Key Takeaways
- Rapidly growing e-Invoicing and real-time reporting requirements across the globe are increasing the exposure for companies, especially multinationals, to comply with mandates.
- These requirements are mainly increasing due to the need for tax authorities to close VAT gaps, as well as to streamline business automation and innovation.
- Failing to comply with e-Invoicing mandates can result in serious consequences, from non-payment of invoices to hefty fines or, even, imprisonment.
- There are set steps that can be followed to ensure compliance with mandates and prepare businesses, but they are onerous and require quick but critical planning and implementation.
- If you have confirmed exposure to e-Invoicing requirements, start preparing as early as possible and choose the correct approach for your company to begin your compliance journey.
What e-Invoicing Means for B2B Sellers
e-Invoicing mandates are being adopted by countries across the globe at an increasingly rapid rate. Initially, many of these mandates focussed on B2G transactions as a way of introducing public visibility and accountability for all parties involved in B2G transactions. Many of the early e-Invoicing systems and technology were also based mainly on the B2G mandates across the EU, LATAM and APAC. However, in more recent years, there has been a strong push towards e-Invoicing mandates for B2B transactions. These mandates have already surpassed the previous B2G mandates and are now the main focus of almost all tax authorities globally. This is due to a number of reasons, such as the potential to close VAT gaps by increasing the real-time visibility of transactional data to tax offices and their ability to electronically analyse this data in more detail due to its structured and standardised nature. You can read our article on the effect of structured data on VAT reporting to understand further.
e-Invoicing also provides many invoice processing automation and efficiency benefits to the B2B suppliers themselves, reducing the need for manual paper invoice generation, enhancing receivables collection tracking as well as streamlining reconciliation with bank data. The value of e-Invoicing is truly in the structured, machine-readable nature of the e-invoices being created and how this can be utilised in a variety of ways for all parties involved. But, above all else, B2B e-Invoicing is fast becoming a global requirement that B2B sellers will have no choice but to implement.
e-Invoicing Requirements and Why They Are Expanding
More and more B2B e-Invoicing mandates are being introduced globally by tax authorities who wish to close the VAT gaps in their countries as well as enhance business automation and efficiency. With the increased introduction of mandates, come more and more global requirements for e-Invoicing to ensure compliance. This is due to a number of reasons.
Firstly, as noted above, many countries initially introduced B2G e-Invoicing mandates. Naturally, the requirements for e-Invoicing in these circumstances were built to suit the use-cases associated with B2G transactions. However, B2B e-Invoicing requirements are quite different and follow different rules. Accordingly, the rules, regulations and technical requirements are being expanded and adapted to B2B use-cases to ensure that the quality of data is increasingly enriched to the benefit of all parties. This is especially true with mandatory e-Invoicing requirements across Europe, where even the EU e-Invoicing standard is now being actively discussed and updated to include more B2B requirements as opposed to the earlier standard that was focused on the B2G context. For more information on VAT compliance in the EU, read our article here.
Secondly, as more mandates are introduced globally, so more countries that are seeking to introduce mandates can learn from the mistakes and deficiencies of others. Many territories have implemented e-Invoicing systems that have required constant improvement to become the smooth functioning systems of today. Others have struggled with their systems from day one and are still not at a point of running efficiently. Thankfully, there is an abundance of publicly available information as well as experienced associations that can shed light on these deficiencies and the improvements implemented, providing countries introducing new mandates with key insights. What this results in, however, is increasingly complicated and stricter e-Invoicing requirements.
Lastly, when mandatory compliance requirements are put in place, like in any other context, some actors will try to circumvent these requirements and find loopholes or other mechanisms to escape compliance requirements. This is the same for e-Invoicing compliance. And as these loopholes and other mechanisms are found, so the authorities will close them by increasing e-Invoicing requirements.
Some key requirements include the increasingly more complicated brackets of taxpayers that need to comply with e-Invoicing mandates and how these brackets are determined, a variety of e-Invoicing systems and process flows that have not yet aligned even regionally, as well as the more specific, technical requirements such as invoice formats and integration requirements per country.
Due to the exponentially increasing complexity of e-Invoicing requirements globally, it is more important than ever to have an experienced e-Invoicing provider that can guide businesses through the compliance quagmires.
Where Businesses Face Challenges with e-Invoicing Mandates and Compliance
There are a multitude of challenges faced by businesses when it comes to e-Invoicing compliance. As each country has unique e-Invoicing requirements, multinational companies must navigate a highly complex environment with multiple regulations and technical requirements that will be completely unique to each business. Even companies that are only based in a single territory require in-depth regulatory and technical knowledge to attempt to comply themselves; not to speak of the significant capital expenditure required to integrate their processes and systems with the tax office and/or e-Invoicing service providers. One such example is as simple as data validations for the structured data points that are being transmitted per invoice, as discussed in detail in our article. Other examples include understanding when businesses need to comply with mandates, how they need to comply, what e-Invoicing/e-reporting model is in place and dealing with country specific legal use-cases that have detailed technical requirements.
