E-invoicing: transforming businesses for the Digital Age
E-invoicing: transforming businesses for the Digital Age
The EU member states recently reached consensus on the implementation of e-invoicing as of July 1, 2030. As from this date businesses will be obliged to issue e-invoices for all cross-border supplies, such as intra-community supplies of goods, EU services under the reverse charge mechanism and the intra-EU transfer of own goods. A transitional period has been given to members to adapt their existing domestic digital reporting systems.
A structured electronic invoice contains data from the supplier in a machine-readable format, that can be automatically imported into the customer's Account Payable (AP) system without requiring manual entering.
The European Standard for e-invoicing as per introduction of the VAT in the Digital Age package (‘VIDA’) is designed to ensure that all e-invoices are issued in a standardized way. This should make it easier for businesses to process these invoices.
E-invoices must be issued within 10 days after the taxable event took place. Certain data from the invoice needs to be reported within that time frame as well. Summary invoices are allowed under certain conditions.
The recipient of an e-invoice should report certain data from the invoice within 5 days after receipt of the invoice.
The individual EU countries are allowed – subject to certain conditions -to extend the scope of application of e-invoicing and digital reporting to other types of transactions. EU Member States that already have domestic e-invoicing and e-reporting rules in place (have received authorization or have adopted a legislative text) before 1 January 2024, must harmonize these rules ultimately by January 2035.
Crucial in the introduction of e-invoicing are the complexities associated with its implementation, especially for small and medium sized enterprises. The guarding of data privacy and security can pose a significant challenge in cross border e-invoicing transactions due to varying legal and regulatory requirements across different countries.
With the recent consensus on VIDA, further progress in standardization of e-invoicing across the EU is to be expected. The businesses need to act fast to ensure a smooth transition to this new innovative model. Businesses should start reviewing their ERP systems or invoicing software as soon as possible to determine whether updates to the existing systems suffice or additional tools/add-ons are required. BDO would be happy to support businesses with the transition to e-invoicing.
BDO’s Global interactive map tracks the implementation status of e-Invoicing in the EU and other European jurisdictions. You can find it here.
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What is e-invoicing?
Electronic invoicing is the exchange of an electronic invoice document between suppliers and their customers. An electronic invoice (e-invoice) is an invoice that has been issued, transmitted and received in a structured data format, which allows for automatic and electronic processing.A structured electronic invoice contains data from the supplier in a machine-readable format, that can be automatically imported into the customer's Account Payable (AP) system without requiring manual entering.
The European Standard for e-invoicing as per introduction of the VAT in the Digital Age package (‘VIDA’) is designed to ensure that all e-invoices are issued in a standardized way. This should make it easier for businesses to process these invoices.
Format of e-invoicing
E-invoicing will be the default system for the issuance of invoices to B2B recipients of cross border supplies. It will become mandatory for any transaction within the scope of the Digital Reporting Requirements (DRR). However, EU Member States may still accept paper invoices or invoices in other formats for domestic and B2C transactions.E-invoices must be issued within 10 days after the taxable event took place. Certain data from the invoice needs to be reported within that time frame as well. Summary invoices are allowed under certain conditions.
The recipient of an e-invoice should report certain data from the invoice within 5 days after receipt of the invoice.
Who will be affected?
All VAT entrepreneurs involved in B2B and B2G (business to government) cross border transactions within the EU will be affected; the supplier issuing (and reporting) an e-invoice as well as the customer who would need to process and report the e-invoice.The individual EU countries are allowed – subject to certain conditions -to extend the scope of application of e-invoicing and digital reporting to other types of transactions. EU Member States that already have domestic e-invoicing and e-reporting rules in place (have received authorization or have adopted a legislative text) before 1 January 2024, must harmonize these rules ultimately by January 2035.
Consequences
The European Commission has indicated that the keystone of e-invoicing (apart from the control aspects) will be the simplification of VAT reporting obligations, e.g. by pre-filling VAT returns, and the reduction of the administrative burden on businesses, which will allow them to focus on other critical areas such as increased efficiency and improved customer service. We believe that it remains to be seen whether these benefits will actually be realized.Crucial in the introduction of e-invoicing are the complexities associated with its implementation, especially for small and medium sized enterprises. The guarding of data privacy and security can pose a significant challenge in cross border e-invoicing transactions due to varying legal and regulatory requirements across different countries.
Way forward and how to stay up-to-date?
Obviously, e-invoicing is a game changer for businesses. A seamless transition to this new system, however, represents a particular challenge for entrepreneurs.With the recent consensus on VIDA, further progress in standardization of e-invoicing across the EU is to be expected. The businesses need to act fast to ensure a smooth transition to this new innovative model. Businesses should start reviewing their ERP systems or invoicing software as soon as possible to determine whether updates to the existing systems suffice or additional tools/add-ons are required. BDO would be happy to support businesses with the transition to e-invoicing.
BDO’s Global interactive map tracks the implementation status of e-Invoicing in the EU and other European jurisdictions. You can find it here.
Contact us