The Colombian tax authority (DIAN) continues to invest in the expansion of its CTC (continuous transaction controls) system. The latest update proposes an expansion of the scope of documents covered by the e-invoicing mandate.
In this article we’ll address the newly published Draft Resolution 000000 of 19-08-2022. This advances important changes for taxpayers covered by mandatory e-invoicing rules.
These draft changes include a new obligation to issue equivalent documents (documentos equivalentes) in electronic format, a schedule for its implementation, updated technical documentation and other significant developments, all of which require taxpayers to ready themselves to comply.
Amongst many proposed changes, the draft resolution’s main purpose is to regulate the electronic issuance of the equivalent document.
These documents correspond to the sales invoice under Colombian law, but cover specific types of transactions and are regulated in the draft resolution, as follows:
This means that all taxpayers subject to the Colombian e-invoicing mandate who issue one of these equivalent documents will be required to do so in an electronic format, according to the Technical Annex of the Electronic Equivalent Document version 1.0 (Anexo técnico del Documento Equivalente Electrónico), introduced by the draft.
Additionally, the draft provides an initial regulation of the electronic documents of the invoicing system (documentos electrónicos del sistema de facturación). These are documents that aid control by the tax and customs authority, to support tax or customs declarations and/or to support the procedures carried out before DIAN, under the provisions of subsection 1 of article 616-1 of the Tax Statute.
Finally, the technical specifications of the system’s main electronic invoice, the sales e-invoice, is updated to version 1.9 (Anexo técnico de la Factura Electrónica de Venta version 1.9).
The obligation to issue the equivalent document in electronic format will be implemented gradually, according to the type of equivalent document. It starts on 1 March 2023 and will cover all equivalent documents on 1 July 2023.
Early voluntary implementation will also be possible, once the functionality is available in DIAN’s system. Until the deadlines for the electronic implementation of the equivalent document are fulfilled, these must continue to be issued in accordance with Resolution No. 000042 of 2020.
The draft also sets a schedule for implementation of the electronic documents of the invoicing system, during the taxable years of 2023 and 2024. These documents will be further regulated in the six months following the validity of the official resolution, as well as the adoption of its technical annex, which hasn’t been presented with the draft resolution.
Lastly, the proposal establishes the deadline for implementation of the Technical Annex of the electronic sales invoice version 1.9 by taxpayers. This will be at least three months following its official publication.
The draft resolution, once officially published, will derogate DIAN Resolution No. 000042 of 2020 in all provisions that are contrary to it, except those related to equivalent documents, which will remain in force until the DIAN establishes their electronic implementation.
Taxpayers can also expect new legislation regulating the remaining electronic documents of the invoicing system, in the months following the official publication of this draft resolution.
Until then, companies should prepare for the significant upcoming changes and adjust their businesses processes to comply with the new Colombian mandate.
Need help with evolving e-invoicing requirements in Colombia? Get in touch with our tax experts about how Sovos can help your business meet your VAT compliance obligations.
It seems such a short time since HMRC sent a reminder letter in March 2022 recalling the upcoming changes to the UK’s customs systems and explaining what to do to prepare for these changes.
With the deadline rapidly approaching, here’s a brief recap.
The Customs Handling of Import and Export Freight (CHIEF) system, which is now nearly 30 years old (it was introduced in 1994), will close in two phases:
The Customs Declaration Service will serve as the UK’s single customs platform, with all businesses needing to declare all imported and exported goods through the Customs Declaration Service (CDS) after 31 March 2023.
As mentioned on the HMRC website, the Customs Declaration Service toolkit gives traders access to the many benefits of the upcoming changes. In summary:
To be able to use CDS and import goods into the UK from 1 October 2022 and to export from 1 April 2023, businesses are required to have the following:
Want to know more about how changes to the UK’s customs systems will impact your business and its compliance? Contact us to find out more.
Update: 14 February 2023 by Andrés Landerretche
As of February 2023, new rules came into force in Colombia. These are for the issuance threshold of equivalent documents generated by Point of Sale (P.O.S.) systems.
As a result, a ticket issued by cash registers with P.O.S. systems (tickets de máquinas registradoras con sistemas P.O.S.) must not exceed the maximum amount of five Tax Value Units (UVT), without including the amount of tax for each sale or service provision operation.
For sales operations and the provision of services exceeding this amount – excluding taxes – taxpayers must issue an electronic sales invoice as part of the country’s e-invoicing mandate.
It is important to note that the equivalent documents generated by cash registers with a P.O.S. system do not entitle the purchaser to discountable sales tax (VAT) or costs and deductions in income and complementary taxes.
However, purchasers may request that the seller issue a sales invoice when they have the right to request deductible taxes, costs, and deductions. In this case, the supplier must issue an electronic sales invoice.
The Colombian tax authority (DIAN) officialised the implementation of the five UVT thresholds for tickets generated through P.O.S. systems through Resolution 1092, published on 1 July 2022.
The Resolution implemented the phased roll-out of this mandate, following the calendar below:
Every 1 January from the taxable year 2024, taxpayers obliged to issue a sales invoice that choose to issue the equivalent document, called a ticket for a cash register with a P.O.S. system, must adjust the value of the applicable UVT to comply with the limitation of five UVT in the issuance of each ticket.
Speak with a member of our expert team for further clarification of e-invoicing in Colombia.
Update: 23 August 2022 by Kelly Muniz
The Colombian tax authority (DIAN) has concentrated heavily on expanding its electronic invoicing regime over recent years. The DIAN introduced the first schedule for mandatory implementation of e-invoicing in the country in 2018, and, since then, the system has gradually encompassed more transactions and taxpayers.
In this article, we’ll look at the two latest new mandates in Colombian e-invoicing:
These new obligations have significant impact and require adjustments by taxpayers. These changes also represent a substantial expansion of Colombia’s e-invoicing to include entirely new transactions under its scope.
The Colombian tax authority has created a new e-document type, the support document for acquisitions from subjects not obliged to issue e-invoices. This support document and its corrective notes were introduced by Resolution 167 of 2021. It expands the e-invoicing scope to ensure more transactions fall within the mandate and allows support for tax deductions.
Taxpayers obliged to generate this e-document are those under the country’s e-invoicing regime. It includes those subject to income and complementary tax payments and responsible for VAT when purchasing goods and/or services from suppliers not obliged to issue e-invoices or equivalent documents and require support for costs and deductions in the mentioned tax declarations. To generate the support document, the taxpayer must be authorised by the DIAN as an electronic issuer.
The support document and its corrective notes must be generated in XML format and contain a CUDS: unique support document code (código único del documento soporte). This alphanumeric code allows it to be unequivocally identified. After generation, the e-documents must be transmitted for clearance by the DIAN either in real-time or, at the latest, on the last calendar day of the week, for accumulated operations with the same supplier carried out during that same week.
Having been postponed from its original implementation date, the generation of the acquisitions support document became mandatory on 1 August 2022.
According to this mandate, cash register tickets generated through POS systems (tickets de máquinas registradoras con sistemas P.O.S.) may be issued by subjects obliged to invoice, provided that the sale of the good and/or the provision of the service recorded therein doesn’t exceed five (5) UVT (tax value unit) for each document, excluding taxes.
