E-invoicing mandates: What you need to know
- Nov 18, 2021 | Avalara
Across the world, tax authorities are looking to modernize indirect tax reporting to ensure greater transparency surrounding VAT payments and recovery. In the last two to three years, in particular, governments have been introducing e-invoicing and real-time reporting to streamline tax payments, moving away from manual processes.
Before we go any further, it’s crucial to understand the difference between these reporting terms.
On the one hand, live reporting means transferring the transactional data of the invoice to the tax authorities immediately after that invoice has been sent to the customer. E-invoicing, on the other hand, involves generating and exchanging a structured invoice between a seller and buyer in an electronic format, such as XML.
Continue reading to learn more about how e-invoicing and live reporting regulations might impact your business and discover the benefits of using these new technologies.
Why governments are adopting
The main reason for the growing number of e-invoicing regulations is that governments are looking for a more comprehensive way of enforcing tax laws and collecting VAT from businesses.
The VAT gap is the difference between expected revenues in a country and the revenues actually collected, and it’s a huge burden on economies across the world. In the European Union alone, the VAT gap stands at an estimated €140 billion.
Traditional VAT compliance mechanisms that rely on the periodic reporting of aggregate data and infrequent tax audits are unable to effectively detect and eliminate fraudulent activities.
However, by leveraging technology, governments can benefit from streamlined, accurate reporting and a reliable audit trail to detect fraudulent transactions in a timely manner. This digital trend isn’t only beneficial for tax collecting — e-invoicing and live reporting also bring a wealth of business benefits to taxpayers.
The benefits of e-invoicing for businesses
Businesses have been turning to more digital ways of working in recent years, so why should tax reporting be any different? Here are some of the ways businesses can benefit from e-invoicing and live reporting:
Reduction in processing costs. Replacing the physical paper form with a structured digital document means the invoice can be handled and archived more efficiently. Streamlined, digital processing translates into significant savings in printing, postage, and archiving costs. In addition, it’s estimated that businesses could save up to 70% in processing costs by implementing e-invoicing compared to PDF invoice processing.
Reduced risk of human error. When dealing with PDF or paper invoices, recipients must manually enter the data into their own systems for processing. When the information is in a digital format that computer systems can read, businesses benefit from significant savings in human resources and greater accounting accuracy. Fewer discrepancies mean shorter cycle times and better business relations.
Enhanced security. Encrypted file transfer, digital signatures, and secure networks make e-invoicing the safest way to send and receive invoices. You don’t need to worry about invoices being lost in the post or ending up in the spam folder.
Strategic spend management. Business leaders can make smarter spending decisions using high-quality data that is timely, complete, and accurate.
Faster payment. Buyers receive e-invoices as soon as they’re sent, meaning faster processing times. In turn, businesses can expect to receive payments faster.
Which countries are affected by e-invoicing mandates?
Most European countries have established legislation that governs the use of e-invoicing and promotes its use due to the tax collection benefits. Below, we’ve provided a list of some of the countries that are digitalizing their administration processes:
Italy: Italy was one of the first countries to implement mandatory e-invoicing and is currently the only one that requires its use in both the public and private sectors.
France: France imposed electronic invoicing on B2G transactions starting in 2017 in a phased approach. It plans to impose mandatory B2B e-invoicing and e-reporting from July 2024.
Spain: Spain requires e-invoicing for B2G transactions. However, it will extend the requirement to B2B e-invoicing in the near future.
Saudi Arabia: Saudi Arabia will begin the rollout of its e-invoicing mandate in two phases, beginning in December 2021.
Egypt: As of January 2022, Egypt’s e-invoicing mandate will apply to all taxpayers operating in the country.
Vietnam: Vietnam is scheduled to introduce mandatory electronic invoicing from July 2022.
We could go on and on, but the point is that e-invoicing is sweeping across the globe. It is clearly the direction of travel. Businesses need to upgrade their invoicing infrastructure to remain compliant with the ever-evolving landscape. Of course, that may not always mean smooth sailing.
The challenges of implementing e-invoicing in businesses
One of the main challenges that businesses face is compliance issues due to developing regulations. Compliance was made more complicated by the pandemic, which drove governments to change deadlines, muddying the waters even further.
Businesses have been bombarded with changing requirements and deadlines for compliance making it difficult to keep up with the e-invoicing trend.
In addition, businesses will need to accelerate their digital transformation efforts to remain compliant. “Out with the old, in with the new” means updating systems and harnessing technology, which may pose a challenge for businesses that depend on traditional invoicing.
With Avalara, many companies won’t need to undergo a complete overhaul of systems, as our API plugs into existing systems — one less thing to worry about.
Get your business ready for e-invoicing with Avalara
If your business is affected by new e-invoicing mandates, you might be feeling overwhelmed and bogged down with the technicalities of the legislation.
With Avalara, you won’t need to worry about that. Our e-invoicing and live reporting solutions make the switch to e-invoicing simple, ensuring full compliance with your country’s laws.
Discover how you can future-proof your business with Avalara’s e-invoicing and live reporting solutions.