By Marco Eeman, Managing Director, Europe, BillTrust
The e-invoicing market is expected to reach US$35.9 billion by 2028. It is a massive area of growth and reflects how governments around the world are moving their administrations to paperless systems. They are focusing on creating infrastructures that allow seamless data collection and analysis to drive growth and counter fraud.
In the EU, a key driver is making business transactions simpler between Member States with what are claimed to be the biggest reforms to EU VAT rules in 30 years. With the publication of the VAT in the Digital Age (ViDA) directive on 7 December, 2022, the EU proposed amendments to the VAT Directive (2006/112/EC), the Council Implementing Regulation (EU 282/2011) and the Council Regulation on Administrative Cooperation (EU 904/2010). Details include a plan to allow businesses selling to consumers in another Member State to register “only once for VAT purposes for the entire EU.” VAT obligations could also be fulfilled using a single online portal in one single language. The EU claims this could save businesses around €8.7bn in registration and administrative costs over ten years.
The focus is not only to simplify transactions and therefore drive business growth – about €1 trillion is collected in the EU in VAT revenue each year – but also to claw back lost revenue. In 2020, this was estimated to stand at around €93 billion.
With changing mandates will come implications for non-compliance. As an example, India already has fines in place for non-compliance. For non-issuance of an e-invoice, the fine currently sits at 100 percent of the tax owed or INR 10,000 (whichever is higher).
E-invoicing will be mandatory for cross-border transactions within the EU from 2025, and digital reporting will start in 2028. Time is of the essence, both for companies within and outside the EU. Businesses need to determine what technical financial infrastructure they must put into place before implementation of the EU proposals (if they are agreed unanimously by Member States). For SMEs and startups in particular, this may seem a daunting task, so guidance is paramount.
Indeed, some mandates have already been put into place. Belgium and France have made e-invoicing mandatory for B2G transactions. Italy has had this operational since 2014. In Germany, mandates for B2G e-invoicing have been implemented in the states of Baden-Württemberg, Hamburg and Saarland. Although now outside of the Bloc, the UK Government issued The Public Procurement Regulations in May 2019 in response to a European directive. It mandated e-invoicing for organisations working with the NHS first, with this coming into effect in March 2022. Poland, Italy and Luxembourg have also signalled plans to make changes. It seems that most countries are focusing on B2G transactions first.
However, B2B e-invoicing will follow. Between July 2024-2025, it will become mandatory in Belgium while France has revealed a roll-out plan that will see e-invoicing become mandatory across all sectors by 2026.
Outside of Europe, South American countries seem to be leading the way. Brazil and Argentina have adopted pre-clearance and post-clearance e-invoicing models. Interestingly, there are currently no clear e-invoicing mandates in the USA nor in Canada – though the latter does use the Peppol platform – the Cloud-based E-invoicing and e-procurement that was based on an initiative by the Austrian government.
A glance over the patchwork of e-invoicing mandates around the world reveals that each country is working to its own timeframe and standards. In Europe, there are calls for standardisation but at the current time, the e-invoicing landscape is complex to navigate.
It is a time of uncertainty and shifting standards. Businesses will need guidance to analyse what mandates will impact their business transactions and what they need to do to be compliant.
Governments are moving fast around the world, especially in the EU where the path has been laid out for e-invoicing reform, and are driven by the desire for frictionless business transactions and increased accountability. Companies need to partner now with experts to prepare for what lies ahead and make the transition to e-invoicing as painless as possible.