SDI Italy - The E-Invoicing Regulations (And What It Means For Businesses)

SDI (Sistema Di Interscambio) is now operational in Italy, which means that the country will use the e-invoicing Exchange Service for local and international transactions. The e-invoicing regulations became mandatory for all public entities in March 2015.

Electronic invoicing regulations (such as the SDI in Italy) simplify and standardize transaction processes and increase business activity. The digitization step for invoicing is a means of growing local Italian businesses and allowing them more access to the international markets through a uniform invoicing system.

The e-invoicing system will speed up invoice processing and open opportunities for access point service providers like Storecove.

This article will focus on critical points and questions about SDI and why it’s essential:

  1. Who does SDI apply to?
  2. The Italy SDI e-Invoicing Requirements
  3. SDI Electronic Invoice Format
  4. How to send Electronic Invoices to the SDI Portal?
  5. How to store e-Invoices on SDI?
  6. What are the penalties for not complying with SDI in Italy?
  7. Getting started on SDI with an e-Invoicing Solution

Who does SDI apply to?

SDI primarily applies to public administrations and B2B (business to business), which deals with local or international transactions. B2B organizations must also upgrade to e-invoicing after the FatturaB2B mandate. For B2C businesses, e-invoices will be applicable if the customer demands them.

In short, SDI applies to every resident or non-resident VAT (value-added tax) business. Similarly, while dealing with B2B cross-border clients, the invoicing must now go through SDI.

The traditional practice of providing paper invoices to your clients will soon become a thing of the past. No doubt, this represents 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.

The requirements suggest that the invoices need to be prepared, signed, and transferred through electronic means via SDI. The aim is to ensure better transparency and enhance invoicing quality.


B2G invoices

B2G (business to government) invoices are slightly different from B2B invoices regarding how they are handled. If needed, a public administration will have the right to reject the invoice generated through SDI in a B2G setting. On the other hand, a B2B setting does not allow the clients to reject an invoice that comes through SDI.

Therefore, if a business has verified for VAT, its invoices cannot be rejected. However, the system allows the generation of credit slips or credit notes if there is an error in the electronic invoices.


Italy SDI e-Invoicing Requirements

The mechanism for compliance in Italy is somewhat strict, but it promises transparency. First, businesses must convert their invoices of all private transactions to an XML or other specific formats. The format is well defined by the government and was put into effect from 1st January 2019. Once converted, the electronic invoice must go through SDI exchange to the recipients.

For public administrations, registration with SDI is compulsory if they have to send invoices. However, B2B businesses don’t need to register with SDI to send e-invoices.

While e-invoicing may seem complicated at first, 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 Electronic Invoice Format

Businesses will need to 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, if the invoice doesn’t have structured data compatible with the spreadsheet, the SDI system will reject the invoice. Structured data is detailed information about your business, products, and services. By adding the data to your invoice, you give businesses all the information they need to incorporate your invoice into their accounting systems immediately.

Additionally, SDI does not accept images, scanned paper invoices, and 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.


How to send Electronic Invoices to the SDI Portal?

Registered businesses in Italy must send and receive their invoices through the SDI portal through transmission channels like FatturaPA. It provides outlines for the transmission of e-invoices, especially for public administrations in Italy.

First, businesses must register on FatturaPA. Here an e-invoicing solution can be a good option to help initiate the process as an external service provider. If the company wishes to register on FatturaPA, they must have an employee in an Italian branch of the company. This is where services like Entratel, Carta Nazionale dei Servizi, and Fisconline become necessary.

After registration, businesses must have a technical contact that will set up the connection. Generally, businesses choose a contact from the SDI provider, which then takes care of further coordination. Moreover, there must be a technical communication channel that will further coordinate for the e-invoicing.


Once the registration setup is complete, there are two modes of e-invoicing:

  1. Firstly, the manual method makes use of human intervention. However, the manual process isn't straightforward for a higher number of invoices. It uses PEC certified email transmission and input via web form.
  2. On the other hand, automated transmission means that businesses can send and receive invoices via direct communication between FatturaPA and the ERP system. SDICoop Web Service, SDI FTP Service, and SPCoop Web Service are three channels that provide automated transmission services.

How to store e-Invoices on SDI?

Italian legislation suggests that the SDI invoices must be kept for at least ten years. After this period, these files must be secure enough to remain valid with a digital signature. The invoice archive must be certified by AgID, which will guarantee the safety and security of your records over time.

Services like Storecove are ideal for archiving and E-invoicing solutions because it guarantees full compliance with the Italian legislation regarding E-invoicing. Secondly, it presents a smooth mechanism, so the invoices reach the customer conveniently through FatturaPA.


What are the penalties for not complying with SDI in Italy?

Businesses that do not submit invoices through SDI can face severe penalties ranging between 90% to 180% of the due VAT. In cross-border communication, when the business doesn’t declare the invoices, there is a penalty of €2 per invoice and can go up to €1,000 per quarter. The non-declaration penalty is somewhat easier, and the taxation authorities provide some relaxation by allowing minor delays due to the complexity of the taxation system.

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.

There are several reasons for this situation. For one, the citizens who were considered taxpayers are not aware of the VAT taxation laws. They are also not used to e-invoicing systems. Because of this, they easily slip into the trap set by the non-registered importers or vendors of goods and services that are illegally taking away their payment system.

The main culprits for this crime are rampant invoice fraud, incorrect foreign exchange rates, poor workflow, inefficient reconciliation, and ineffective governance. However, E-invoicing helps prevent VAT frauds and ensures more accurate reporting.


Getting started on SDI with an e-Invoicing Solution

With the fast-paced growth of businesses in Italy, an antiquated problem like manual invoice processing is posing challenges to their smooth operations.

E-invoicing in Italy is now simpler than ever, thanks to some rigorous evaluation in the economic sector. For instance, SDI ensures the confidentiality of data contained in invoices for taxpayers and promotes administrative transparency and efficiency by simplifying payment procedures. It is implemented with the main purpose of accelerating financial business between countries.

So if you’re a business in Italy, it’s high time to shift to SDI e-invoicing. The financial and tax regulations surrounding e-invoicing can be confusing and burdensome to businesses initially. But services like Storecove provide complete support to businesses in sending and receiving electronic invoices while ensuring full compliance with the Italian laws.


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