This means that, for operations covering sales of goods and/or provision of services exceeding the amount of five (5) UVT, taxpayers under the country’s e-invoicing mandate must issue an electronic sales invoice. The purchaser of goods and/or services below the threshold may still require the issuance of a sales invoice, in which case the supplier must provide it.
The threshold was de facto introduced in 2021 by Law 2155, but it was only in July 2022 that the DIAN established a phased roll-out of the mandate, through Resolution 1092, following the calendar below:
While the generation of the support document for acquisitions is already srequired, taxpayers must start preparing to comply with the new threshold for e-invoice issuance in place of POS tickets. Sovos can help your company adjust to e-invoicing and ensure compliance with Colombia’s new mandates.
Contact our team of experts today to ensure your company is complying with Colombia’s e-invoicing mandates.
Update: 30 November 2022 by Charles Riordan
Romania SAF-T Filing declarations are changing. The draft order extending the grace period for SAF-T will not be implemented. The President of ANAF has confirmed that decision.
The extension originally supported large taxpayers who have had to submit SAF-T since 1 January 2022. ANAF now states that large taxpayers have, on the whole, complied with the original deadlines. This renders the extension “not appropriate.”
ANAF will follow an unofficial policy of leniency for SAF-T submissions. According to a spokesperson, the agency will first give notifications to delinquent taxpayers. Next, they will issue warnings. Fines are a last resort.
The initial six-month grace period for SAF-T hasn’t been formally extended, but it remains in force. Taxpayers will not receive penalties for late or missed filings while the grace period exists.
The grace period applies for six months after the obligation to file SAF-T arises. This obligation begins:
Still have questions about SAF-T Filing Declarations in Romania? Speak to our tax experts or see this overview about VAT Compliance in Romania.
Update: 18 August 2022 by Charles Riordan
On 1 August 2022, the Romanian National Agency for Fiscal Administration (ANAF) published a draft order extending the current grace period for Standard Audit File for Tax (SAF-T) declarations from six months to twelve months. The order will take effect upon approval and publication in the Official Gazette. At the time of writing, approval and publication are expected shortly.
The Romanian tax authority initially granted the grace period due to the complexity of the country’s SAF-T filing. The SAF-T must include available data from master files, source documents, general ledger entries, and, on a separate cadence, data related to fixed assets and inventory. Because of this complexity, ANAF instituted a six-month grace period, during which taxpayers would not be penalised for late or incorrect filings. The ANAF also implemented SAF-T in phases, with the large taxpayers obliged to file before mid-sized and small taxpayers.
ANAF has acknowledged, however, that even large taxpayers have struggled to meet the technical requirements of the SAF-T declaration. Therefore, with the initial six-month grace period set to expire, ANAF proposes to extend it to alleviate the burden on filers.
The grace period, as before, takes effect from the date a taxpayer is obliged to submit the SAF-T declaration. The obligation for different categories of taxpayers begins:
This means that taxpayers who are obliged to file SAF-T in 2022 will now have grace periods extending into 2023 (e.g. 1 January 2023 for “large taxpayers” who were categorised as such in 2021; 1 July 2023 for “large taxpayers” who were only categorised as such in 2022).
The language of the amendment doesn’t limit the twelve-month grace period to large taxpayers, so it is presumed that the grace period will apply to other taxpayers as well. This amendment would extend the grace period for medium taxpayers into 2024 and all others into 2026. Further clarifications on this point may be released in the future.
The rollout of SAF-T in Romania has been eventful, with multiple revisions to both the schema itself and taxpayer obligations. Taxpayers doing business in Romania must ensure that they stay abreast of the latest developments with this declaration, as there will undoubtedly be more to come.
Need to comply with the latest changes in Romanian SAF-T? Speak to our team. Follow us on LinkedIn and Twitter to keep up-to-date with the latest regulatory news and updates.
The Italian Customs Authorities recently updated their national import system by applying the new European Union Customs Data Model (EUCDM). These new changes came into effect on 9 June 2022.
According to the new procedure, the old model of paper import declarations has been abolished. The import declarations are now transmitted to the Italian Customs Authorities’ information system with a digital signature.
The acceptance of a customs declaration is notified to the economic operator (that can be the importer, the Customs Agent, etc.) through a Master Reference Number (MRN), an alphanumeric string of 18 characters.
The old IM message (telematic track to be submitted at the time of the import to the Italian Customs Authorities through the Customs Telematic Service (i.e. Servizio telematico doganale (STD)) has been replaced by the following paths as defined by EU legislation:
At the time of the release of the goods, Italian Customs Authorities make available the “summary statement for accounting purposes of the customs declaration” (prospetto di riepilogo ai fini contabili della dichiarazione doganale). The summary includes all data necessary to detect customs duties, import VAT and any other charges due.
The summary mentioned above is made available to the importer and the declarant/representative in the reserved area of the single portal of Italian Customs Authorities through the “Document management – customs declarations” service.
We recommend that importers contact their Customs Agent to receive a copy of this summary for their accounting purposes.
As per Italian VAT Law, possessing a Single Administrative Document (SAD) is needed to exercise the right to recover import VAT in Italy. As the SAD is now unavailable, Italian Customs Authorities, in agreement with the Italian Revenue Agency, agreed that the new accounting summary is sufficient to allow the importer to exercise the right to recover the import VAT.
Therefore, the new accounting summary is needed to exercise your right to recover the import VAT paid to the Italian tax authorities.
Moreover, the right to recover import VAT is exercised only once the summary is reported in the Purchase VAT Ledger as per art. 25 of Italian VAT Law.
Finally, the import document must be included in your quarterly VAT return and your annual VAT return which must mirror your Italian VAT Ledgers.
To ensure your import VAT is not lost, we recommend considering that the last day to recover the import VAT, related to an import of goods carried out in 2022, is 30 April 2023.
In addition to the Summary Prospetto di riepilogo ai fini contabili della dichiarazione doganale, discussed above, economic operators will be able to receive:
Italian Customs Authorities advise customs operators to provide the Prospetto di svincolo to transporters as proof of the fulfilment of customs formalities in the case of checks.
Speak to our team if you have any questions about the latest Italian importing requirements and their impact on your business’s compliance.
As previously predicted by Sovos, the threshold for implementing mandatory e-invoicing has been lowered by the Indian authorities. According to the Central Board of Indirect Taxes and Customs Notification No. 17/2022 – Central Tax, from 1 October 2022 compliance with the e-invoicing rules will be mandatory for taxpayers with an annual threshold of 10 Cr. rupees (approximately 1.270.000 USD) or more.
The Indian e-invoicing system falls under the category of continuous transaction controls (CTCs) under the Goods and Services Tax (GST) framework. The legal validity of the invoice is conditional based on the Invoice Registration Portal (IRP) digitally signing the invoice and providing an Invoice Registration Number (IRN). If the IRN is not included in an invoice, the invoice will not be legally valid.
The scope covers both domestic and cross-border transactions. The IRP clearance process is mandatory for B2B, B2G and export transactions. So, taxpayers in scope must issue their invoices (as well as other documents that need an IRN) according to the new system for all B2B, B2G or export transactions.
Taxpayers in scope of e-invoicing must generate e-waybills through the e-invoicing system. It is not possible to voluntarily adhere to the e-invoicing system. This means that taxpayers not satisfying the threshold limit cannot adopt CTC invoicing.
