Digital VAT: Mandatory e-Reporting and e-Invoicing for EU

Europe got its first introduction to e-invoicing regulations back in December 2008. The European Commission (EC) announced the Directive on electronic invoicing and reporting of value-added tax, ushering in the e-invoicing age in Europe.

The European e-invoicing proposal, dubbed ViDA (VAT in the Digital Age), has already made waves in the business communities. The Commission expects the reforms to help recover up to €11 billion in lost revenues annually. Businesses are also expected to enjoy a streamlined e-invoicing process.

While the Commission expects to implement the ViDA in stages between 2024-2028, you must prepare for the inevitable implementation.

Building a compliant system will help you hit the ground running when the ViDA finally arrives.

This article will discuss the VAT in the Digital Age directive and what it means for businesses throughout the EU. We will examine how it will affect your company and how to comply with the new e-invoicing requirements.

Overview of e-invoicing in Europe

The European Union (EU) has been trying to implement an e-invoicing system for quite some time now. The first such push came back in April 2019, with the passing of 2014/55/EU regulation.

Under the new e-invoicing regulations, the EU Member States were mandated to use e-invoicing for all B2G and G2G transactions.

The success of platforms like PEPPOL boosted the idea of having a universal e-invoicing system across the continent.

After much deliberation, the EU Parliament proposed ViDA to adapt to the new digital business models.

After much talk stretching over months, the first findings on ViDA were released to the public in June 2023. Many felt that such a timeline was a bit tight. A major suggestion was pushing it back by a year or so.

With the way things are now, parliament is considering holding a debate on drafting the guidelines. Many experts believe that they shall not be implemented until somewhere in between the years of 2025 and 2029.

Electronic invoicing rules in European countries

Several countries in Europe have set up their e-invoicing regulations and systems. That said, not all countries in the continent have a robust system in place, and the implementation of ViDA will be a great boon for them.

Here are a few countries in the EU that have e-invoicing rules in place:

E-invoicing in Germany

Back in 2020, Germany introduced e-invoicing for business-to-government transactions. While they weren't the first to jump on board, it's been well-received.

Both the business community and government bodies have appreciated these new guidelines.

That said, there's no official requirement to issue invoices electronically for business-to-business or consumer transactions. Still, many companies opt to use platforms like PEPPOL for their e-invoicing needs.

The German government is also considering introducing e-invoicing rules for these types of transactions. Word has it that these might be up for debate in Parliament by January 2025.

Additionally, they are looking into the ViDA proposal, especially the parts about VAT, to get a clearer picture.

E-invoicing in France

Since March 2017, France has required electronic invoicing for business transactions and government transactions. They had plans to include business-to-business and consumer transactions, but the pandemic disrupted the plans.

Now, there's a renewed effort to broaden electronic invoicing. Here's the game plan:

Starting in July 2024, big businesses will need to use B2B e-invoicing.
By January 2025, medium-sized businesses that pay taxes will join the e-invoicing bandwagon.
And by January 2026, every business in France will be on board.

Remember, all these invoices have to go through the official Portail Public de Facturation (PPF) or a recognized Partner Dematerialization Platform.

For more information, read: E-Invoicing France: The A-Z Guide for Businesses (Beginner Friendly)

E-invoicing in Italy

Italy was one of the earliest adopters of the e-invoicing system in Europe. The e-invoicing system has been mandatory for all B2G transactions since 2015. The Italian government also passed a regulation in 2019 mandating B2B e-invoicing.

If you operate your business in Italy, you must send your invoices through the Sistema di Interscambio, the country’s official system.

The system is available to all businesses irrespective of their turnover. It verifies the electronic signature and other elements of your e-invoice data.

If you wish to use any automatic invoicing tools for your business, they must integrate with this system to work.

While the country still awaits the verdict on the ViDA proposal, the domestic system will continue in the meantime.

E-invoicing in Spain

The e-invoicing system implemented in Spain is quite similar to that of France. As of October 2023, only large companies (€8M+ turnover) are mandated to issue electronic invoices.

That said, the country will mandate all companies to comply with the e-invoicing regulations beginning in 2025.

E-invoicing in Ireland

One of the last countries in the EU to embrace e-invoicing, there are no regulations mandating companies to use electronic invoicing in the country.

