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BUREAUCRACY

EXPLAINED: What is Italy’s new digital invoicing rule for freelancers?

Italy is bringing in new rules from July that mean changes for freelancers on the 'flat tax' rate. Here’s what you need to know about the new ‘fatturazione elettronica’, or digital invoicing system.

EXPLAINED: What is Italy’s new digital invoicing rule for freelancers?
What you need to know about accounting changes to Italy's 'regime forfettario'. Photo by Kelly Sikkema on Unsplash

Italy has been slowly moving more of its bureaucratic systems online in recent years, and in many cases this has made it quicker and easier for residents to access services and get their considerable amounts of Italian life admin in order.

It was hoped that the new electronic invoicing rule would do the same for freelancers on Italy’s flat-tax regime, by doing away with the existing need to print out invoices and affix tax stamps by hand.

READ ALSO: Beat the queues: 19 bits of Italian bureaucracy you can do online

But a close look at the details of the new rules shows that it probably won’t make life easier for those on the flat tax rate, who have so far been spared the bulk of that infamous Italian red tape – but now need to get to grips with a new online system.

Known as the ‘regime forfettario‘, Italy’s flat-rate tax scheme for individuals and small businesses was introduced in 2015 to encourage more commercial activity by slashing tax rates and simplifying bureaucracy.

New freelancers who choose this tax system generally pay somewhere between just five and 15 percent tax on earnings, regardless of overheads.

READ ALSO: The pros and cons of Italy’s five percent flat tax for freelancers

Little has changed since its inception seven years ago, but freelancers using the scheme now need to be aware of new rules coming into force from July 1st, 2022.

How you invoice – how you send, receive and store receipts, therefore – is due to move from analogue to digital, bringing new requirements and know-how on digital invoicing software.

Here’s what’s changing for freelancers with the so-called ‘fattura elettronica‘.

Who is required to send electronic invoices?

While this was already a requirement for the self-employed on other tax regimes, those on the flat tax rate will now be included from July 1st.

They were previously exempt, but that changed under the PNRR (National recovery and resilience plan or piano nazionale di ripresa e resilienza) – the Italian government’s plan for using EU funding for post-pandemic economic recovery.

Digital invoicing is intended to fight Italy’s major problem with tax evasion, as well as to further automate accounting processes.

For now, not all freelancers under this tax scheme need to move to digital accounting – only those who received an income in excess of €25,000 in the previous year are required to comply with the new rule.

It will then extend to all freelancers using the flat-rate scheme from January 1st, 2024.

From that date, everyone subscribed to the ‘regime forfettario’ will have to switch to electronic invoicing and there are hefty penalties in place for those who don’t.

How will electronic invoices work?

Italy’s tax authority has defined a couple of notable differences between the digital or electronic invoice (fattura elettronica) and a paper invoice (fattura di carta) in its updated guidelines.

Firstly, the digital invoice has to be created using a digital device (a computer, tablet or smartphone), and secondly it has to be sent to the client via an ‘Interchange System’, the so-called Sistema di Interscambio (SdI).

READ ALSO: ‘Smart working’? Here’s what you need to know about going self-employed in Italy

Italy’s flat-rate tax scheme is going digital. Photo by Christian Dubovan on Unsplash

This electronic postal system checks whether the invoice contains the required data for tax purposes, as well as checking the verified e-address (or the so-called PEC address) of the recipient.

In doing so, the electronic invoice automatically checks that the VAT number (partita IVA), or the tax code (codice fiscale) depending on who you send the invoice to, really exist.

Once the checks are completed, the system sends the invoice to the client, which will trigger an alert to the freelancer with a delivery receipt, showing the date and time the document was delivered.

How can you send an e-invoice?

There are a few accounting software options on the market if you’re now faced with having to send electronic invoices.

Some charge a fee of around €1-€4 per month or come at a cost per transaction.

Platforms such as ‘Aruba‘ or ‘Fatture in Cloud‘, are competitive and may offer you a free trial before you deciding to buy.

The Italian revenue agency (Agenzie delle Entrate) has also created free-of-charge services to help send and receive e-invoices. These include websites as well as apps for completing the required steps, which are detailed in their guide here.