Before the initial introduction, the e-invoicing plan was announced by the Indian authorities as early as 2018. Afterwards, the evolvement of the plan has been as follows:
1 January 2020: Voluntary period of e-invoicing for businesses with a turnover of Rs.500 Crore or more
1 February 2020: Voluntary period of e-invoicing for businesses with a turnover of Rs.100 Crore or more
1 October 2020: Beginning of the mandatory e-invoicing period for businesses with a turnover of Rs.500 Crore or more (six months later than previously intended). For the first 30 days, there was a grace period during which invoices could be reported after they had been issued.
1 January 2021: Beginning of the mandatory e-invoicing period for businesses with a turnover of Rs.100 Crore or more.
1 April 2021: Threshold for mandatory e-invoicing lowered to taxpayers with turnover between Rs. 100 Crore to Rs. 50 Crore.
1 April 2022: Threshold lowered from Rs. 50 Crore to Rs. 20 Crore. Taxpayers above Rs. 20 Crore must implement e-invoicing.
1 October 2022: Threshold will be lowered from Rs. 20 Crore to Rs. 10 Crore. Taxpayers above Rs. 10 Crore must implement e-invoicing.
Some changes concerning the e-invoicing workflow are expected. Currently, there is a single platform (IRP) for the clearance process but multiple IRPs will be introduced soon. The Indian Authorities have already approved new IRPs, demonstrating that the authorities wish to have an interoperable e-invoicing market and are moving ahead with their plans to realise their goals.
Additionally, B2C invoices are not currently covered by the IRP clearance, yet the authorities have announced their intention to include those in scope of their CTC system.
India is a challenging jurisdiction for many taxpayers; businesses must have smart digitization and maintenance strategies to stay compliant. The benefits of digitization can be realised through a global strategy that businesses might put in place.
On 22 July, the EU Commission opened four new infringement proceedings against the United Kingdom for allegedly breaching the 2021 Northern Ireland Protocol on conditions related to customs requirements, excise tax and VAT. The EU has brought seven proceedings against the UK over the Protocol since 2021.
Following the UK’s departure from the EU in 2020, the parties agreed that customs checkpoints on the land border between Northern Ireland and the Republic of Ireland could lead to political instability. The Protocol was an attempt to avoid border posts between the two countries.
Instead, the Protocol ensures customs checks are done in Northern Irish ports before goods are released into the Republic of Ireland. This process effectively created a customs border on the Irish Sea. In addition, the Protocol allows Northern Ireland to follow EU rules on product standards and VAT rules related to goods.
The Protocol has been controversial in the UK, as it creates special rules for Northern Ireland that don’t apply in England, Scotland or Wales. Members of the UK’s governing Conservative Party – including Liz Truss, a frontrunner to replace Boris Johnson as UK Prime Minister – have recently introduced a Northern Ireland Protocol Bill that would allow the UK to amend the terms of the Protocol.
Among other things, the draft legislation seeks to remove dispute settlement from the jurisdiction of the Court of Justice of the European Union, authorises “green [fast track] channels” for goods staying within the UK, and allows for UK-wide policies on VAT. Proponents of the bill claim it is necessary to protect the “essential interest” of peace in Northern Ireland.
However, European Union Representatives have condemned this draft legislation as a potential violation of international law. In its most recent infringement proceedings, the EU alleges that the UK has not substantively implemented parts of the Protocol at all.
In particular, the EU claims that:
The last point is particularly interesting for VAT purposes, as the IOSS scheme is a signature piece of the EU’s “VAT in the Digital Age” initiative.
At the time of writing the Northern Ireland Protocol Bill has not yet been adopted by the UK Parliament. It awaits review in the House of Lords. The UK and the EU have stated that further negotiations over the Protocol would be the preferred option. The parties, however, remain far apart on the details.
The EU has set out two months for the UK to respond to the infringement action. Failing any new agreements, the action could lead to possible fines and/or trading sanctions between the parties. Taxpayers conducting cross-border trade between the UK and EU should ensure they stay on top of future developments.
Need more information on IOSS and how it could impact your business’s compliance? Get in touch with our team.
Data is one of the most valuable assets of companies and individuals. Data gathered, cleaned and analysed well enables businesses to realise their utmost capabilities. With the digitization trend, error-prone paper forms, ledgers and books are replaced by electronic versions. This development gave companies more control over their data and liquidated data for further analysis.
This is also true for governments. Since tax income is one of the most significant revenue sources for countries and transactional data is the basis of tax income calculation, transactional data analytics is also essential for governments.
Receiving data in electronic form enables tax authorities to estimate their tax income and income sources better and eventually collect taxes more efficiently. This process has led many global tax authorities to require taxpayers to transmit relevant tax data electronically. Furthermore, the reliability of real-time data has shown to be so appealing that taxpayers are required to transmit data in real-time to the tax authority in many countries.
The real-time or near-real-time tax-relevant data transmission requirement is a new trend often referred to as Continuous Transaction Controls (CTC). CTCs require each transaction to be transmitted to the tax authorities to enable immediate and continuous control. CTCs are becoming more and more common around the world. The initial purpose of the CTCs when it was first launched in Latin America, the origination point, was to reduce the VAT gap. By looking at countries which have adopted CTCs, it’s fair to say that CTCs have already achieved this goal. However, tax authorities subsequently noticed that the benefits of CTCs are not limited to closing the VAT gap.
The vast amount of data collected through CTCs presents immense opportunities for tax authorities. Tax authorities can achieve unprecedented levels of business transaction transparency. Tax authorities T can calculate taxpayers’ compliance risk, and can plan audits based on these risk calculations. Furthermore, data can be used to drive fiscal and economic policy and shared with other government bodies. For instance, during an economic crisis, it’s possible to determine the business sectors most affected through the sales data reported by taxpayers. Those effected can be granted support (through tax exemptions, reduced rates etc.). The OECD Forum on Tax Administration’s chart compares different tax jurisdictions’ data management and analytics abilities and can be used to understand different countries’ data analytics technology.
Granular data collection and transparency of source data create challenges for businesses as there is little room for mistakes, shortcuts or later error correction. Businesses will need to ensure much more granular tax determination decision-making earlier in their processes and their trading partners’ processes.
Furthermore, ensuring compliance where CTCs are implemented can be challenging, especially for international companies, who have historically viewed taxes as something to be addressed by local accountants. Viewing tax as primarily a local concern by adopting local solutions that combine business and compliance functionality for each jurisdiction will be difficult to reconcile with a business’ broader digital and finance transformation and alignment, which is often global.
To step up their game, businesses should focus on data gathering and having a central data repository to have the “big picture” rather than acquiring local solutions to “save the day”. Real-time data transmission also requires clean data to maintain. The global digital transformation strategy must be in place to meet these requirements as well as a scalable technology to manage future tax demands.
1 July begins the second half of 2022, and in line with that milestone, changes have started to be implemented in the CTC sphere. In this blog, we highlight vital developments that have taken place in and outside Europe that may influence the continuous transaction controls (CTC) landscape globally.
