By imposing their SDI e-invoicing regulations and making real-time e-invoicing mandatory for all B2B, B2C and B2G transactions as from 1st January 2019, Italy has been a pioneer in the battle against tax fraud in the European Union. On 28th February 2020, the Italian Revenue Agency (Agenzia delle Entrate), which is in charge of company tax compliance, announced an update to their SDI e-invoicing regulations, coming into force on 4th May 2020.
With their SDI system (Sistema di Interscambio), the Italian Revenue Agency (Agenzia delle Entrate) have created a central platform dedicated to verifying and transmitting electronic invoices. In my blog post, titled “How to get SAP ERP compliant with the Italian SDI E-Invoicing law”, you can read all details on the Italian SDI e-invoicing requirements and on how to make your own SAP system (either SAP ECC or SAP S/4HANA) compliant with these rules.
In this blog post, I will zoom in on the additional requirements for e-invoicing in Italy, that will come into force on 4th May 2020 with a soft landing period until October 2020.
New SDI deadline on 4th May 2020 with soft landing period until October 2020
On 28th February 2020, the Italian Revenue Agency (Agenzia delle Entrate) published Directorial Provision no. 99922 to introduce new rules on technical specifications for all e-invoicing transactions in Italy. More specifically, a new XML format with relating mapping updates (XSD scheme, version 1.6) and new validation rules must be used as from 4th May 2020.
The Agenzia delle Entrate recognizes that it may take some additional time for all organizations to become fully compliant with these additional rules (and e.g. adapt their SAP systems accordingly). Therefore, until 30 September 2020, both the current and the new technical XSD schemes can be submitted to the SDI system of the Italian tax authorities, meaning that the new validations will not be carried out yet on the e-invoices during this period – the Agenzia delle Entrate refer to this as the “soft landing period”. However, as from 1st October 2020, only the new XSD scheme (version 1.6) can be submitted and therefore only the new XML format is valid. If you still try to submit the “old” XSD scheme after this date, your e-invoice will be rejected by the Agenzia delle Entrate.
SDI update: 3 technical changes that need to be implemented in your SAP system
With their new SDI rules, the Italian Revenue Agency imposes the following additional technical specifications that need to be submitted to their SDI system as from 4th May 2020:
- A change in the XML structure that needs to be submitted to the Italian SDI system
- A change in the mapping (document types, natura codes)
- A change in the validation rules for submission
This means that also your SAP system needs to be updated. From a process point of view, the current e-invoicing process remains the same as shown in the following process overview graphic.
From a technical point of view, the Agenzia delle Entrate has changed the XML format that needs to be submitted to the Italian SDI exchange system. As such, some fields have been added to the XML structure and some other fields have been simplified, e.g. the technical XML structure for the Italian stamp duty tax (Imposta di Bollo) has been simplified. Furthermore, the data types that are allowed in some fields, have been changed. Because of this, more character types can be used in certain fields. In many of our projects to make our customers’ SAP systems compliant with the Italian SDI e-invoicing requirements, we noticed that the former limitation on characters caused discontent. This technical update will therefore also make life easier for a number of individual customer cases.
A next technical change that will be imposed as from 4th May 2020 is to be found in the mapping of the following fields:
- Document types
- Natura codes
A document type refers to the different possible documents that need to be declared to the Italian tax authorities, such as invoices, credit notes, down payments, etc. With this change, a new set of document types are introduced. This will bring the total amount of document types to 18.
A natura code expresses why an e-invoice is tax-exempted. Therefore, a natura code only needs to be filled when no tax is to be paid. Since the Italian Revenue Agency wants to know the exact reason in case of tax exemption, they have introduced this technical update in their new SDI regulations. More specifically, they even have introduced sub-codes to better identify the different reasons for tax exemption. Currently, 24 different possible field entries are possible, as from 4th May 2020, this amount will be tripled.