You can access their Invoices and Receipts (‘Fatture e Corrispettivi‘) portal to benefit from these free services.

You’ll either need a Spid ID (‘Sistema Pubblico dell’Identità Digitale‘), a Carta Nazionale dei Servizi (CNS) or accounting credentials known as Fisconline/Entrate, which are issued by the Agenzie delle Entrate.

You can also delegate this task to an intermediary, such as an accountant (commercialista) who would do this on your behalf, the revenue agency stipulates 

What about the Italian tax stamp?

Until now, freelancers issuing invoices under the ‘regime forfettario‘ have had to attach a €2 stamp, called a ‘marca da bollo’, to every invoice over the value of €77,47.

So what happens when e-receipts go digital and you can’t physically stick a stamp on a document? Well, that goes digital too and the Inland Revenue has issued a 16-page guide on how you need to go about it.

It seems the previously attractive ‘light’ accounting of this regime is about to get bogged down by time-consuming bureaucracy too.

Authorities will systematically check that the fee has been paid each quarter for all the invoices that require it.

As a general rule, you can see if there are any discrepancies by the 15th day of the first month following each quarter on their Invoices and Receipts portal.

You or your intermediary have until the end of that month to fix any accounting errors, but make sure to check with an accountant if you have any difficulties or need specific advice for your personal circumstances.

Once you receive your final stamp duty bill for each quarter, you can pay either via IBAN, which you set up on the portal, or by filling out an electronic F24 form – details of how to do that are included in the guide.

For further information and FAQ’s, see Italy’s Inland Revenue Agency website on the electronic invoice here.

Please note The Local cannot advise on personal cases and seeking expert financial advice is recommended.

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READER QUESTIONS

Reader question: Do you need to cancel your residency when leaving Italy?

How do you cancel your residency permit when leaving Italy - and do you even need to do so at all? The Local looks into the rules.

Reader question: Do you need to cancel your residency when leaving Italy?

Question: My partner and I are leaving Italy after several years of living here. Do we need to cancel our residency? If so, can you advise us on how to go about doing this?

Most people know that you need to register as a resident in Italy if spending more then 90 days in the country. But what should you do if you decide to leave?

Do foreign nationals need to deregister as a resident, and under which circumstances? And how do you go about doing cancelling your residency?

We asked the experts to talk us through when you should deregister as an Italian resident and the the steps involved in cancelling your Italian residency.

Should you bother cancelling your residency?

As is so often the case when it comes to complex bureaucratic questions, the answer is: it depends. Both on your personal circumstances and on the type of residency permit you hold.

If you’re relocating away from Italy permanently then deregistering as a resident and informing the authorities of your new address is a legal requirement – and you’d want to do so anyway, says Nicolò Bolla of the tax consultancy firm Accounting Bolla.

READ ALSO: What’s the difference between Italian residency and citizenship?

On the other hand, if you’re moving away on a temporary basis, you’re not required to cancel your Italian residency.

“If, for instance, you undertake a two-year assignment somewhere, you can still remain a resident and benefit from all the coverage a resident has, such as healthcare,” Bolla explains.

You might want to hold on to your Italian residency in the short term if you're not sure whether the move will be permanent.
You might want to hold on to your Italian residency in the short term if you’re not sure whether the move will be permanent. Photo by MIGUEL MEDINA / AFP.

There’s no official time limit for this – you could leave Italy for a number of years while maintaining your residency and then return to live in the country as if there had been no break.

That means that if you’re leaving Italy and aren’t sure whether you want to return, you might want to keep your residency status, at least in the short term (it’s possible to be legally resident in both Italy and another country).

Financial planning and property consultant Daniel Shillito warns: “you want to be sure if you’re leaving the country that it was a permanent decision, and that you weren’t aiming to come back to live – because if you do want to, it could be tricky and quite administrative.”

For British citizens in particular, he points out, “having an Italian residency these days is a valuable thing, it’s not easy to get again.”

This all applies to those with permanent or long-term residency.

If you have a temporary residence permit, you will no longer be considered resident in Italy as soon as it expires – so you may decide it’s not worth bothering to cancel your residency if it’s due to expire anyway shortly after you leave.

Why does it matter?

There are multiple factors to consider here, the biggest of which is taxes.