The Philippines has officially implemented its mandatory continuous transaction controls (CTC system, which consists of the near-real-time transmission of electronically issued invoices and receipts. On 1 July 2022, the Philippines tax authority launched the Electronic Receipt, Invoice and Sales Reporting System (EIS) pilot program.
This initiative was first introduced in 2018 by the Tax Reform for Acceleration and Inclusion Act, known as TRAIN law. 100 selected pilot taxpayers are now obliged to issue and transmit e-invoices/receipts to the Bureau of Internal Revenue (BIR) through the EIS platform. (Philippines Advances Towards Mandatory CTC Reporting | Sovos)
Romania has been taking steps toward implementing its continuous transaction controls (CTC system since 2021. As of 1 July 2022, Romanian taxpayers are required to use the CTC e-invoicing system e-Factura for the supply of high-fiscal risk products in B2B transactions and all B2G transactions. Suppliers must transmit structured invoices issued in XML format to the E-Factura system. Subsequently, the seal will be applied by the Ministry of Finance as proof of clearance. Such invoice will be legally valid under the Romanian regulation. (Romania: Questions Remain as Deadline Looms | Sovos)
Alongside the 1 July 2022 go live for the CTC e-invoicing mandate, the e-transport system has been introduced to monitor high-fiscal-risk goods transported domestically. Taxpayers must issue an e-transport document before certain goods are transported. Moreover, taxpayers must send files to the tax authorities in XML format. Based on Act No. 106 issued by the Romanian government on 30 June 2022 and the change of Articles 13 and 14 of GEO, the fines for non-compliance with the e-transport requirements will not be effective until 1 October 2022. Also, starting from 1 July 2022, SAFT began to apply to large taxpayers as the penalty grace period has ended.
On the list of countries expanding their e-invoicing requirements is also Vietnam, where the issuance of e-invoices became mandatory for all taxable persons operating in Vietnam as of 1 July 2022. Previously, the expected deadline was 1 November 2020, but the tax authority extended it due to the difficulties encountered by local companies to implement on time a compliant e-invoice solution.
Moreover, enterprises, economic organisations, other organisations, business households and individuals must register with the local tax administration to use e-invoices according to the rules established in Decree 123. (Vietnam: E-invoicing Roll-Out in July 2022 | Sovos).
Mandatory B2G invoicing has been postponed for small, medium, and microenterprises with the enactment of Law Decree 42-A/2022. The initial date was 1 July 2022. Now, the B2G e-invoicing is going to be mandatory from 1 January 2023. The reason for this change is that, after extending the deadline for acceptance of electronic invoices in PDF until 31 December 2022, the Portuguese government considered it important to also extend the deadline for receiving and processing B2G electronic invoices for micro, small and medium-sized companies until 31 December 2022 (Portugal: Mandatory B2G invoicing for SME’s postponed again | Sovos)
In Turkey, the tax authority expanded the scope of taxpayers required to use e-fatura, e-arsiv and e-waybill applications. This expansion was done by either adding new sector-based mandates or decreasing the annual revenue threshold. The new requirements became applicable recently, and the taxpayers in the scope of the changes started using e-documents as of 1 July 2022. (Turkey Expands Scope of E-Documents (sovos.com)
In South Korea, e-invoicing has been mandatory for all corporate businesses since 2011. An issued e-tax invoice must be transmitted to the National Tax Service (NTS) within one day of the invoice being issued. The current change concerns the threshold limit for individual businesses, which from 1 July 2022 has been lowered to KRW 200,000,000.
Italy has also entered another phase of implementing its CTC requirements. Starting with cross-border invoices, the Esterometro (the report of cross-border invoices) has been replaced with the transmission of cross-border invoice data to the SDI in a FatturaPA format from 1 July 2022. Additionally, the recently published Decree n.73 established a threshold for the cross-border invoice reporting mandate. Taxpayers are only required to report transactions that exceed the amount of EUR 5,000 for every single operation. This applies, more specifically, to purchases of goods and services not territorially relevant for VAT purposes in Italy, under Articles 7 to 7-octies of Presidential Decree 633/1972.
Moreover, e-invoicing through the SDI became mandatory from 1 July 2022 for taxpayers applying the flat-rate VAT regime (regime forfettario), as well as amateur sports associations and third sector entities with revenue up to EUR 65,000. Lastly, e-invoicing became mandatory between Italy and San Marino from 1 July 2022. The system for e-invoice exchange between Italy and SM will leverage the SDI as the access point for Italian taxpayers and a new, comparable hub for companies in San Marino.
Many countries around the world are either introducing or expanding their existing CTC Regimes with the active changes taking place globally. Sovos continues to monitor which countries are next on the list to build its local CTC regimes and comply with the international standards.
With coverage across more than 60 countries, contact us to discuss your VAT e-invoicing requirements.
The Philippines continuous transaction controls (CTC) Electronic Invoicing/Receipting System (EIS) has been officially kicked off for the 100 large taxpayers selected by the government to inaugurate the mandate. Although taxpayers were still struggling to meet the new e-invoicing system’s technical requirements just before the go-live date, the Philippines upheld its planned deadline and went live with this pilot on 1 July 2022.
The Philippines roll-out has once again highlighted the challenges of complying with new mandates and shown that readiness is vital.
Together with one of the six initial pilot companies, which started testing early this year, Sovos has developed the first software solution to obtain approval by the EIS to operate e-invoice transmission through the government’s transmission platform. Sovos’ solution is up and running in the Philippines.
One day before the EIS go-live, the Philippines tax authority, BIR (Bureau of Internal Revenue), published Revenue Regulations n. 6-2022, 8-2022, and 9-2022, containing the new system’s policies and guidelines and documenting the rules and procedures adopted by the EIS.
While the regulations do not represent news for pilot taxpayers who have successfully implemented their CTC e-invoice reporting systems, the same might not be accurate for those preparing to comply with the new mandate. The legislation officially establishes the country’s e-invoice/receipt issuance and reporting initiative, first introduced in 2018 by the Tax Reform for Acceleration and Inclusion Act (TRAIN), and documents relevant information.
As of 1 July 2022, 100 selected pilot taxpayers have been obliged to issue and transmit e-invoices and e-receipts through the EIS. The BIR is planning a phased roll-out for other taxpayers within the scope of the mandate, starting in 2023, but no official calendar has been announced yet.
Taxpayers covered by the mandate are:
The mandate requires electronic issuance of invoices (B2B), receipts (B2C), debit and credit notes and transmission through the EIS platform in near real-time, that is, in up to three (3) calendar days counted from issuance date. Documents must be transmitted using the JSON (JavaScript Object Notation) file format.
Issuance and transmission can be done through the EIS taxpayer portal or using API (Application Programming Interface), in which taxpayers must develop a Sales Data Transmission System and secure certification before operating through the EIS. This entails the application for the EIS Certification and a Permit to Transmit (PTT) by submitting documentation with detailed information about the taxpayer’s system.
Although the regulations state that the submission of printed invoices and receipts is no longer required for taxpayers operating under the EIS, archiving requirements have not been modified. This means that during the 10-year archiving period, taxpayers must retain hard copies of transmitted documents for the first five (5) years, after which exclusive electronic storage is allowed for the remaining time.
Additionally, the legislation states that only the invoices successfully transmitted through the EIS will be accepted for VAT deduction purposes.
