In the ever-evolving digital taxation and invoicing landscape, businesses are constantly seeking clarity on the latest regulations to ensure compliance and efficiency.
Understanding the SDI Code and its implications is paramount for companies operating in Italy or engaging in cross-border transactions with Italian entities.
As of March 2015, e-invoicing regulations became mandatory for all public entities, streamlining transaction processes and fostering increased business activity.
This means that the SDI (Sistema di Interscambio) Code is now fully operational in Italy, marking a significant step toward using the e-invoicing Exchange Service for local and international transactions.
The digitization of invoicing not only simplifies and standardizes procedures but also paves the way for local Italian businesses to access international markets more efficiently through a uniform invoicing system.
By embracing the e-invoicing system, companies can significantly speed up invoice processing and unlock new growth opportunities.
This article will delve into critical points and answer fundamental questions about SDI, shedding light on its significance for businesses operating in Italy.
Who does SDI apply to?
The SDI was initially introduced as a platform for mandatory e-invoicing for Business-to-Government (B2G) transactions back in 2014. Subsequently, in 2019, the scope of SDI was expanded to include Business-to-Business (B2B) transactions as well.
Its requirements suggested that invoices must be prepared, signed, and transferred electronically via SDI. The aim is to ensure better transparency and enhance invoicing quality.
SDI primarily applies to public administrations and B2B (business to business), which deals with local or international transactions. Hence B2B organizations must now upgrade to e-invoicing after the FatturaB2B mandate.
For B2C businesses, e-invoices are only required if the customer demands them. However, when it comes to B2G invoices, there is a slight difference in handling compared to B2B invoices.
In a B2G setting, public administrations have the right to reject an invoice generated through SDI. However, in a B2B setting, clients do not have the option to reject an invoice received via SDI.
Once an invoice is verified for VAT, it cannot be rejected. Nevertheless, businesses have the flexibility to generate credit slips or credit notes if any errors occur in electronic invoices.
The traditional practice of providing paper invoices to clients has become a thing of the past.
There is no doubt that e-invoicing regulations represent a challenge for business owners that may not have adequate information technology infrastructure, payment systems, and electronic billing capabilities in place to handle the increased number of clients.
What if I operate in Italy but have foreign customers?
If your company operates in Italy but has foreign customers, you still need to comply with the e-invoicing regulations set forth by the Italian government.
The SDI (Sistema di Interscambio) Code and e-invoicing requirements apply to all taxable persons in Italy, regardless of whether their customers are domestic or foreign.
When issuing invoices to your foreign customers, you must follow the same electronic invoicing procedures as you would for domestic transactions.
This includes using the FatturaPA XML format and sending the e-invoices through the SDI portal.
Complying with the e-invoicing regulations in Italy is essential for maintaining seamless invoicing processes and ensuring accuracy and authenticity in your transactions.
It also helps enhance transparency and efficiency in cross-border invoicing, benefiting your business and your foreign customers.
It’s essential to stay updated on any changes to the e-invoicing regulations, as governments may periodically update and expand the scope of mandatory e-invoicing requirements.
SDI Italy e-invoicing requirements
The mechanism for compliance in Italy is strict, but it promises transparency. To comply with Italy's e-invoicing regulations, businesses must adhere to specific requirements when using the SDI (Sistema di Interscambio) for electronic invoicing.
These requirements ensure that invoices are valid and eligible for tax purposes.
Here are the key elements that a full VAT invoice in Italy must contain:
FatturaPA XML format
First, businesses must convert their invoices of all private transactions to XML or other specific formats. The format is well-defined by the government and was put into effect on January 1st, 2019.
The electronic invoices in this format are then sent through the SDI exchange to the intended recipients.
Registration for public administrations
Public administrations in Italy are required to register with the SDI if they need to send invoices. However, B2B businesses do not need to register with SDI to send e-invoices.
Digital signature
Currently, a digital signature is not mandatory for e-invoices transmitted via SDI. However, it is crucial to follow the FatturaPA specifications to ensure successful invoicing.
While e-invoicing may seem complicated initially, transitioning to this next generation of billing is simple with the right guidance.
Established providers like Storecove can provide comprehensive solutions to help you upgrade your B2B, B2G, or B2C business to SDI e-invoicing.
SDI Italy electronic invoice format
Businesses must submit invoices in XML, PDF, JPG, or TXT formats. Therefore, the current invoices in your ERP system must be extracted and converted to one of these formats.
Once converted, businesses will send these invoices to an SDI channel for approval and transfer them to the customer accordingly.
