administration entities, such as the Italian government, local governments, and regional institutions, make any sales, they are required to use the SdI (Sistema di Interscambio) network to send invoices.
This process aids in tracking payments and detecting inconsistencies, serving as an excellent way within the government to prevent fraud and money laundering.
Private companies
Any private company with a VAT registration number must engage in invoice exchange through SdI to comply with Italian e-invoicing regulations. This requirement applies to businesses involved in B2B and B2C transactions, including retailers, wholesalers, and manufacturers.
International companies
In July 2022, the Italian Tax Authority mandated that international businesses engaging in cross-border transactions with an Italian-registered company must comply with electronic invoicing laws. These businesses are required to send and receive cross-border invoices in the FatturaPA (XML) format and use SdI for invoice exchange.
(All electronically issued or received invoices, including those from foreign companies, must be exchanged through SdI.)
Who is exempt from issuing electronic invoices?
The Revenue Administration announced tax payers exempt from the mandatory electronic invoicing:
These include:
- Doctors, pharmacies, and all other healthcare professionals identified by the Privacy Guarantor in December 2018;
- Small agricultural producers;
- Amateur sports clubs;
- Individuals not residing in Italy who conduct or receive transactions.
What are the types of documents covered by e- invoice?
Among these documents are invoices, purchase orders, debt statements, receivable statements, payment terms, payment instructions, and transfer receipts.
What is the timeline for compliance with e-invoicing regulations?
According to the decree-law dated April 30, 2022, electronic invoicing will become mandatory for taxpayers with annual income up to 25,000 Euros and for taxpayers adopting the flat-rate tax regime.
The decree will come into effect in 2024, and taxpayers will also use the Sistema di Interscambio (SdI).
What technical standards are used in the creation and transmission of e-invoices?
Italy has chosen XML as the document format for electronic invoicing. To prepare these documents, it is necessary to have specialized software that manages the process of creating and sending invoices. Alternatively, external services provided by providers that fully manage both active and passive billing processes are also being considered.
Unlike methods used in the past, the generated invoice is not sent directly to the recipient. The SdI – Exchange System handles the arrangement of invoices between the sender and recipient, checking for irregularities. Subsequently, it ensures their delivery to the recipient based on electronic addresses (PEC, Recipient Code) specified in the invoice or in the recipient’s tax drawer. In summary, the electronic invoice issuance procedure consists of the following process:
- Generation of the invoice in XML file format;
- Document verification and digital signature;
- Transmission to the Exchange System (SdI);
- Delivery of the document from the Exchange System to the recipient;
- Electronic archiving;
- Digital protection in accordance with the law.
What information must an e-invoice contain to comply with legal requirements?
The mandatory contents in an electronic invoice include:
- Issuance date,
- Unique sequential invoice number,
- Your company’s data such as company name, name-surname, and address,
- Seller or supplier’s VAT number,
- Customer data, including company name, name-surname, and address,
- Receiver’s or customer’s VAT number,
- Description, quantity, and prices of the products and services involved in the transaction,
- Payment date if different from the invoice issuance date,
- VAT rate and taxable amount.
Another crucial element in electronic invoices is the buyer code. This alphanumeric code, consisting of 7 characters, identifies the purchase channel through which the invoices will be correctly transmitted to your customers’ tax drawer.
How will users interact with the e-invoice system?
The Italian Tax Authority utilizes the FatturaPA web interface for businesses to send, receive, and process transactions. Additionally, the Italian government has established a single exchange system (Sistema di Interscambio or SdI) for E-Invoicing processes, which can be supported by service providers of E-Invoice senders and recipients. This system is designed to process and verify e-invoices before they are transmitted to public institutions, ensuring that all invoices are checked by the tax administration.
Companies also send their E-Invoices to the SdI in the FatturaPA format. SdI functions as an e-delivery service, addressing each e-invoice to the relevant authority based on a recipient identifier (Unique Office Code). The system is compliant with European standards.
Various official checks are conducted by SdI. Additionally, all invoices from SdI are transmitted to the State General Accounting Department, responsible for inspection activities and fulfilling audit functions related to the financial administration of public institutions, for the purpose of monitoring public expenditures.
Each public administration can choose its preferred method to receive invoices from SdI:
- Certified Electronic Mail (CEM);
- Web – through the Revenue Administration President’s Website (authentication required);
- SdICoop – Web Service;
- SdIFTP – File Transfer Protocol (Technical specifications).
For example, looking at the user interface of the SdICoop Web Service.
Do I need to sign my invoice digitally?
Electronic invoices sent to public institutions must be digitally signed. Digital signature is not mandatory for sending B2B and B2C invoices.
How will compliance with e-invoicing regulations be monitored and enforced?
Italy imposes high penalties, ranging from 90% to 180% of VAT, to encourage the use of the SdI. Additionally, in case of non-declaration of invoices, there is an additional penalty of €2 per invoice every three months, up to a maximum of €1,000. As a foreign representative, there is some flexibility in compliance due to the complexity of live reporting through the Stock Exchange System.
Change Management and Adoption: How will stakeholders (businesses, tax offices, etc.) be informed about the transition to e-invoicing? What strategies will be employed to encourage adoption and address potential resistance?
In Italy, stakeholders will be informed about the transition to e-invoicing through the following methods:
Website
The Italian Ministry of Finance has created a website providing information about the transition to e-invoicing. This site offers information on e-invoicing regulations, compliance requirements, and support resources.
The Ministry of Finance sends informative emails about the transition to e-invoicing. These emails provide information on the importance and benefits of transitioning to e-invoicing.
Training and Support
The Ministry of Finance offers training and support services regarding the transition to e-invoicing. These services assist businesses in complying with e-invoicing regulations.
As Melasoft in Italy e-invoice implementation;
- Review of accounting processes and preparation and analysis for integration with e-Invoice System
- Identification of areas requiring change: SAP systems, mandatory data entry (quality and completeness), ensuring policies and procedures for those responsible
- Internal controls
- Integration of SAP systems with e-Invoice System
- We provide User Trainings