Many of the 100 pilot taxpayers struggled to comply with the country’s deadline. For this reason, the EIS has allowed alternations to the deadline for certain taxpayers, provided they submit a Sworn Statement detailing the reasons why they are not able to meet the requirement on time and a schedule with the date they intend to comply by, which are subject to the EIS’ approval.
Regarding non-compliance, the regulations state that the tax authority shall impose a penalty for delayed or non-transmission of e-invoices/receipts to the EIS and that unreported sales will be subject to further investigation.
After the pilot program kick-off and legally establishing the CTC framework, the government plans to gradually roll out the mandate to all taxpayers included in the scope in 2023. However, taxpayers who are not in the mandatory scope of the EIS may already opt to enrol in the system and be ready to comply beforehand.
Sovos was the first software provider to become certified, in conjunction with one of the pilot taxpayers, to transmit through the EIS, and is ready to comply with the Philippines CTC e-invoice reporting. Our powerful software combined with our extensive knowledge of the Philippines tax landscape helps companies solve tax for good.
Need to ensure compliance with the latest e-invoicing requirements in the Philippines? Speak with a member of Sovos’ team of tax experts
On 1 January every year, taxpayers operating in Peru must assess their monthly income over a certain period determined by law to verify if they fall under the obligation to keep electronic ledgers. Taxpayers above the established threshold or who wish to voluntarily keep their ledgers electronically may do so by using the Electronic Ledgers Program (Programa de Libros Electrónicos – PLE), which covers all electronic books, or through the System of Electronic Ledgers (Sistema de Libros Electrónicos Portal – SLE), exclusively for the records of sales and purchases.
Earlier this year, however, the Peruvian tax authority (SUNAT) approved a new system specifically for the records of sales and purchases, the Integrated System of Electronic Records (Sistema Integrado de Registros Electrónicos – SIRE). Through the new Resolution 40-2022/SUNAT, the Electronic Record of Purchases (Registro de Compras Electrónico – RCE) was introduced, a module similar to the Electronic Record of Sales and Earnings (Registro de Ventas e Ingresos Eletrónicos – RVIE) created in 2021 and already in use by taxpayers.
The two modules, RVIE and RCE, compose the SIRE. This new system will be rolled out gradually, starting in October 2022, obliging taxpayers to migrate from the PLE and SLE to generate their records of sales and purchases exclusively through SIRE while maintaining the PLE for other ledgers.
The primary purpose of the SIRE is to simplify the generation of records of sales and purchases for taxpayers. Through the SIRE, a proposal for the RVIE and the RCE is automatically generated. It is available from the 2nd calendar day of every month. The taxpayer may accept, modify or replace it with the information they wish to present to SUNAT. If there are no transactions during the monthly period, the taxpayer must still submit a blank file to SUNAT.
Under the current systems (PLE and SLE), SUNAT doesn’t generate a proposal; the taxpayer enters all sales and purchases information and generates the records. With the SIRE, however, SUNAT uses information from its Electronic Invoice System (Sistema de Emisión Eletrónica – SEE) to create a proposal of the RVIE and RCE, which the taxpayer submits in each declaration period. The record is updated daily with the information received on the previous day.
The RCE has certain peculiarities compared with the RVIE, already in use. The RCE requires the generation of two separate files, the records of domestic and cross-border purchases. Even if no cross-border transactions are carried out, a blank RCE must still be submitted to SUNAT. Additionally, taxpayers may exclude specific purchase invoices and include them in the RCE at any time for 12 months from the invoice issuance date.
After the taxpayer’s revision, the RVIE and RCE are filed in conjunction, and a receipt status message (Constancia de Recepcion), containing relevant information, is delivered to the taxpayer’s electronic mailbox.
The SIRE can be accessed through the SUNAT portal, using the SIRE application installed on the taxpayer’s computer or through SUNAT’s API web service.
Once taxpayers become obliged to the exclusive maintenance of sales and purchase records through the SIRE, they must discontinue keeping such records in the PLE, SLE or paper ledgers. However, because the SIRE covers the RVIE and RCE exclusively, taxpayers will still need to maintain the PLE, which contains all other ledgers.
This means taxpayers must be aware of the distinct set of rules applied to the PLE and the SIRE. An example is that the SIRE allows modification of an already “closed” record from a previous period without waiting until the next period, as with the PLE and SLE. In the SIRE, adjustments can be made at any time using the different annexes provided by SUNAT, with no limitations on the year the record was generated.
Another significant change is that taxpayers will no longer have to store, file and preserve electronic records since SUNAT will do this for them.
Implementation of the SIRE will happen gradually, according to the following schedule:
Taxpayers may also start using the SIRE voluntarily if they are obliged to keep the Records of Sales and Purchases and are enrolled in the SUNAT operations portal (clave SOL), according to the following calendar:
Resolution 40-2022/SUNAT becomes effective on 1 October 2022. However, because most companies in Peru are already obliged to keep Records of Sales and Purchases, the largest groups of taxpayers must be ready to comply with the new mandate starting 1 January 2023.
Speak to our team if you have any questions about the latest tax requirements in Peru. Sovos has more than a decade of experience keeping clients up to date with e-invoicing mandates all over the world.
Knowing how to calculate IPT and the corresponding parafiscal surcharges (hereinafter collectively referred to as IPT) is an art. Rules differ by national jurisdiction so ensuring compliance with IPT obligations is not just a regulatory requirement for insurers – it’s essential to avoid financial penalties and reputational risk.
That’s why it’s critical to have a clear understanding of which tax rules apply to the insurance products underwritten, and to stay informed about the specific requirements in each relevant jurisdiction.
This blog will provide an overview of IPT calculations, explaining how to calculate IPT, the different methods of calculation, IPT rates and exemptions, and more. If you’ve found yourself asking, “How is IPT calculated?” then read on, because this page is for you.
There are two basic methods for calculating the tax on insurance premiums in Europe:
These calculation models are just the basics; IPT regulations are built upon these models, adding several specific rules, which can make an IPT calculation fairly complex.
For the first calculation method, the Percentage model, one or multiple tax rates apply depending on the risks covered.
For example, businesses in Bulgaria can easily determine the tax amount by multiplying the taxable basis by the country’s 2% tax rate. This rate applies to all classes of businesses. However, in Italy or France, the applicable tax rate depends on the risks covered.
Several IPT calculations are based on this basic rate model but there are some models where the tax rate applies on the sum insured value and not on the premium amount.
In the second calculation method, the Fixed Amount Model, local regulations determine the tax amount that needs to be multiplied – usually per policy, but sometimes per insured person.
Irish Stamp Duty and Danish Guarantee Fund contribution are examples of this calculation method in practice.
While many factors can ultimately impact the IPT amount calculation, there are certainly some primary factors that many calculations will need to get right.
While each IPT calculation will vary based on the factors at play, we can provide a sample calculation to illustrate how the process can work.
The first step is to identify the risk category the policy falls under, as this will dictate the location of risk.
Determining the location of the risk(s) will determine the country of which the IPT calculation rules apply. Most European countries include a section in IPT regulations to determine the location of risk, citing the Solvency II EU Directive location of risks (LoR) rules.