However, if you want to send an invoice to the government, you must follow an e-invoice system.

As of writing this piece, there is no proposal to mandate B2B e-invoicing.

To learn more, read: E-Invoicing Compliance In Ireland (Explained)

What is the EU e-invoicing standard documentation?

The EU's e-invoicing Standard Guide is a thorough collection of rules and methods set by the European Union to make the electronic invoice exchange smooth and uniform among its countries.

It's a part of the EU's bigger plan to boost digital transformation, make cross-border dealings easier, and improve the workings of its internal market.

This guide is all about the European e-invoicing standard, called EN 16931. This standard outlines the blueprint and the dos and don'ts for an electronic invoice.

In simple words, it spells out what details an e-invoice must have and its layout, ensuring uniformity for every e-invoice, regardless of its origin within the EU.

The guide has various parts, each focusing on a different electronic invoicing angle. Together, they make the "standard," but individually, they can be anything from techy details to in-depth analyses.

The various parts of this standard are as follows:

Part 1: Semantic data model

This part defines electronic invoices' core semantic data model, specifying the essential data elements and their relationships. It provides a common framework for structuring invoice data to ensure consistency and interoperability.

Part 2: List of syntaxes

It specifies a list of permissible syntaxes that can be used to express the semantic data model defined in Part 1. This includes syntaxes like UN/CEFACT Cross-Industry Invoice (CII), Universal Business Language (UBL), and others.

Part 3: Methodology for syntax bindings

This part provides guidance on how to map the semantic data model from Part 1 to specific syntaxes listed in Part 2. It offers a methodology for creating interoperable electronic invoices using the chosen syntax.

Part 4: Core elements and requirements for compliant syntaxes

It outlines the core elements and requirements that must be present in compliant syntaxes. It ensures that syntaxes adhere to the standard's guidelines to maintain consistency and interoperability.

Part 5: Compliance artifacts

The part provides compliance artifacts and examples to assist organizations and software developers in implementing the EN 16931 standard effectively. It includes sample invoices and guidelines for validation.

Part 6: Application of legal requirements to electronic invoices

This portion of the standard focuses on the legal aspects of electronic invoicing, including how electronic invoices should meet legal requirements and regulatory compliance within the European Union.

This all-rounded view makes sure everything, from tech hitches to business subtleties, gets covered.

A key goal of the EU e-invoicing Standard Guide is to get everyone on board with three main levels of rules.

To be considered fully compliant, groups must support invoices that meet all the criteria outlined in the standard. This approach ensures a common understanding and adoption of e-invoicing practices throughout the EU.

A cornerstone of the guide is the blueprint (EN 16931-1). It gives a straightforward structure for the e-invoice details, promising clarity and uniformity.

Who is affected by the e-invoicing mandate in Europe?

Currently, Europe's push for B2B e-invoicing is mainly restricted to government bodies and their partners, but its waves are felt by a wider circle of businesses.

So, anyone selling products or offering services to these government groups must send electronic invoices that fit the bill.

Businesses in the private sector, especially those often dealing with government contracts, are directly affected by the mandates.

They must double-check that their billing systems are in sync with the European e-invoicing rule to keep things running smoothly with their government clients.

And even though this rule is meant for deals with the government, its effects are seen in B2B and B2C transactions as well.

Loads of businesses are seeing the perks of e-invoicing and jumping on board for their regular business deals.

Besides, companies that make billing software must step up their game for electronic data interchange.

So, they must create software that complies with the European Standards.

EU directive on electronic invoicing in public procurement

The first legislature for e-invoicing mandate in public procurement was prescribed in rule 2014/55/EU. The rule's goal is to have one shared European e-invoicing style, letting any seller, whether big corporations or local businesses, easily collaborate with European government bodies.

The EU's regulation regarding e-invoicing in public procurement marks a significant step in its effort to enhance and streamline market transactions.

The key provisions

The main goal here is to make e-invoicing the norm for public buying all over the EU. It cuts down on the headaches and roadblocks when doing business across borders.

By getting every EU country on the same e-invoicing page, the plan is to work faster, be clearer, and save money for both the government and the folks they buy from.

Salient features

Here are a few enticing features of the new directive:

Uniformity

According to the rule specified under EN 16931, everyone is required to use the same B2B e-invoicing style. It means that e-bills, no matter where they come from in the EU, all look and work the same.