But one of the major difficulties is that the ERP and accounting systems used by these businesses, were not designed to accommodate e-Invoicing requirements. Sure, some of these products have viable e-Invoicing solutions. But they are built on outdated foundations that require a lot of bespoke work in order to meet the needs of most e-Invoicing mandates.
The Risks of Not Meeting e-Invoicing Requirements
Should the specific e-Invoicing requirements for a country not be met, businesses will, in all likelihood, be slapped with penalties, non-payment of non-compliant invoices and/or the lack of ability to claim any VAT credits. These sanctions are very specific to each e-Invoicing mandate in each country, with some being extremely severe. In certain countries, non-compliance can even lead to the imprisonment of those involved. For this reason, it is vitally important to ensure compliance with the requirements in every country in which your business may be exposed. Relying on experts to assist with such compliance is a good strategy to mitigate risk.
There are other, less severe but also important risks to non-adherence. These are efficiency losses due to the lack of ability to automate processes as well as opportunity loss. The standardised data requirements of e-Invoicing, and the resultant machine-readability of invoicing data, provides significant cost-saving and streamlining opportunities as well as opportunities to leverage such significant data for the benefit of the company through advanced data insights and intelligence, among other prospects.
In short, there are a multitude of negative consequences for failing to meet e-Invoicing requirements. The risk of non-payment on invoices and penalties should be enough to encourage compliance but there are more opportunities lost should businesses fail to implement e-Invoicing effectively where required.
Next Steps: Preparing for e-Invoicing Compliance
In order to ensure e-Invoicing compliance, there are a number of steps to be taken by companies.
Firstly, companies should holistically look at their established entities as well as their VAT registrations. An assessment should then be completed to determine in which countries they have exposure to e-Invoicing mandates by considering VAT registration status, establishment of entities, annual turnover etc, and comparing these to the local scope for e-Invoicing.
Once confirmed where there is exposure, companies need to decide how they wish to ensure compliance. There are usually a variety of options from which companies can choose based on their unique circumstances, such as manual upload or direct integration with the default portal, use of individual local service providers per country or using a single, global e-Invoicing provider that can cover all of the exposed countries. Approaches vary and the decision should be based on factors such as invoicing volumes, the complexity of the companies’ ERP or accounting system setup, technical and regulatory expertise, as well as budget. In most circumstances, it is best to use a service provider of some kind, with the correct regulatory and technical expertise to assist with compliance.
Regardless of which approach is taken, the next step is to analyse system and data requirements per country and begin mapping them to company and/or service provider systems to ensure any gaps are identified and appropriate remedial action can be planned. This is crucial to ensure long-term compliance with e-Invoicing requirements and reduce ongoing technical maintenance costs.
Lastly, the chosen integration must be implemented and tested thoroughly. It is useful to run through all scenarios and use-cases that the particular company actually experiences or that can be foreseen. Further testing can also be to use modified historical invoice data to ensure reliability at volume. Finally, negative testing designed to push systems to their limits is also a highly useful and suggested testing regime.
Following all of these steps is a guide and is not an exhaustive list. It is important to consider each company’s requirements holistically and critically to ensure nothing is missed. In this regard, it is again suggested to use an experienced e-Invoicing provider that has successfully onboarded and ensured e-Invoicing compliance for a large number of clients, such as eezi, by VAT IT, and who can guide your company through the entire compliance process. We’d love to hear from you and provide you with a no-obligation assessment of your e-Invoicing exposure.
Frequently Asked Questions
1. Can businesses use the same e-Invoicing system in multiple jurisdictions?
Yes, it is certainly possible provided that the e-Invoicing system supports the requirements for all the jurisdictions you need. In this case, it is critical to determine your current e-Invoicing exposure as well as your foreseen exposure globally, to ensure that there is no issue in the long-term implementation
2. Are businesses required to use government-approved platforms for e-Invoicing?
In most cases no, although this should be confirmed country-by-country. However, each country will regulate which platforms can be used, such as private service providers or government platforms. Businesses will need to ensure they use one of these regulated methods to exchange e-invoices or e-report transactions.
3. What role does invoice data validation play in meeting e-Invoicing requirements?
Invoice data validation is one of the more effective methods used to ensure compliance with e-Invoicing requirements. These validations check a variety of fields to ensure that the data meets the requirements set by the tax authorities for their respective e-invoice formats. However, validations are only possible on some fields and are not a guarantee of compliance. To learn more about the importance of data validations, be sure to read our article.
Conclusion
As highlighted, there are a multitude of complex e-Invoicing requirements which could be affecting your business globally. Non-compliance with these requirements can lead to significant consequences, from non-payment of invoices to severe fines or even imprisonment. However, it is also a complicated and onerous process to ensure businesses’ readiness to meet these requirements. Choosing the correct approach, when it comes to preparing for e-Invoicing and e-reporting, is of the utmost importance. If you are choosing between service providers, be sure to choose a trusted service provider that can meet your integration and territorial needs, and has a wealth of experience with local and global companies, such as eezi, by VAT IT.