The reporting currency is the currency in which the tax should be settled to the local tax office. If the premium amount in the policy is determined in a currency other than the reporting currency, then it is important to use the correct exchange rate. Exchange rate rules are not harmonised in the EU. It can be the national bank average monthly/quarterly rate, or rate on the last day of the reporting period.
The taxable basis is vital for determining the compliant IPT and parafiscal amounts. Look for the local legislation for the definition of the taxable basis. Taxable basis can be the net premium, the sum insured, the value as per the land registry, or net premium plus fees, commissions or even taxes.
Knowing the correct tax rate/fixed amount is vital. Search for the local IPT legislation, review the risk covered and determine the correct tax rate.
Depending on the risks covered, some countries also levy parafiscal charges on insurance premiums, impacting the total IPT amount to be paid. France is an example of a country that levies various surcharges on the premium amounts depending on the risk(s) covered.
It is also vital to determine which insurance premiums fall into an exempt class. Usually, risks covering international or exports class of businesses are exempt, such as export credit, or international goods in transit. Some of the EU countries exempt sickness policies too.
Lastly, it is essential to follow rounding rules when calculating the total IPT amount to be settled towards the local tax offices, because the settlement of the IPT amount can be rounded. In France, for example, you are required to round to the nearest whole EUR. In Hungary, IPT is declared in thousands HUF.
With IPT often being complicated to calculate, especially if you don’t know the nuances of the country where the location of risk sits, mistakes can be common.
There are simple mistakes like determining the wrong location of risk or using the incorrect or out-of-date IPT rates (e.g. incorrectly interpreted transitional rules), and misunderstanding exemptions.
More errors come from miscalculating the value of the premium or the sum insured or incorrectly applying surcharges.
There are rules taxpayers must abide by to comply with IPT regulations. Here is a selection of IPT rules for amount calculation.
Here are some examples of these specific rules:
As you can tell, IPT calculations can be complex—but they don’t need to be. If you are aware of the common pitfalls and the key considerations in these calculations, you can work out the amount payable with accuracy and confidence.
Knowing the rules and requirements of the country you are operating in is key, from the tax rate to how they require insurers to calculate Insurance Premium Tax. Non-compliance can be costly, both financially and reputationally, so be sure to put your best foot forward by knowing how to calculate IPT correctly.
Hungary is the only country that utilises a ‘pure’ sliding scale rate model to calculate its Insurance Premium Tax. The sliding scale model is a method of calculating IPT where the tax rate changes once the insurance premium exceeds a threshold. Malta, on the other hand, applies a mixture of fixed amount and sliding scale model.
Yes, there is generally a chance that Insurance Premium Tax (IPT) can be refunded on a cancelled policy. Refunds are done pro rata on policies that have been active for longer than the mandatory 14-day cooling-off period. There are exemptions from this general rule, with the best example being Italy.
While countries have their own nuances regarding IPT, the general rule of thumb in countries like the UK is that Insurance Premium Tax does not apply to reinsurance.
This is because countries like the UK want to avoid double taxation, as the original direct insurance policy is already subject to IPT.
No, IPT is not harmonised in the EU. Although the Solvency II EU directive provides some basic rules which are mandatory for EU countries to follow, the specifics of the IPT calculation, such as the rates and taxable basis are not harmonised.
Currently, the highest IPT rate in the EU is 30%, applying to certain policies in France. The highest generic IPT rate of 25.5% applies in Finland. The lowest IPT rate, not mentioning the exemptions, is the 1.4% IPT rate applied for certain specific policies in Belgium. The lowest generic IPT rate is 2% in Bulgaria.
Put simply, Insurance Premium Tax (IPT) is calculated as a percentage of the insurance premium. The percentage, also known as the IPT rate, depends on the type of insurance policy and the rates of the country to which the policy applies.
To calculate the IPT amount, you multiply the insurance premium by the appropriate tax rate. The insurer then adds the cost to the figure paid by the policyholder.
This calculation is the simplest, but it’s worth mentioning that there are various calculation methods e.g. fixed amount method, sliding scale methods.
There are various factors that need to be considered to compliantly calculate IPT. These factors include, but are not limited to, location of risk, the risk covered, the exchange rate, the definition of the taxable premium, the IPT and parafiscal tax rates and the exemptions.
Since many audits seem to occur at random, it’s not always possible to identify the reason why a tax office would decide to initiate one.
We’ve previously spoken about an increased interest in audits from the EU and audits for e-commerce. This article covers the most common reasons behind a VAT audit to help businesses anticipate and prepare for one when possible.
There are specific “trigger” events among the most common reasons that could cause further queries from the tax office. Generally speaking, these are changes in the company’s status such as a new registration, a de-registration, or structural changes within the company.
VAT refund requests also fall into this category. In some countries (Italy and Spain, for example) a refund request is almost certainly a reason for an audit to be initiated since the local tax office cannot release the funds before checks are completed. In this case, the likelihood of an audit increases when a refund is particularly substantial and the business requesting it is newly VAT registered. However, it doesn’t mean that the tax authority will not initiate an audit if the amount requested in a refund is relatively small.
Certain types of businesses are naturally more subject to audits due to their structure and business model. Groups commonly selected for scrutiny include, for example, large companies, exporters, retailers and dealers in high-volume goods. Therefore, elements such as a high number of transactions, high amounts involved and complexity of the business structure could be another common reason for an investigation to be initiated by the local tax authorities.
Tax authorities often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters. This would include comparing previous data and trading patterns with other businesses in the same sector. Therefore, unusual patterns of trading, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office perspective and give rise to questions.
Another common reason for the tax authorities to request further information from taxpayers is the so-called “cross check of activities”. In this case, either a business supplier or client is likely to be subjected to an audit. The tax office will contact their counterparts to verify that the information provided is consistent on both sides. For example, if a business is being audited following its refund request, the tax office will likely contact the suppliers to verify the audited company didn’t cancel the purchase invoices and that they have been paid.
This category also includes cross checking activities on Intra-Community transactions reported by a business. In this scenario, the cross check would be based on information exchanges between local tax authorities through the VAT information exchange system (VIES). The tax authorities can check Intra-Community transactions reported to and from specific VAT numbers in each EU Member State and then cross check this information with what has been reported by a business on their respective VAT return. If any discrepancy arises, the tax office will likely contact the business to ask why they have (or haven’t) reported the transactions declared by their counterparts.
As we’ve already seen in an earlier article, audit triggers are also influenced by changes in legislation or shifts in the tax authorities’ attention to specific business sectors.
Regardless of whether it’s possible to identify the actual reason the tax authority initiated an audit, a business can undertake several actions in preparation for a check of activities, which will be covered in the next article of this series.
Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.
A recent report released by the European Commission has stressed the need for Member States to increase the number of audits they undertake, particularly in e-commerce businesses. The European Commission specifically highlighted the need for Malta, Austria and France to make additional efforts to improve their value-added tax audit practices. They highlighted the seriousness of the issue and that the consequences of inaccurate VAT reporting can be severe. VAT audits, therefore, promote accurate reporting and mitigate fraud, and as such, they are being encouraged by the Commission.
The European Commission specifically stated that tax authorities should have a strategic approach which must observe multiple elements, including:
The report notes some of the positive actions taken by Member States. Generally, they pay close attention to the audit process, with Finland and Sweden highlighted as particularly good. Furthermore, the report notes that some Member States have established special “VAT task forces” to deal with audits.