The Italian government approved the guidelines designed to ensure that all invoices submitted for payment ultimately end up in the right hands.
This step helps to provide visibility throughout the payment process and reduces costs and risks associated with manual data entry.
Even then, the SDI system will reject the invoice if the invoice doesn’t have structured data compatible with the spreadsheet. Structured data is detailed information about your business, products, and services.
By adding the data to your invoice, you give companies all the information they need to incorporate your invoice into their accounting systems immediately.
SDI also does not accept images, scanned paper invoices, or faxed paper invoices. If your invoice doesn’t follow the approved format, it will be rejected, and you will get a notification within five days.
You may also like: How Many Types of E-Invoice Are There? (In-Depth Analysis).
What is an SDI code?
An SDI code is a crucial element in Italy’s e-invoicing model. It serves as a recipient’s tax code, allowing the SDI platform to identify the correct address to transmit the e-invoice.
It helps ensure that the invoice reaches the intended recipient without any delays.
There are three types of delivery methods based on the SDI code:
Using the recipient's Codice Destinatario
This is the most common method, where the recipient's tax code is used to transmit the invoice through the SDI.
Certified Electronic Mail (PEC) address
Businesses can also use a PEC-certified email address for input through a web form. The PEC address must be correctly associated with the recipient.
Codice Destinatario with "0000000
If the recipient does not have a PEC address, the “0000000” code is used in the XML invoice to indicate that the invoice cannot be forwarded to the recipient.
You may also like: E-Invoicing Requirements in Italy (Easy Checklist).
How to send Electronic Invoices to the SDI Portal?
Sending electronic invoices to the SDI portal in Italy involves a structured process that ensures e-invoicing regulations compliance.
Here's a step-by-step guide on how businesses can send their electronic invoices to the SDI portal:
Register on FatturaPA
The first step is for businesses to register on FatturaPA, the channel used for electronic invoicing in Italy. This registration can be facilitated using an e-invoicing solution, which can act as an external service provider to initiate the process.
To register on FatturaPA, businesses must have an employee in an Italian branch who can handle the technical aspects of the registration process.
This is where services like Entratel, Carta Nazionale dei Servizi, and Fisconline become necessary.
Set up a technical contact
After registration, businesses need to have a technical contact who will be responsible for setting up the connection between the business and the SDI portal.
Many companies choose to work with the SDI provider to select a technical contact to coordinate the e-invoicing process.
Establish a technical communication channel
To facilitate the smooth transmission of e-invoices, a technical communication channel must be established.
This channel will be used to coordinate the exchange of electronic invoices between the business and the SDI portal.
Choose the e-invoicing mode
There are two modes of e-invoicing that businesses can choose from. The first is the manual method, which involves human intervention.
While suitable for a lower volume of invoices, it may not be efficient for businesses with a higher number of invoices. The manual method uses PEC-certified email transmission and input through a web form.
On the other hand, the second option is automated transmission, which allows businesses to send and receive invoices directly between FatturaPA and their ERP system.
Three channels provide automated transmission services: SDICoop Web Service, SDI FTP Service, and SPCoop Web Service.
How to store e-invoices on SDI?
Storing e-invoices on SDI in Italy is crucial to ensure compliance with the country’s e-invoicing regulations.
Here’s what businesses need to know about keeping their e-invoices on SDI:
Retention period
According to Italian legislation, e-invoices received through the SDI portal must be kept for at least ten years.
This retention period ensures businesses can maintain a comprehensive record of their transactions for future reference and tax compliance purposes.
Digital signature
After the ten-year retention period, the e-invoice files must be secured with a digital signature to ensure their validity and authenticity.
The digital signature serves as proof of the integrity of the archived invoices and protects them from any alterations or tampering.
Certified invoice archive
To ensure the safety and security of archived e-invoices, businesses must have their invoice archive certified by AgID (Agenzia per l'Italia Digitale).
AgID certification guarantees that the archive complies with Italian regulations and provides assurance that the records are maintained in a legally valid manner.
Managing and archiving e-invoices can be complex, especially for businesses dealing with a large volume of transactions.
E-invoicing solution providers are ideal partners to handle this aspect.
These solutions ensure compliance with Italian e-invoicing legislation and provide a seamless mechanism for sending and receiving invoices through FatturaPA.
How can businesses comply with the SDI e-invoicing requirements in Italy?
Complying with the Sistema di Interscambio (SDI) e-invoicing requirements in Italy is essential for businesses to ensure seamless transactions with the government and other entities.