The public sector's role

Every government body in the EU has to be ready to handle e-bills that match this style.

The implications

This rule changes the game for government bodies and the people they buy from. Government offices have to tweak how they do things to fit the new e-billing style.

For businesses, especially those selling across borders, life gets a bit easier with less paperwork and quicker payments.

What is the size of the electronic invoicing market in Europe?

Over the past couple of years, electronic billing and electronic invoicing have risen in popularity, offering faster processes, cost savings, and environmental benefits.

According to a report by IMARC Group, the e-invoicing market in Europe reached US$1.4 Billion in 2022, and it is projected to get to US$3.6 billion by the year 2028. This translates to a year-over-year growth of 15-20%.

Europe's been leading the charge when it comes to hopping on the e-invoicing train. Big players like Italy, Spain, France, and Portugal have even made it mandatory for some business deals.

What is the VAT in the Digital Age package, and what does it propose?

The Digital VAT package proposes to shift the way businesses report their VAT. It's a series of VAT measures to modernize and digitalize the process for compatibility with today's business methods.

The package consists of several proposals:

Real-time digital reporting for businesses operating within the EU

The European Commission aims to modernize tax reporting by introducing Digital Reporting Requirements (DRR) that will require businesses involved in intra-EU trade to report tax information in real-time.

This means local tax authorities can receive digital tax declarations and returns on time. This will enable them to identify tax fraud and ensure proper tax payments promptly.

The current system of sales tax returns will be replaced by a system where all taxable businesses will need to report their intra-EU transactions electronically.

Businesses must present tax information digitally to tax authorities within two days after the issuance of the invoice.

Updating VAT rules for operators running platforms

Currently, most passenger transport and short-term rental platform transactions are outside VAT compliance. Under the Digital VAT package, platform operators must register with tax authorities and report tax information.

This proposal targets platform operators in the passenger transport and short-term rentals sector. The EC aims to level the playing field for platform operators and traditional service suppliers.

They also need to ensure that all suppliers registered on their platform are tax-compliant. They must facilitate tax authorities in auditing and recovering tax from suppliers in their platform.

Expansion of the single VAT registration framework and changes to reverse charges

The current One Stop Shop (OSS) system requires businesses to register in every EU country they transact in and submit separate electronic VAT returns.

ViDA proposes to expand the OSS system by introducing a single electronic application process to register for multiple jurisdictions.

Companies will be able to apply for multiple VAT registrations in all EU countries from one electronic portal. This will reduce the time and cost for companies to comply with numerous tax registration requirements.

The package also proposes changes to the rules regarding reverse charges. There will be a mandatory reverse charge for domestic supplies from a foreign supplier to a local customer.

The current EU VAT directive has made the implementation of the reversal charge optional. The Digital VAT package seeks to make this mandatory to avoid VAT registrations for non-national businesses in some instances.

What does the introduction of a single VAT registration across the EU mean?

Introducing the single VAT registration across the EU Member States is one of the major steps to improve efficiency and digitalize tax reporting processes. It will make it easier for businesses to comply with tax requirements across the EU.

The electronic invoicing and digital reporting requirements introduced by the package are also key steps in streamlining VAT compliance for businesses.

They will make it easier for businesses to submit electronic tax returns and digital declarations, allowing them to keep up with the changing business environment.

The current OSS system makes businesses liable for VAT in the country of supply and where the customer is located. They have to register for VAT in each country and submit electronic returns.

Expanding the OSS system will not only reduce the time and cost involved in complying with VAT regulations, but it will also ensure that businesses comply in all countries they transact in.

It will also ensure businesses can easily access electronic invoicing, digital reporting, and electronic invoicing services. They will stay compliant and keep up to date with the ever-changing business environment.

How will the proposed changes affect your company?

The reforms proposed by the Digital VAT package will majorly impact businesses operating across the EU. The impact should be highly positive unless your company is part of the small minority that does not already comply with VAT regulations.

The changes will affect businesses across the EU in the following ways:

1. Businesses will have a two-day window to submit VAT declarations

Companies will be required to submit their electronic VAT declarations to local tax authorities. They will have two days from the date of the electronic transaction to complete and submit their electronic tax return.