If you’re resident in Italy, you’re expected to pay taxes here. However, if you’re moving to a country with which Italy has a double taxation agreement or dual tax treaty, you’re protected from being taxed twice on the same income. Many states, including the UK, America, Australia and Canada, have dual taxation treaties with Italy. 

READ ALSO: Can second-home owners get an Italian residence permit?

If you’re moving to a country which doesn’t have a double tax agreement with Italy, on the other hand, you’ll be legally required pay the full amount of Italian tax on your income even if you spend very little time in Italy, so will almost certainly want to cancel your residency.

Even if you’re moving to a country that does have a dual tax treaty with Italy, you may still want to deregister as an Italian resident in order to avoid having to deal with the paperwork involved in proving you’re a dual resident whose tax obligations are limited.

There’s also a third category of emigrant: for those moving to a country on the EU’s tax haven blacklist, such as Panama, simply deregistering as an Italian resident won’t keep the tax authorities at bay. The burden of proof is on the individual to demonstrate they actually reside in the blacklist country and aren’t just trying to evade Italian taxes.

In these situations, Bolla advises clients to register as resident in an intermediate third country after leaving Italy and before moving to the blacklisted country in order to avoid the extra bureaucracy.

READ ALSO: What taxes do you need to pay if you own a second home in Italy?

Do you need to cancel your residency when leaving Italy?

There are multiple factors to consider when deciding whether to cancel your Italian residency. Photo by FABIO MUZZI / AFP.

Other considerations

Besides where you pay your income tax, you’ll want to consider other factors such as official correspondence, tax breaks, and timeframes for residency-based citizenship applications, Bolla says.

If you maintain Italian residency, the authorities will expect to be able to reach you at your registered address, including for things like traffic fines or notifications of tax audits. If you no longer have any link to that address and no one to forward your correspondence on to you, you could end up in a sticky legal situation.

It’s also worth taking into account the fact that new Italian residents can access certain tax breaks that aren’t available to people who’ve lived here for a while. If you cancel your residency and then return to Italy at a later date, you’ll be eligible for those incentives in a way that you wouldn’t be if you’d kept your residency.

On the other hand, Bolla notes, maintaining Italian residency could work in favour of those interested in pursuing citizenship through residency.

An individual must be continuously resident in Italy for 10 years before they can apply for Italian citizenship based on their long-term residence status.

In theory, maintaining your Italian residency while you’re temporarily abroad could mean that period still counts towards towards those ten years and you won’t have to restart the clock on your return – though it’s important to consult a professional if you’re considering this option.

How can you go about cancelling your residency?

There’s no standardised national protocol for cancelling your residency. Instead, you’ll need to contact the comune, or town hall, you’re registered with to inform them of the change and ask them what you need to do.

The process could be as simple as sending a few emails, without even having to set foot in the building. There may also be a form to fill out. Because things vary from one municipality to another, you’ll need to contact your local comune to find out exactly what’s required.

Generally the process can only be completed after, not before, leaving the country, because you’ll need to provide your new address and possibly supporting documentation proving that you’re now resident elsewhere.

“You say me and my family – and then you list all the members – are no longer residing in your town, please deregister us, and our new address is (e.g.) 123, Fifth Avenue, New York,” says Bolla.

If you have a Spid (Sistema Pubblico di Identità Digitale or ‘Public Digital Identity System’) electronic ID, Bolla notes, in many towns and cities (such as Milan), the process can be completed online through the comune‘s website.

You should expect to receive confirmation that you and your dependents have been deregistered as Italian residents, so it’s worth following up until you receive this.

READ ALSO: How to use your Italian ID card to access official services online

Shillito advises using a PEC (Posta Elettronica Certificata, or Electronic Certified Mail) email account if you have one when communicating with your comune about deregistering. 

Messages sent between PEC accounts are certified with a date and time stamp to show when you sent them and when they were received, with a record of receipt automatically emailed to you as an attachment. Within in Italy they have the same legal value as a physical lettera raccomandata (registered letter).

“That secure email communication is official, you’ve got a receipt showing it’s been received,” says Shillito.

“That way you’ve got evidence and a record that you’ve communicated it to them, in case anything went wrong in the future and the Italian government decided to claim you were still living in Italy.”

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