Following this report, the European Commission also announced that Norway should be authorised to participate in joint audits with their counterparts in the EU as a further measure to crack down on fraud.
E-commerce is a good example of an area that continues to grow, with the VAT stake ever increasing. With tax authorities globally struggling to keep pace with new technology and consumer offerings, local tax authorities are implementing further measures to ensure that fraud is combatted at an EU-wide level. Whether further changes occur through a difference in how VAT is reported or new forms of reporting such as continuous transaction controls (CTCs) that are in place in some Member States already, VAT audits are at the heart of this strategic plan. In this report, the European Commission has clarified that the approach and scope of audits should be extended.
With increased Member States co-operation and new measures adopted by the European Commission, such as the implementing regulation that provides details on how payment providers should start providing harmonised data to tax authorities from 2024, businesses should ensure that they have adequate controls in place to be able to handle any audit request. Future blogs in this series will focus on the audit trends we’ve noticed at Sovos and how businesses should prepare for an audit.
For more information about how Sovos’ VAT Managed Services can help ease your business’s VAT compliance burden, contact our team today.
Eastern European countries are taking new steps concerning the implementation of continuous transaction controls (CTC) systems to reduce the VAT gap and combat tax fraud. This blog provides you with information on the latest developments in several Eastern European countries that may further shape the establishment of CTC systems in other European countries and beyond.
Previously announced on 1 January 2022, taxpayers have been able to issue structured invoices (e-invoices) using Poland’s National e-Invoicing System (KSeF) voluntarily, meaning electronic and paper forms are still acceptable in parallel. On 30 March 2022, the European Commission announced the derogatory decision from Article 218 and Article 232 of Directive 2006/112/EC. The decision will apply from 1 April 2023 until 31 March 2026, after receiving the last approval from the EU Council. Moreover, on 7 April 2022, the Ministry of Finance published the test version of the KSeF taxpayer application that enabled the management of authorisations issuing and receiving invoices from KSeF. The mandatory phase of the mandate is expected to begin the second quarter of 2023, 1 April 2023.
For more information see this overview about e-invoicing in Poland or VAT Compliance in Poland.
The Romanian CTC system is one of the fastest developing in Eastern Europe, with the E-Factura system being available for B2G transactions since November 2021. Based on the Government Emergency Ordinance no. 41, published in the official gazette on 11 April 2022, the use of the system will become mandatory for transporting high fiscal risk goods domestically as of July 2022.
Moreover, Draft Law on the approval of the Government Emergency Ordinance no. 120/2021 on the administration, operation, and implementation of the national e-invoicing system (Draft Law) on 20 April 2022 was published by The Romanian Chamber of Deputies. According to the Draft Law, the National Agency for Fiscal Administration (ANAF) will issue an order in 30 days following the derogation decision from EU VAT Directive and establish the scope and the timeline of the B2B e-invoicing mandate. As derived from the proposed amendments, B2G e-invoicing will become mandatory as of 1 July 2022, and mandatory e-invoicing for all B2B transactions is in the pipeline.
For more information see this overview about e-invoicing in Romania or VAT Compliance in Romania.
Serbia has introduced a CTC platform called Sistem E-Faktura (SEF) and an additional system to help taxpayers with the processing and storage of invoices called the Sistem za Upravljanje Fakturama (SUF).
To start using the CTC system Sistem E-Faktura (SEF) provided by the Serbian Ministry of Finance, a taxpayer must register through the dedicated portal: eID.gov.rs. SEF is a clearance portal for sending, receiving, capturing, processing and storing structured electronic invoices. The recipient must accept or reject an invoice within fifteen days from the day of receipt of the electronic invoice.
The CTC system became mandatory on 1 May 2022 for the B2G sector, where all suppliers in the public sector must send invoices electronically. The Serbian government must be able to receive and store them from 1 July 2022. Additionally, all taxpayers will be obliged to receive and store e-invoices, and from 1 January 2023, all taxpayers must issue B2B e-invoices.
The Slovakian government announced its CTC system called Electronic Invoice Information System (IS EFA, Informačný systém elektronickej fakturácie) in 2021 through draft legislation.
The CTC e-invoicing covers B2G, B2B and B2C transactions and will be conducted via the electronic invoicing information system (IS EFA).
The official legislation regulating the e-invoicing system has not been published yet although it is expected to be published soon. However, the Ministry of Finance has recently posted new dates concerning the implementation of the electronic solution:
The second phase will follow for B2B and B2C transactions.
Slovenia has not progressed in introducing its CTC system. Due to the national elections in April 2022, the CTC reform was not expected to gain much traction until at least the summer of 2022. Nevertheless, there are still ongoing discussions around the CTC reform, which intensified soon after the Slovenian parliamentary elections.
The fast pace of the developments happening within Eastern European countries brings challenges. The lack of clarity and last-minute changes makes it even harder for taxpayers to stay compliant in these jurisdictions.
Staying compliant with CTC changes throughout Eastern Europe is easier with help from Sovos’ team of VAT experts. Get in touch or download the 13th Annual Trends report to keep up with the changing regulatory landscape.
Over the past decade, the Middle East region has undergone impactful financial and fiscal changes. VAT was introduced as one of the solutions to prevent the impact of decreasing oil prices on the economy after the region’s economic performance started to slow down.
After realising the benefits of VAT to the economy, the next step for most governments is to increase the effectiveness of VAT controls. Currently, most Middle Eastern countries have VAT regimes in place. Like many countries, Middle Eastern countries are paving the way to introduce continuous transaction controls (CTC) regimes to achieve an efficient VAT control mechanism.
Saudi Arabia is leading the way, introducing its e-invoicing system in 2021. This e-invoicing framework, in its current form, doesn’t require taxpayers to submit VAT relevant data to the tax authority in real-time. However, that is about to change, as the Saudi tax authority will enforce CTC e-invoicing requirements from 1 January 2023. This means that taxpayers will be required to transmit their invoices to the tax authority platform in real-time. More details on the upcoming CTC regime are expected to be published by the ZATCA.
The introduction of the CTC concept in Saudi Arabia is expected to create a domino effect in the region; some signs already indicate this. Recently, the Omani tax authority issued a request for information that revealed their plans to introduce an e-invoicing system. The tax authority’s invitation to interested parties stated that the timelines for implementing the system have not been set yet and could involve a gradual rollout. The objective is to roll out the e-invoicing system in a phased manner. The e-invoicing system is expected to go live in 2023 on a voluntary basis and later on a compulsory basis.
The Bahrainian National Bureau for Revenue (NBR) has made similar efforts. The NBR requested taxpayers to take part in a survey asking the number of invoices generated annually and whether taxpayers currently generate invoices electronically. This development signals upcoming e-invoicing plans – or at least a first step in that direction.
In Jordan, the Ministry of Digital Economy and Entrepreneurship (MODEE) published a “Prequalification Document for Selection of System Provider for E-Invoicing & Integrated Tax Administration Solution” that was, in fact, a request for information. The tax authority in Jordan previously communicated its goal to introduce e-invoicing. As the recent developments suggest, Jordan is moving closer to having an up and running platform for e-invoicing which will likely be followed by legal changes in the current legislation concerning invoicing rules.
