This blog was last updated on November 29, 2024
Peppol E-invoicing explained: What it is and how it works
The global adoption of electronic invoicing is accelerating. Governments worldwide are pushing to adopt e-invoicing to digitally transform their national systems and, often, to close the VAT gap.
While many countries have introduced their own e-invoicing mandate to digitize fiscal controls, the requirements and systems implemented by each country often fail to align with one another. This makes it complex for multinational organizations to meet their electronic invoicing obligations.
To enhance interoperability, countries across Asia and Europe are embracing Peppol, a framework established to simplify interoperability for e-invoicing and other procurement documents. But what exactly is it? This blog has all the information you need.
What is Peppol?
Peppol began in 2008 as an effort to standardize public procurement in governments across the European Union. It is a framework made up of specifications that enable cross-border electronic procurement and a method of sending invoices to customers. Peppol integrates business processes by standardizing the way information is structured and exchanged.
In recent years, Peppol has expanded its remit to include APAC. Singapore was the first Asian country to establish a Peppol authority. As well as being established in Europe, it also includes Australia, Japan, Malaysia and New Zealand.
What does it stand for?
Peppol is short for Pan-European Public Procurement On-Line, as it was initially a European initiative.
While receiving e-invoices has been mandated by law for all public sector entities in the EU since April 2020, being Peppol one of the options chosen by many countries to implement such obligation, and Peppol’s name derives from its European service, the standard is now being adopted outside of the union. Malaysia and Singapore are two non-European countries that have embraced Peppol in recent years, for example.
How does Peppol work?
While we have made it clear that Peppol is an EU-wide standard for exchanging electronic documents like e-invoices, that doesn’t explain how it actually works.
The European Union laid out standards for electronic invoices. These documents must meet the required specifications and, in most cases, be sent through its network. Most public sector entities in the EU are required to be able to receive such invoices, creating a uniform and universal method of invoicing B2G transactions across the region.
It’s worth noting that while the public sector is obligated to receive these invoices in some cases, they can also be sent to companies for B2B transactions. Peppol enables the efficient electronic exchange of e-invoices, purchase orders, and other business documents, whether you are a private business or a public organization.
Peppol invoices are sent to the recipient through a Peppol Access Point. This connects to the Peppol network and comes from an approved service provider, allowing businesses to electronically exchange documents with other organizations with an Access Point.
Peppol connects organizations through a network of Peppol-accredited Service Providers, removing barriers to electronic trading created by closed ‘three-corner’ networks.
What is a Peppol authority?
To ensure that the aforementioned Access Points follow the rules and regulations set out, it has official authorities. They are also in place to “set national requirements for the design and content of Peppol documents,” according to PEPPOL itself.
There are currently 17 Peppol Authorities in place, all of which are national bodies – bar one. OpenPeppol is the only authority which is not attached to a country as it serves as the official Peppol Authority in jurisdictions where no authority exists.
Why use it?
Its widespread implementation makes it an appealing option for many. Considering the variety of approaches to electronic invoicing across countries, the appeal to Peppol is the standardization and interoperability of global electronic document exchange.
Having a collection of common standards for transferring electronic documents for every country an organization conducts business in makes the process simpler – thus reducing the possibility of errors.
Standardizing the way information is structured and exchanged makes it more secure. As well as invoices and purchase orders, Peppol has the potential to automate the exchange of any kind of business document, between any organization, anywhere in the world.
Which countries use Peppol?
Peppol currently has 37 member countries, 29 of which of which are in Europe.
Outside of Europe, countries that have implemented Peppol standards include:
- Australia
- Japan
- Malaysia
- New Zealand
- Singapore
Peppol Corner Models
Corner models are frameworks for digital transactions. There are multiple approaches, though Peppol’s base framework is the 4-corner model
3-Corner model for e-invoicing
Now considered an old model, the 3-corner model for e-invoicing required senders and receivers to connect through a single service provider. Buyers would often decide on which service provider they use, meaning suppliers had to use multiple systems across their customers.
4-Corner model for e-invoicing
An upgrade to the previous approach, the 4-corner e-invoicing model connects four entities. The four corners are:
- Sender
- Sender’s Access Point
- Recipient’s Access Point
- Recipient
The introduction of Access Points secures transactions by ensuring that communication of documents is sent and received correctly, using document validation, Know Your Customer (KYC) procedures and more.
5-Corner model for CTC
As seen in Singapore, Peppol also has a 5-corner model. This approach adds another corner to the traditional model, being the Tax Authority/Government central platform. This framework is also known as Peppol CTC.
The 5-corner model allows tax authorities to receive almost real-time access to invoices, ensuring that tax information is transferred correctly.
At the discretion of the applicable government, the central platform can either validate documents before they are sent to the recipient or allow certified service providers to validate them instead, serving as a repository for the electronic invoices.
Peppol VIDA pilot project
This pilot project established by OpenPeppol demonstrates that the network and e-invoicing specifications can also be used to meet the digital reporting requirements of the EU’s VIDA proposal.
The project is open to EU Tax Authorities/Administrations, Service Providers and end users.
Sovos is participating in this pilot project. We are a respected member, serving as a provider in both Malaysia and Singapore.
Learn more about the adoption of electronic invoicing and its many rules and regulations in our E-invoicing Guide. For help complying with e-invoicing requirements and other tax considerations, consider our Compliance Cloud solution.
