This blog and regulations information were correct as of the publishing date. To view the most up to date regulations and blogs, view the tax compliance regulations page.
What is electronic invoicing?
Electronic invoicing (e-invoicing) is the exchange of an electronic invoice between a supplier and a customer. This is not a PDF, nor a paper document, just a structured, machine-readable file transmitted electronically. This process creates a purely electronic exchange between suppliers and customers.
So an email with an attached PDF invoice is not an e-invoice?
PDF and emailed invoices are still used, but they are not digital or electronic invoices. Even if paper is no longer needed, and a business uses PDF invoices, the process cannot be fully electronic or digitalised, as the further process still requires manual post-processing.
However, some leading e-invoicing providers, such as Unifiedpost Group, can convert PDF invoices into structured electronic invoices using our AI technology.
Electronic invoicing has a lot to do with tax compliance. What does tax compliance actually mean?
In the context of e-invoicing, tax compliance refers to meeting all the necessary tax requirements imposed on an invoice within a specific country, ensuring it has legal validity. This also includes all processes surrounding the invoice that are related to the tax office or sales tax. This is summarised under the term “tax compliance”.
You can read more about e-invoicing in a tax compliance world via our blog.
Why are there local and global regulations for invoices?
The global VAT gap is currently 500 billion euros (a figure updated each year in the European Commission’s VAT gap report). This is an enormous sum which is causing a lot of issues for many countries. VAT accounts for 30% of public sales, which means major losses for the countries.
Therefore, many countries are putting mandatory e-invoicing and e-reporting processes in place to help close their VAT gap and therefore increase their income.
Why is it important for companies to address tax compliance now?
Many governments are mandating electronic invoicing in order to prove a company’s tax compliance. Even though some countries have not yet mandated this process, it is on horizon and therefore pays to be ready!
This is especially important for companies who operate internationally, as they face the challenge of navigating more than one country’s tax dynamics. There are already so many regulations across Europe that one can get a vague idea of what this means for a company that operates not only on the European level, but on a global level.
You also have to keep in mind that different regulations apply in every country. Although all regulations have the same principle, they generally have different rules, procedures and formats to consider.
So if I am a company active in 30 countries, I have to make sure to follow 30 different protocols. This can be very challenging.
Can it also happen that an invoice is rejected by the recipient if it is not tax compliant?
Yes, the recipient is obliged to only accept tax-compliant invoices. A company can only deduct sales tax if the invoice received meets the legal requirements. As a consequence, the invoice issuer would receive their money later and only when the invoice was issued in a tax-compliant manner.
What are the biggest challenges companies face in regards to tax compliance?
As discussed, every country has its own peculiarities. Both in terms of an invoice’s format and how the invoice should be sent. In Italy, for example, the invoice can only be sent via the central government platform (Sistema di Interscambio - Sdi). If the invoice goes directly to the recipient, the invoice is not valid and you have to send it again.
Across Europe, many business-to-government (B2G) mandates exist. These mandates require businesses to only send electronic invoices to public administrations. In most countries, public sector suppliers are also required to issue electronic invoices.
Even though this is a law of the European Commission, it is implemented differently in different countries. Depending on whether I am a supplier in Germany, France or Austria, I have to implement and consider completely different elements. It is a lot for businesses to work with.
Why are there different B2G mandates in Europe?
There are framework conditions from the European Commission: All public administrations, from the government to the municipalities to the municipalities, must be able to receive e-invoices.
Many countries took the basic principles of the framework, and adapted them even further to suit the needs of their own tax administration. You can take a look at the various, and ever-changing, tax regulations in each country here.
Will the mandates develop to also include B2B and B2C?
Yes, many European countries have started their B2B mandate journey, including Italy and Serbia. Other countries will start their B2B mandates over the next few years, and many more will join, especially because of the VAT In the Digital Age proposal (ViDA).
How much time does a business have to prepare ahead of their country’s mandates?
It takes some time, you cannot have tax compliant procedures overnight.
Many of the procedures require technical development, which can be difficult for a company to implement by themselves. This is why many businesses use compliant service providers, such as Unifiedpost Group. Businesses therefore don’t need to worry about changing regulations and can rest easy knowing their supplier is doing the compliance work for them.
Plus, businesses can benefit from value-added-services that complaint e-invoicing procedures provide. Such as digital payment buttons, electronic signatures and a certified archive.
In a nutshell, what helps companies when dealing with tax compliance?
Companies must be aware of the ever-increasing complexity of tax compliance. This means either investing in their own structure and training employees to become experts or getting the support of an external service provider who will do the work for them and also keep on top of the latest regulations.
Finally, do you have any other tips for companies?
Companies shouldn't forget that there are experts on these topics who are happy to support them. You don't have to deal with all these challenges alone, because that's exactly why there are companies like us at Unifiedpost Group, who invest a lot of time and work to help every company to be able to provide ideal support here, no matter what challenges.