The overall global trend is clearly toward various forms of CTCs. In recent years, VAT controls and their importance and the advantages presented by technology have changed the tax authorities’ approach to the digitization of VAT control mechanisms. As governments in the Middle East countries are also noticing the benefits that the adoption of CTCs could unlock, it’s reasonable to expect a challenging VAT landscape in the region.
To find out more about what we believe the future holds, download Trends 13th Edition. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.
E-businesses have recently been dealing with the change of rules within the EU with the introduction of the E-Commerce VAT Package but it’s also important to ensure compliance requirements are being met globally. In this blog we look at some of the low value goods regimes that have been introduced over the last few years together with those on the horizon.
Switzerland was one of the first countries outside the EU to introduce a low value goods regime when it revised the Swiss VAT law with effect from 1 January 2018. Previously, import of goods below CHF 62.50 were exempt from Swiss customs duty and import VAT. However, from 1 January 2018 any overseas sellers importing low value goods below CHF62.50 (standard-rated goods) or CHF 200 (reduced rated goods) that breach the CHF 100,000 threshold are required to register for and charge Swiss VAT on the sales of those goods.
On 1 April 2020, Norway introduced the VAT on E-Commerce (VOEC) scheme for foreign sellers and online marketplaces selling low value goods. These low value goods include those with a value below NOK 3,000 exclusive of shipping and insurance costs. The threshold applies per item and not per invoice, although doesn’t include sales of foodstuffs, alcohol and tobacco as these goods continue to be subject to border collection of VAT, excise duties and customs duties. Any foreign seller that exceeds the threshold of NOK 50,000 has an obligation to register for Norwegian VAT and apply this at the point of sale if they’re registered under the VOEC scheme.
Australia and New Zealand introduced very similar schemes to collect GST on low value goods being sold by overseas sellers. Australia introduced its scheme on 1 July 2018 for all goods with a customs value of less than AUD 1,000 and a turnover threshold of AUD 75,000 which once breached means the overseas seller must register for Australian GST and charge this at the point of sale.
New Zealand introduced a low value goods scheme on 1 October 2019 and applied this to low value goods valued at less than NZD 1,000. The turnover threshold in New Zealand is NZD 60,000 which once breached requires the overseas seller to register and charge New Zealand GST.
Following Brexit, the UK abolished the low value goods consignment relief of GBP 15 and introduced a new regime on 1 January 2021 covering imports of goods from outside the UK in consignments not exceeding GBP 135 in value (which aligns with the threshold for customs duty liability). Under these new rules, the point at which VAT is collected moves from the point of importation to the point of sale. This has meant that UK supply VAT, rather than import VAT, will be due on these consignments. Making these supplies requires registration for VAT in the UK from the first sale.
Singapore is the latest country to announce it will introduce new rules for low value goods. Effective 1 January 2023, private consumers in Singapore will be required to pay 7% GST on goods valued at SGD 400 or below that are imported into Singapore via air or post (the GST rate will rise to 9% sometime between 2022 to 2025).
An overseas vendor (i.e., supplier, electronic marketplace operator or re-deliverer) will be liable for GST registration where their global turnover and value of B2C supplies of low value goods made to non-GST-registered customers in Singapore exceeds SGD 1 million at the end of any calendar year. It may also be possible to register voluntarily if required.
Want to ensure compliance with the latest e-commerce VAT requirements across the globe? Get in touch with Sovos’ team of experts today or download Trends Edition 13 to learn about global VAT trends.
Update: 31 January 2023 by Lorenza Barone
Norway’s Ministry of Finance has updated legislation involving remotely deliverable services by foreign suppliers. This is effective from 1 January 2023.
In 2022, the Ministry proposed to amend the Norwegian VAT Act regarding cross-border business-to-consumer (B2C) sales of non-digital services.
The proposal concerns purchases of remotely deliverable services from non-resident suppliers to Norwegian consumers.
Foreign providers of traditional services would need to register for VAT in Norway and account for Norwegian VAT for the following services for resident consumers:
VAT would still be charged and collected when the customer is a business or a public authority or when the transaction is considered a B2B sale. The customer would do this in Norway via the reverse charge mechanism. Suppliers not established in Norway could still use the existing VAT On E-Commerce (VOEC) scheme.
The motivation behind the proposal was to eliminate a competitive advantage for non-resident suppliers.
In fact, until the recent change, no VAT was charged when a business provided such services to Norwegian consumers.
Effective 1 January 2023, non-resident suppliers of remote non-digital services who make supplies to consumers in Norway are required to collect and remit Norwegian VAT.
In light of this, the VOEC scheme – the simplified scheme for online sales of goods and services to Norwegian consumers – has been expanded. Previously it only applied to low value goods and electronic services, but now it also includes all services capable of delivery from a remote location.
Subsequently, all foreign companies that sell such services to Norwegian consumers must register through the VOEC scheme – or register ordinarily for Norwegian VAT when they reach the NOK 50,000 threshold in sales over 12 months.
The VAT treatment for providing such services to a business in Norway remains unchanged, with the local company collecting and remitting the VAT under the reverse charge mechanism.
Still have questions about VAT in Norway? Speak to one of our experts.
Update: 25 April 2022 by Sam Wichman
The Norwegian Ministry of Finance has proposed to amend the Norwegian Value Added Tax (VAT) Act regarding cross-border business to consumer sales of non-digital services. The proposal would require purchases of remotely deliverable services from suppliers established outside of Norway to consumers located in Norway to be subject to VAT.
Since 2011, Norway has operated a simplified VAT compliance regime for foreign suppliers of digital services to consumers. Non-resident suppliers who sell e-books, streaming media, software, or other digital services to Norwegian consumers and meet the NOK 50,000 VAT registration threshold must register and collect VAT on these sales, the same as resident businesses.
Non-resident suppliers not established in Norway may use the simplified VAT On E-Commerce (VOEC) scheme for registration and reporting. Additionally, suppliers in Norway must pay VAT on all purchases of remotely deliverable services from businesses located abroad. Currently, however, foreign suppliers of remotely deliverable services, which are not digital, are not required to register and pay VAT on their sales of such services.
The Norwegian tax authority is concerned about the competitive advantage of non-resident suppliers over resident suppliers when providing deliverable services to Norwegian consumers. The Norwegian Ministry of Finance has presented a proposal to amend the Norwegian VAT Act to require non-resident suppliers to collect and report VAT on remotely deliverable services to consumers.
Under the proposal, foreign providers of traditional services would have to charge VAT for consulting services, accounting services, and other cross-border services provided to consumers located in Norway. When the customer is a business or a public authority, or when the transaction is considered a B2B sale, the VAT would still be charged and collected by the customer via the reverse charge mechanism. Suppliers that are not established in Norway would be able to use the existing VOEC scheme.
The Norwegian Ministry of Finance has submitted the proposal for amendments to the Norwegian VAT Act regarding selling remotely deliverable services from abroad to recipients in Norway for consultation. The deadline for submitting comments on the proposal is 8 July 2022. Please stay tuned for updates on if the proposed amendments are adopted in Norway and when the amendments will take effect should they be adopted.
VAT in Norway is constantly changing. Speak to one of our Norway VAT experts for answers to all your questions.