eInvoice compliance refers to the laws and regulations businesses and buyers must comply with when sending and receiving electronic invoices. This also means that any eInvoice solution needs to adhere to tax requirement prerequisites associated with invoices.
In this article, we look at how both the European Union and global countries have different requirements regarding the mandatory elements in an invoice, which are specified within local legislation. It is also important to bear in mind that the requirements are based on the jurisdiction where an invoice is issued.
The Widespread Adoption of Digital Reporting and eInvoicing Across the European Union
What is eInvoicing?
The variation in invoicing standards between different countries created obstacles for processing invoices in cross-border transactions. Consequently, a European policy was established, leading to the introduction of a new European invoicing Standard (eInvoicing Directive 2014/55/EU). This implies that, from April 2019, European public entities were required to implement electronic invoicing systems, and suppliers engaging in business with these entities in the European Union (EU) were obligated to ensure that their electronic invoices conformed to the standards defined by the Directive.
Furthermore, companies engaged in trade within the European Union must adhere to various regulations, notably including the eInvoicing Directive and the EU VAT Directive.
eInvoicing plays a significant role in the context of the Value Added Tax (VAT) Directive and business-to-business (B2B) and business-to-government (B2G) transactions.
VAT in the Digital Age - eInvoicing and Compliance with the EU VAT Directive
The EU VAT Directive, introduced in 2006, is a set of regulations established by the EU that governs the taxation of goods and services within EU member states. Article 233 of the EU VAT Directive provides clear guidance on what needs to be included in invoices, along with other conditions concerning the authenticity of origin of the sender’s identity and the integrity of the content of the invoice, proving that it has not been amended since its issuance. This needs to be guaranteed by either an advanced or qualified electronic signature, or using an electronic data interchange (EDI).
The qualified electronic signature should be based on a qualified certificate and created by a Qualified Signature Creation Device (QSCD).
How is e-Invoicing Connected with VAT Legislation, and Why is it so Important in B2B and B2G Transactions?
eInvoicing is closely linked to the VAT Directive, particularly in the context of cross-border B2B transactions within the EU:
- Cross-Border Transactions: The VAT Directive provides guidelines on how VAT should be applied to cross-border transactions within the EU. eInvoicing can facilitate compliance with these regulations by ensuring that invoices contain the necessary information and meet the formatting requirements prescribed by the Directive.
- Electronic Invoices: The VAT Directive recognizes electronic invoices as valid documents for VAT purposes, provided they meet specific criteria. This includes ensuring the authenticity, integrity, and legibility of the electronic invoice.
- VAT Reporting: eInvoicing can simplify VAT reporting and compliance by automating the capture and processing of VAT-related data. This reduces the risk of errors in VAT calculations and reporting.
Other advantages include:
- Efficiency: eInvoicing streamlines the invoicing process, reducing manual effort and errors. This is particularly beneficial for businesses engaged in frequent and complex transactions with other businesses.
- Faster Payments: eInvoicing can lead to quicker payment processing, improving cash flow for businesses. Automated payment reminders can also be integrated into eInvoicing systems.
- Compliance: B2B eInvoicing helps businesses comply with VAT regulations and maintain accurate records, which is crucial for auditing purposes.
B2G transactions involve government agencies as customers. Many governments are adopting eInvoicing to modernize their procurement processes:
- Government Mandates: Some countries mandate the use of eInvoicing for transactions with government entities. Compliance with these mandates is essential for businesses that want to engage in government contracts.
- Transparency: eInvoicing in B2G transactions enhances transparency and accountability in public procurement. It allows government agencies to track expenditures more effectively and reduce the risk of fraud.
- Efficiency: eInvoicing simplifies the submission and processing of invoices for both government agencies and their suppliers, reducing paperwork and administrative overhead.
Global Requirements - Meeting Global Standards When Invoicing into the EU
According to the Directive, EU-based public sector organizations are required to accept electronic invoices that conform to the specified standards within the Directive.
Consequently, this implies that suppliers, irrespective of their geographic location, engaging in transactions with EU public entities should ensure that their electronic invoices adhere to the standards outlined in the Directive. If a company operates globally and invoices multiple countries within the EU, it is crucial for them to thoroughly grasp the requirements to ensure compliance.
Globally, other countries have been introducing relevant measures in the B2B sphere. These include:
- Saudi Arabia - B2B electronic invoicing has been mandatory since the end of 2021
- Egypt - Mandatory since 2021. In 2022, this was extended to B2Cs
- Australia - An approved plan to phase in B2B invoicing that will run from 2023 through to 2025
- New Zealand - From April 2023, changes have been implemented to support eInvoicing and the country’s adoption of the Pan European Public Procurement Online (Peppol) framework
- United States - The Business Payment Coalition (BPC) is initiating a countrywide eInvoice pilot to promote greater adoption of eInvoicing, electronic payments, and remittance data
Archival of eInvoices Under Specific Conditions
Efficient data storage for eInvoices holds paramount importance. It is imperative to have the capability to swiftly access archived documents for purposes such as tax audits, resolving payment disputes, facilitating negotiations for new vendor contracts, or conducting in-depth cash performance analyses. EU regulations mandate the retention of all supporting documentation must be stored alongside the original invoice.
eInvoices should be stored in their original form in which they were sent or made available. A Member State may require that the data guaranteeing the authenticity of the origin of the invoices and the integrity of their content, as provided for in Article 233, also be stored by electronic means.
The competent authorities of the Member State in which the taxable person is established and, where the VAT is due in another Member State, the competent authorities of that Member State, shall have the right to access, download, and use those invoices.
A Strategic Approach to Meeting Both eInvoice and VAT Legislation
GlobalSign’s Document Signing Solutions were developed to fulfill the specific eInvoicing reporting requirements of each supported national mandate, allowing organizations to digitally sign invoices online and remotely. This includes eInvoice digital archiving and digital signature support, which is required in many countries.
To learn more about innovations on the horizon and how digitalization is driving the adoption of electronic signature services in both the EU and UK, read GlobalSign's eBook.