When local tax authorities receive the digital tax declaration, they will assess the accuracy of the submitted VAT. They will then take appropriate action to collect the correct amount of VAT.

2. No submission of summary electronic invoices

Companies that issue electronic summary invoices for a calendar month must submit electronic invoices for each electronic transaction. Summary invoices will not comply with the new system's electronic invoicing requirements.

For example, if a company makes ten VAT-taxable digital transactions in a given month, it must submit and manage invoices for each digital transaction.

Every electronic invoice must include all the necessary information and VAT amounts for each transaction.

3. Easy compliance with VAT regulations

The electronic application process for multiple VAT registrations will make it easier for businesses to comply with tax requirements across the EU.

They can quickly submit electronic tax returns and comply with electronic invoicing and digital reporting requirements from one electronic portal.

4. Reduced costs

Unless you are trying to evade paying VAT, ViDA should help you save time and money by streamlining your electronic invoicing and VAT reporting processes.

The new measures proposed by the Digital VAT package should make electronic invoicing and digital reporting easier and more efficient.

It will benefit businesses operating across the EU by enabling them to comply with electronic tax requirements quickly and reducing compliance costs.

5. Improved data accuracy

The electronic invoicing and digital reporting requirements will ensure faster, more accurate collection of tax data across the EU.

Each Member State's tax authority will store the electronic data interchange in a central database, allowing them to monitor and analyze data from across the region easily.

Since the new directive will also introduce mandatory B2B e-invoicing, companies will be able to provide digital proof of their transactions more efficiently.

It will improve the accuracy and reliability of digital records, reducing the chances of tax errors and improving customer experience.

How to comply with the new e-reporting and e-invoicing requirements in the EU?

As businesses across the European Union prepare for the digital VAT package, they must adjust their digital invoicing and reporting processes accordingly.

Even though the directive is yet to be fully enforced, it is important to understand the new digital invoicing and reporting requirements. This way, you can start preparing for the changes.

The following are the steps companies should take to ensure they are compliant with the requirements when the digital VAT directive comes into effect:

Have a comprehensive e-invoicing system in place

Businesses must have a comprehensive e-invoicing system before the e-reporting and e-invoicing requirements come into effect. The e-invoicing system should be able to process electronic invoices in the correct format, with accurate VAT amounts included.

It should also be able to store e-invoices in the correct format for easy access when submitting e-tax returns. It should ensure business owners can submit VAT returns on time and in the correct format.

Submit electronic invoices on time

Due to the time limit on submitting an electronic invoice and the VAT returns, businesses must ensure they send digital invoices and e-tax returns on time.

This will help them avoid penalties for late payments and stay compliant with the B2B e-invoicing and e-reporting requirements.

A comprehensive e-invoicing system will help businesses ensure they submit every electronic invoice on time. The more efficient the e-invoicing system, the easier it is to comply with the set requirements.

Make sure e-invoices contain all required information

The new e-invoicing and digital reporting requirements require e-invoices to include details such as the identifier of the bank account, identification of the initial invoice for invoice corrections, and detailed payment and invoice data.

Companies will avoid penalties and make e-invoicing and e-reporting easier if they submit e-invoices with all the required information.

They must also ensure they are in the correct format, as specified in the e-invoicing and e-reporting requirements.

Register at a reliable e-invoicing solution.

Sometimes, businesses may not have adequate resources or capacity to develop their own e-invoicing and e-tax return systems. In this case, it is best to sign up with a reliable e-invoicing solution.

Certified service providers can help your businesses ensure your e-invoices are in the correct format and contain all required information.

They help you comply with the European Standard e-invoicing and e-reporting requirements easily.

Takeaway: Prepare your business for the e-invoicing system in Europe

The introduction of e-invoicing and e-reporting requirements in the EU will bring more efficient tax administration. Businesses must start preparing for the directive as soon as possible to ensure they comply when the e-invoicing system comes into effect.

Businesses should sign up for a reliable B2B e-invoicing solution provider like Storecove to make e-invoicing and e-reporting easier.

Storecove’s e-invoicing solution helps business owners comply with e-invoicing and e-reporting requirements quickly and easily.Join thousands of businesses that have already embraced the future of e-invoicing in Europe. Contact us today to learn more.

More information about the European Digital VAT package?

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