A last technical change that will come into effect within the scope of the new SDI update, applies to the validations. More specifically, some additional validation rules will be introduced to check the content of the XML file that will be submitted. These validations have been created to make sure that the data of different fields is consistent and to avoid incorrect information in an e-invoice.
How to prepare your SAP system (ECC or S/4HANA) to be compliant with the new Italian SDI update
In order to make your SAP system compliant with the new technical updates from the Agenzia delle Entrate, you need a partner that understands your current technical SAP setup for compliance with the current SDI regulations and has in-depth knowledge of the new technical updates that need to be implemented in your SAP ECC or SAP S/4HANA system.
We at PIKON have implemented numerous different SAP solution scenarios to make our customers’ SAP systems compliant with the Italian e-invoicing rules. Some examples are the SAP Document Compliance solution (with the built-in SAP eDocument Framework and SAP eDocument Cockpit), SAP IDoc solutions, etc. We have integrated these technical SAP frameworks with internal middleware systems (such as SAP PI and SAP CPI) but also with third-party middleware systems from our partners in order to create a solid, secure communication flow with the Italian SDI exchange system of the Agenzia delle Entrate.
In our case study, you can read how we helped Edgewell Personal Care making their SAP ECC system compliant with the Italian SDI e-invoicing regulations.
In general, the following tasks need to be carried out to make your existing SAP solution compliant with the new technical SDI updates:
- The XML format (XSD scheme) needs to be updated to the newest version.
- All Italian processes and mappings need to be reviewed and adapted to the new technical specifications (version 1.6).
- All implemented changes need to be thoroughly tested in the test portal of the Agenzia delle Entrate
In order to make this as smooth as possible, SAP are currently developing specific SAP OSS notes. We at PIKON have all expertise to make your own SAP system compliant. Please click the following button to request a web-meeting and learn about our approach.
PIKON’s Competence Center for Legal Requirements to make your SAP system compliant with country-specific regulations, such as with the Italian SDI rules
With our Competence Center for Legal Requirements, we are a strategic partner who ensures that your SAP system and business processes meet different country-specific legal requirements all over the world. Our team of experts combines SAP expertise and extensive knowledge of country-specific regulations and has gained a lot of project experiences over the years. This ranges from country-specific legal requirements, such as e-invoicing in Mexico (CFDI), Italy (SDI), Spain (SII), Hungary, VAT reporting in the UK (MTD-VAT), e-accounting with SAF-T in France, Portugal and Poland to accounting standards such as lease accounting under IFRS16 and SEPA.
Especially for compliance with the Italian SDI e-invoicing regulations, we have a team of SAP experts that have already implemented many customer projects and have in-depth knowledge of the end-to-end legal process and technical requirements. Please do not hesitate to ask your questions in the comment section below or to send them to me by e-mail at firstname.lastname@example.org. I am happy to help you.
Why Italy has made e-invoicing mandatory and is coming with updates to their SDI rules
The main reason why Italy imposed their e-invoicing regulations on 1st January 2019 was to fight against tax fraud and to lower the VAT gap. Many other countries worldwide are also failing to collect VAT and are closely watching the Italian experiences in order to impose their own mandatory e-invoicing regulations.
So far, the Italian e-invoicing regulations have not missed their purpose. By mid-March 2019, the Italian government already uncovered EUR 688 million in fraudulent credits. In the first half of 2019, the captured VAT was over EUR 160 billion based on a total amount of 890 million invoices.
Although Italy has already made great progress in lowering their VAT gap since the introduction of the mandatory e-invoicing regulations, there is still great room for improvement. As such, we expect that in future some additional updates will come into effect based on some new learnings from the Italian Agenzia delle Entrate. Because of that, it makes sense to have a strategic partner who takes care of this, informs you on new updates and keeps your SAP system compliant with the latest version of the country-specific legal requirements. We recommend starting to make the necessary changes to your SAP system rather sooner than later.