Here are the key steps businesses can take to achieve compliance:
Register with SDI
Businesses must first register with the SDI platform to become part of the electronic invoicing system. This involves creating a business account on the Tax Authority website and obtaining the necessary credentials for access.
Understand the FatturaPA format
Familiarize yourself with the FatturaPA XML format, which is the standard e-invoice format used in Italy. Ensure that your invoicing software or system is capable of generating invoices in this format.
Choose a sending method
Decide on the method through which you will send your e-invoices to the SDI platform.
You can choose between manual upload, certified electronic mail (PEC), or automated transmission through web services like SDICoop Web Service or SDI FTP Service.
Obtain the recipient's SDI code
To successfully transmit e-invoices, businesses need to obtain the recipient’s SDI code. The SDI code is a unique identifier for the recipient’s tax code and ensures that the invoice reaches the correct destination.
Verify invoice data
Before sending the e-invoice to SDI, verify that all invoice data is accurate and complete. The SDI platform performs certain checks on the received data, and any errors or omissions may lead to rejections or non-compliance.
Ensure timely reporting
Italy encourages real-time electronic invoicing, and businesses must adhere to the reporting deadlines for sales and purchase invoices. Sales invoices must be reported within 12 days of delivery, while purchase invoices must be notified by the 15th of the month after delivery.
Keep a record of transactions
Maintain transaction records for internal tracking and audit purposes.
Seek support from e-invoicing providers
Consider partnering with third-party e-invoicing providers like Storecove, who specialize in ensuring compliance with SDI requirements.
These providers offer seamless integration with the SDI platform, automated solutions, and expertise to navigate the complexities of e-invoicing.
Stay updated with changes
Keep abreast of any updates or changes in e-invoicing regulations in Italy. The government may introduce new requirements or modify existing ones, and businesses must be prepared to adapt accordingly.
What are the penalties for not complying with SDI in Italy?
Penalties for non-compliance with SDI in Italy are a serious concern for businesses. Failure to submit invoices through SDI can result in severe financial consequences, with penalties ranging from 90% to 180% of the due VAT amount.
These penalties are meant to discourage businesses from bypassing the electronic invoicing system and ensure compliance with the regulations.
In cross-border transactions, the consequences are equally stringent. If a business fails to declare the invoices in such transactions, they may face a penalty of €2 per invoice, which can add up to €1,000 per quarter.
The taxation authorities may provide some leniency in cases of minor delays, acknowledging the complexity of the taxation system, but deliberate non-compliance is not tolerated.
Italy has one of the largest VAT gaps in Europe. Some reports suggest that Italy accounts for about 23% of the missing VAT in Europe. This highlights the urgency of combating tax evasion and ensuring accurate reporting.
A lack of awareness among taxpayers regarding VAT taxation laws and the transition to e-invoicing systems contributes to the problem.
Invoice fraud, incorrect foreign exchange rates, poor workflow, inefficient reconciliation, and ineffective governance are some of the main culprits behind this situation. Thankfully, e-invoicing helps tackle VAT fraud and promotes transparency in financial transactions.
To avoid penalties and ensure compliance, businesses operating in Italy must embrace the advantages of e-invoicing through SDI.
You may also like: 12 Reasons to Use an E-Invoicing Solution as a Government Supplier
Takeaway: Get started on SDI with the right e-Invoicing solution
With the fast-paced growth of businesses in Italy, an antiquated problem like manual invoice processing challenges their smooth operations.
However, there’s good news – E-invoicing in Italy has undergone significant improvements thanks to a rigorous evaluation of the economic sector.
One such development is the implementation of SDI (Sistema di Interscambio), which has simplified e-invoicing and revolutionized payment procedures.
SDI ensures the confidentiality of taxpayer data contained in invoices while promoting administrative transparency and efficiency.
Its primary purpose is to accelerate financial transactions between countries, making it a game-changer for businesses in Italy.
If you’re a business operating in Italy, it’s high time to shift to SDI e-invoicing.
Embracing electronic invoicing can bring numerous benefits, including faster processing, reduced errors, and improved cash flow.
However, navigating through the financial and tax regulations surrounding e-invoicing can initially be confusing and burdensome for businesses.
That’s where Storecove comes in. Storecove provides complete support to businesses in sending and receiving electronic invoices while ensuring full compliance with Italian laws.
Register on Storecove's platform today and experience the advantages of efficient, compliant, and hassle-free electronic invoicing.
More information about SDI Italy?
Contact us for more information or schedule a consult with one of our e-invoicing experts.
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