In 2022, Italy made it mandatory to electronically invoice foreign customers – including both businesses and individuals – regardless of whether or not they’re in member states of the EU. This article explains how electronic invoicing works for foreign customers, focusing on how to issue invoices, store them properly, and determine whether value-added tax (VAT) applies.

What’s in this article?

• Requirement to issue electronic invoices to foreign countries
  
• How to issue an electronic invoice to foreign customers
  
• How to properly store electronic invoices issued to foreign customers
  
• VAT in electronic invoices to foreign customers
  
• Invoices from flat-rate taxpayers to foreign customers
  

Requirement to issue electronic invoices to foreign countries

As of 1 July 2022, Italy has required businesses to issue invoices for transactions with foreign entities. Article 1, Paragraph 3-bis of Law No. 127/2015, as amended by the 2021 Budget Law, states that data from cross-border invoices must be sent electronically in extensible markup language (XML) format through the Exchange System (SdI).

Previously, companies issuing invoices to foreign customers could use traditional paper or digital invoices. However, they were required to report invoice data for cross-border transactions (i.e., sales of goods and services to entities outside Italy) to the Italian Revenue Agency (Agenzia delle Entrate) quarterly through Esterometro, a cross-border invoice communication system. Esterometro has now been replaced by electronic invoicing.

How to issue an electronic invoice to foreign customers

When completing an e-invoice for a foreign customer, you need to carefully fill out the following fields:

• Recipient Code field (Codice Destinatario): Enter seven Xs (i.e., “XXXXXXX”) for both EU and non-EU resident customers.

• Country ID field (IdPaese): To specify the country of the “Transferee/Purchaser” in the electronic invoice, select the corresponding two-letter country code in the International Organization for Standardization (ISO) 3166-1 alpha-2 standard. When you enter a foreign country here, you can leave the province field empty.

• Postcode field (CAP): For invoices to foreign countries, enter “00000” in the postcode field. You can also use the Address field to enter a foreign postcode.

• ID Code and Tax Code fields (IdCodice and Codice Fiscale): In the ID Code field, enter an alphanumeric identifier for the recipient, up to 28 characters. The SdI does not check this for validity. For an invoice to a foreign individual, fill in only the ID Code field and leave the Tax Code field blank.

Send the invoice to the customer

When sending an invoice to a foreign customer, you must submit it to the SdI using electronic invoicing software, which will verify the invoice.

Then, you must send a copy of the invoice to your foreign customer, either as a portable document format (PDF) or printed invoice, as they will not be able to access the data transmitted through the SdI.

VAT Type (Natura IVA) codes for invoices to foreign customers

The electronic invoice for foreign customers must include the VAT Type code, an alphanumeric sequence that specifies the type of transaction. It must be entered in the Type field of the electronic invoice.

The VAT Type codes for foreign invoices are:

• N3.1: Non-taxable, exports
  
• N3.2: Non-taxable, intracommunity supplies
  
• N3.3: Non-taxable, supplies to San Marino
  

To ensure the correct VAT Type code is used, we recommend consulting with an accountant.

How to properly store electronic invoices issued to foreign customers

If your business is based in Italy and you issue an electronic invoice in the SdI that specifies a country code other than “IT” for the recipient, the invoice must be stored electronically.

All electronic invoices, including those issued to foreign customers, must be stored for at least 10 years (using “substitute archiving” that replaces paper invoices with digital ones). This process is governed by the Digital Administration Code (CAD); simply saving the document as a PDF on an electronic device is not enough.

For storage, you can use the service provided by the Italian Revenue Agency through the Invoices and Receipts portal, or you can choose electronic invoicing software that includes legally compliant storage functions.

Managing invoicing for businesses can be complex, especially as your business grows. Some tools, such as Stripe Invoicing, a comprehensive and scalable platform, can help automate the process. With Invoicing, you can create and send invoices for both one-time and recurring payments without writing any code. With Invoicing, you can save time and get paid faster – 87% of Stripe invoices are paid within 24 hours. And by working with third-party partners, you can also use Invoicing to manage electronic invoices.

VAT in electronic invoices to foreign customers

For electronic invoices sent to foreign customers, the application of VAT depends on the customer’s location. If the customer is in an EU country, you must also determine whether the transaction involves goods or services and whether the recipient is a business or an individual. If the customer is outside of the EU, different rules apply.

Sale of goods to businesses based in another EU country

In this case, you must invoice the foreign customer without VAT if the customer has a valid EU VAT number. You can still deduct the VAT paid on related expenses, such as goods or services purchased as part of this sale. If the customer’s company does not have a valid EU VAT number, you will usually have to apply the VAT rate applicable in your country.

Sale of goods to individuals residing in another EU country

These transactions are classified as distance sales and are subject to a VAT threshold of €10,000 within the EU. For distance sales of telecommunications, broadcasting, and electronic services (TTE) below this threshold, VAT can be applied based on the supplier’s country of establishment (i.e., country of origin). Above this threshold, VAT becomes taxable in the country of residence of the individual (i.e., another EU country).

If you run an online sales business, such as a marketplace or platform and sell to multiple EU countries, you can register for the VAT One Stop Shop (OSS) scheme. This allows you to handle all VAT returns and payments through a single procedure for all EU countries where you have customers.

Sale of services to businesses based in another EU country

If you sell services to businesses or freelancers in another EU country, you generally don’t need to charge VAT on invoices to foreign customers. In this case, the customer is responsible for paying the VAT at the rate applicable in their own country under the reverse charge procedure. You can still deduct the VAT paid on related expenses, such as goods or services purchased as part of that sale.

Sale of services to individuals residing in another EU country

You will usually need to apply VAT at the rate applicable in your country, except for TTE services where the VAT rate is based on the customer’s country of residence.

Sale of goods to customers outside of the EU

If you sell goods to customers outside of the EU, you do not have to charge VAT on your invoice. You can still deduct the VAT paid on related expenses, such as goods or services purchased for the purpose of that sale.

Sale of services to customers outside of the EU

If you provide services to customers outside of the EU, you typically don’t have to charge VAT on the invoice. However, if the service is used in another EU country, that country might decide to charge VAT. You can deduct the VAT paid on related expenses, such as goods or services purchased as part of that sale.

Invoices from flat-rate taxpayers to foreign customers

For flat-rate taxpayers who invoice foreign customers, it’s important to distinguish between sales of goods within the EU, sales of goods outside the EU, and sales of services both in and outside the EU.

Sale of goods in the EU for flat-rate taxpayers

For invoices relating to the sale of goods within the EU, transactions carried out by taxpayers under the flat-rate scheme are not considered intracommunity supplies. Article 41, Paragraph 2-bis of Decree-Law 331/1993 states that the sale of goods by a flat-rate taxpayer to an EU customer is treated as a domestic transaction.

If you fall under the flat-rate scheme, you do not need to charge VAT on the sale and must include this statement on your invoice: “The transaction does not constitute an intracommunity supply, pursuant to Article 41(2) of Decree-Law No. 331/93.” You also don’t need to submit the quarterly Intrastat form (i.e., the document that summarises intracommunity sales and transactions made by a VAT-registered person during a specific time period).

Sale of non-EU goods for flat-rate taxpayers

In this case, you must issue an invoice without VAT, stating that it is a non-taxable transaction under Article 8 of Presidential Decree 633/72, due to the absence of territorial requirements.

Sale of services in and outside of the EU for flat-rate taxpayers

If you issue an invoice for a service provided to a customer in the EU, you can treat the customer as a domestic trader. The invoice should be issued without VAT and with a reverse charge indication. You must also submit the Intrastat form for the service.