As of January 1, 2019, the electronic invoicing law in Italy is now in effect. Because the law covers all transactions (with a small number of exceptions), businesses will need to adapt their IT structure to comply. As we mentioned in a previous post, some aspects of the law are still evolving. In this post, we will cover some of the most frequently asked questions about the new invoicing procedures to help support businesses in ensuring compliance.
The electronic invoicing legislation initiated with the European Union’s “VAT Directive,” which provided the conditions and rules for implementing it in EU member states. In Italy, e-invoicing has been in place for public administration since 2015, but last year the government moved to extend the practice outside government to most business transactions (Italian Law n°205/2017). From January 1 it is mandatory for both private and public institutions.
1. What is an electronic invoice?
Electronic invoicing is the digital process of generation, delivery, and compliant archiving of invoices. There are two types of invoicing procedures, which depend on the institution the invoice is addressed to: public administrations or private businesses. In both cases, the invoice has a standard language, must include a digital signature, and requires that the invoice be archived digitally for fiscal and record-keeping purposes.
The “digital signature” is a certificate of the origin of the document in electronic form. It is considered to be the safest method of ensuring a document’s authenticity, and it can be used to track the document.
2. Are electronic invoicing procedures mandatory for individuals or only for businesses in Italy?
Electronic invoicing is required for both businesses and individuals, however, there are some exceptions. Electronic invoicing is not required for small businesses (such as doctors, pharmacies and businesses with under €65.000 in annual revenue) or taxpayers operating under the flat-rate VAT regime, although they may choose to issue and receive electronic invoices.
3. Are non-residents who do business in Italy also required to comply?
No. Transactions with foreign individuals or firms are registered on another ledger, called “esterometro,” which is used as a reference document by Italian authorities. Under the regulations, only Italian companies (companies established and/ or registered in Italy) will be required to issue and receive e-invoices (to both Italian and non-Italian companies with VAT numbers). Non-residents who have an Italian VAT number may receive e-invoices but are not required to issue them.
4. What are the main obligations for electronic invoices?
The main obligations relate to how the invoices are transmitted and stored:
- Format: Invoices must be in XML format. PDFs, JPGs, Word, email, or other formats are generally not acceptable.
- Transmission: Electronic invoices must be transmitted using the Interchange System (Sistema di Interscambio – SdI) via the certified email address of the company or individual doing business.
- Storage: Every electronic invoice must be archived in a database (i.e. electronically and not as paper files) for a minimum of 10 years.
5. What happens if you do not issue an e-invoice?
Under Italian law, an e-invoice must be issued along with the delivery of goods and services within 24 hours thereof. An e-invoice issued outside compliance (invoices issued late or those issued outside the SdI system) could be subject to a penalty of 90% to 180% of the applicable taxes, or a fine ranging from €250 to €2,000 as a delay penalty. Buyers (i.e. recipients), not only issuers, but must also be compliant with e-invoicing procedures and are subject to a penalty for non-compliance.
The government has imposed a grace period, occurring from January to June 2019, to allow businesses and individuals time to adjust to the new regulation. Any e-invoice for this period may be issued up to a month late without penalty as long as it is properly dated (based on when services were rendered), it must be issued to SdI within the VAT reference period (i.e. by the 15th day of the following month), and as long as the relative VAT is paid within the same period. In fact, the delayed issue of the electronic invoice will not be fined as long as the tax payment is on time.
6. What are the advantages of electronic invoicing for Italian firms?
Less paper, less space, fewer hassles. The digitalization of fiscal processes should benefit all industries and the public sector.
The estimated benefit of electronic invoicing and overall digitalization for public and private businesses is estimated to be a savings of €60 billion in materials, transportation, storage, and working time.
Electronic invoicing sets the stage for wider adoption of digital processes and related efficiencies. With digital invoices, immediate savings are realized by avoiding printing and postage costs. Because e-invoices are issued in XML format, the data does not have to be manually entered into accounting systems, and it reduces risks of duplication, loss, recording errors, and processing time for data entry, review, and storage. In addition, any errors in invoicing procedures can be rapidly identified and solved with automated cross-checks, and it makes the authorization and payment process faster and more efficient.
Electronic invoicing also makes tax assessment easier, as digital documents are easier to track and to read. It reduces the number of tax compliance procedures, as the tax authority has direct access to a wide range of data on taxpayers. This system also ensures against tax avoidance, may ensure higher tax revenues, and prevent VAT fraud.
7. Is there only one format for electronic invoicing?
Invoicing procedures for individuals and firms will be hosted on the Sistema di Interscambio (SdI) platform which is currently used to deliver invoices to and from the Public Administration.
All invoices, receipts, and other communications will be uploaded on the SdI platform in XML format. The EDI (Electronic Data Intercharge) format, which is used by many businesses for data exchange, is not compatible with the SdI platform and therefore is not supported by the new regulation.
Electronic invoicing for individuals and firms represents a challenge but is also an opportunity for change.
More than just updating financial procedures, the new regulation represents a step forward to a new organizational model. In other words, businesses will have more available resources and will benefit from fewer bureaucratic procedures. In many other European countries, electronic invoicing is mandatory for transactions with Public Administration. However, Italy and Portugal are currently the only EU countries that require electronic invoicing for all transactions as of January 1.
Helping Italian businesses prepare for the change
The new requirements are a sign that the digital revolution is impacting organizations on both the front and back office. By making the invoicing process digital, companies will be able to streamline, speed up, and secure the payment process, and it’s an opportunity to bring automation and efficiency to an essential business process that will enable Italian firms to be more competitive.
Doxee is a leader in electronic invoicing solutions for both active and passive invoicing. Doxee Paperless Experience is a complete solution for batch production and invoice management. We generate your e-invoice in the proper format and including all required documentation (e-signature, digital time stamp, etc.), send your invoices to the Sdl for processing, manage receipt and notification, and provide compliant, long-term digital archiving for all of your documentation.
What to do?
The law for electronic invoicing in Italy will continue to evolve, and additional changes may be implemented in the coming months. Doxee is a trusted partner who will keep you up to date with the latest legislation and compliance requirements. We have extensive experience operating in the public sector, where our platform manages 20% of invoices delivered via Sdl to the Italian Public Administration.