The issue of compliance
Governments receive as much as 30% of their Gross Domestic Product (GDP) from VAT and sales tax revenues and it isn’t surprising that tax collection is a serious matter. From government controlled systems in Latin America through to explicit guidelines in Europe, any company looking to implement eInvoicing must understand that each country has its unique set of regulations and maintaining regulatory compliance on an ongoing basis is one of the key challenges for invoicing.
While B2B efficiencies can be captured through EDI, companies looking to leverage tax compliant e-Invoicing must be aware of the government requirements that need to be adhered to in all of the countries in which their company does business. VAT requirements are significant and vary considerably. Depending upon the location of the buyer or supplier, regulations may require any or all of the following:
- A government validated invoice number
- A means of guaranteeing authenticity & integrity of the invoice
- Electronic Data Interchange (EDI)
- Digital signatures
- Government mandated systems
- Other means
- Minimum invoice data fields
- Both VAT and commercial fields
- Long-term archival of the invoice
- Within an appropriate geographic location
- Under appropriate data protection laws
Differing regulations for electronic invoicing
For any company trading internationally, this means dealing with a wide range of differing legislation and regulation. For example:
- The USA has fairly liberal regulations regarding eInvoicing, with no specific legal directives in place
- European Union countries have already implemented eInvoicing regulations since 2001.
- The latest EU directive ensures both electronic and paper-based invoices are treated equally. No particular eInvoicing technology can be imposed but, the requirement for authenticity & integrity remains. This was implemented in all EU states on January 1st, 2013
- Latin American countries have mandated government controlled e-Invoicing systems that are focused on tax collection
- In the past (and up to this point) Japan, India and China have not permitted electronic invoicing
If your company fails to meet the various country-specific requirements, it can lead to sanctions, including fines and repayments. You should be aware that the sanctions can be very severe, for example, the entire deducted VAT amount over a number of years may have to be repaid. When VAT and sales tax can account for as much 25% of the price of a product or service this could be very damaging to any business.
Don’t let eInvoicing compliance stop you
While regulatory compliance can seem to be complex, confusing and ever-changing, it is important not to lose sight of the benefits or let that complexity prevent you from moving your paper invoices to eInvoices. This first step of replacing paper with eInvoices alone will save you money and have the added benefit of bringing you a step closer to compliance.
However, at the same time, you shouldn’t underestimate the time it can take to move to electronic invoicing. For a large multi-country eInvoicing project, if half of your invoicing is performed electronically within two years it should be considered a success.
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