The EU VAT E-Commerce package has been in place since 1 July 2021. This applies to intra-EU B2C supplies of goods and imports of low value goods. Three schemes make up the package. These are based on the value of goods and the location of the sale of goods.
All OSS schemes are currently optional. The schemes mean taxpayers can register in a single EU Member State and account for the VAT due in other Member States.
For companies outside of the EU, the package schemes that apply are:
Want to understand how OSS and IOSS work? Keep reading!
Have IOSS specific questions? Our tax experts answer common questions in our IOSS guide. Or learn more about VAT compliance for eCommerce here.
Exporting products to the EU is challenging. Couriers often have a bewildering number of services. Prices differ from service to service.
There’s no easy way to find fast, cost-effective shipping services, but here are tips to help:
Businesses with a certain turnover must register for VAT. This varies from country to country. For example, the UK’s VAT threshold is £85,000 for established businesses. If you are interested in a business solution, please get in touch with our sales team.
Registering for VAT takes time. Each Member State has its own process for obtaining a VAT number. VAT compliance differs from Member State to Member State.
For non-EU companies, appointing a Fiscal Representative might be necessary. A Fiscal Representative acts on behalf of companies in a local VAT jurisdiction, managing VAT reporting and other requirements. For IOSS, most non-EU businesses will need an IOSS intermediary.
We know registering for VAT is difficult and involves understanding place of supply rules, fiscal representation and many other elements.
The EU VAT E-Commerce package enables taxpayers to register in one Member State to account for VAT in all Member States.
In most cases, a VAT number will be mandatory because of your business’ activity; in some cases, it will be voluntary. There are many benefits to applying for a VAT number.
These include preventing financial penalties and receiving EU VAT refunds. EU VAT refunds depend on certain circumstances, such as on VAT exempt items.
The OSS scheme is currently optional. Before registering businesses should consider the benefits and impact on their supply chain.
When a supplier obtains either an the Member State that grants the VAT number becomes known as the Member State of Identification.
As the UK is no longer part of the EU, registering for OSS as a UK business means using the Non-Union OSS, Union OSS or IOSS schemes. There is no need to have a normal VAT registration in the EU to apply for IOSS or a non-Union OSS VAT registration, however, a local EU registration is required before obtaining the OSS registration.
The first step is to understand if an needs appointing. The intermediary, usually an agent or broker, submits the IOSS returns on behalf of the company.
The UK business will need to choose the Member State it wants to register with for the non-Union OSS scheme.
If the UK business has warehouses in the EU, then the company will still need local in each Member State with a warehouse, but they can choose one Member State for OSS registration.
The Northern Ireland Protocol adds even more complexity to cross-border trade. Stop browsing the internet for unhelpful answers; contact our experts for advice instead.
Our team of experts can help you understand OSS and IOSS further. Don’t hesitate to get in touch today, especially about the Northern Ireland Protocol’s effect on trade.
The USA doesn’t have VAT. The equivalent is Sales Tax, with its own permit and tax ID.
If a US company wants to sell goods into Europe it can register for a VAT number with the relevant Member State tax authority. The business’ supply chain will determine if / where a VAT registration is required.
This depends on the product or service and whether the US company has activity in the UK that requires it to become VAT registered such as selling low value goods or importing in its own name into the UK.
The cost of international shipping to Europe varies, depending on where you send goods from and how quick delivery is.
Costs for shipping from the USA to Europe vary, depending on if they are express or standard shipping times. Different couriers charge different prices too.
This depends on package size, insurance and delivery speed.
Shipping from the EU to the US can take anywhere from four days to four weeks, depending on customs and import requirements.
Speak to our experts. They will navigate you through the complexities of the EU VAT landscape.
Tax has always been challenging and ever-changing VAT regulations across Europe add to the complexity, requiring technology adoption to support compliance- related activities.
It’s time for businesses to evaluate how efficiently they’re handling their VAT compliance obligations.
We created this checklist to help you assess whether you already have an effective, scalable solutions that’s optimized for the diverse range of compliance requirements and future-proofed to adapt to coming changes.
If you can tick all the boxes, you’re on the right path to mitigate risk and meet the demands of VAT digitization.
How does your current VAT compliance solution measure up?
Can’t check all the boxes? Don’t worry, Sovos helps ease the increased demands of tax digitization so you can prioritise your core business . We take a future-facing approach to always-on tax compliance with intelligent tools that provide data insights for a competitive advantage.
Let us remove the stress of constantly changing legislation: Get in touch with an expert now.
Learn more about Sovos’ periodic reporting solution for VA T and SAF-T and mandatory e-invoicing solutions.
Nearly every major economy has a form of VAT. That’s 165 countries, each with its own compliance and reporting rules. The main exception is the United States. VAT is by far the most significant indirect tax for nearly all the world’s countries. Globally VAT contributes more than 30% of all government revenue.
Levying VAT is a term used to describe when a company collects VAT on behalf of a tax authority. This happens at each stage in a supply chain when a taxable event occurs. A country’s tax rules define what a taxable event is.
In a nutshell, VAT essentially turns private companies into tax collectors.
VAT is due on nearly all goods and services. This is up to, and including, the final sale to a consumer – that’s you and me.
Applied correctly, VAT should be cost neutral for most businesses. Companies collect VAT from their suppliers, then pay this money to the government. In the UK, this is normally every three months.
As a business this means:
Companies can reclaim the VAT on some of their purchases. When applicable, this means your business pays less VAT when its VAT return is due.
Essentially, this encourages businesses to spend and help an economy grow.
Another thing a company can do is postpone its VAT accounting. There are different reasons why this is allowed, for example, in relation to import VAT.
We know VAT isn’t easy. Speak to one of our tax experts today about overcoming your VAT compliance headaches. Or read this easy-to-understand guide to learn more about the EU e-commerce VAT package.
So what is a VAT return?
A VAT return is a document listing all the VAT you have collected and what you are reclaiming VAT on along with various other information on sales and purchases in the period.
Submitting VAT returns is a legal requirement in most countries. The format and frequency vary around the EU, so it’s essential to keep
In addition to VAT returns, businesses might have to submit other declarations. This depends on the company’s trading activity and the requirements in the Member State of registration. This could include or . These can be quite complicated, as we explain here.
Understanding your VAT obligations also requires mapping a supply chain for the country of registration.
The following information applies to larger businesses or businesses selling into the EU.
EU VAT can be overwhelming and exhausting. For some relief, why not download our European VAT guide or read more about VAT compliance for eCommerce here.
So, what is the difference between Sales Tax and VAT?
VAT is a broad-based consumption tax and a form of indirect taxation. It is imposed on goods and services at each stage of the supply chain, with each party paying the government the tax and passing the final cost onto the ultimate consumer.
The idea is that each party effectively only pays VAT on the value added to the product or service. This is because the party can recover the VAT on associated costs (of course, there are exceptions). One of the disadvantages is that it requires accurate accounting.
On the other hand, sales taxes are generally taxes placed on the sale or lease of goods and services.
Usually, the seller collects the tax from the purchaser at the point of sale. Sales tax is calculated by multiplying the purchase price by the applicable tax rate. The seller at a later stage transfers the tax to the responsible government agency.
The EU VAT Directive 2006/112/EC establishes the rules for where VAT is due in the EU. Member States must implement these rules in a uniform way to avoid the possibility of double or no taxation. This blog goes into details how VAT between European countries works.
VAT in the EU happens when:
There’s a supply of goods – Where goods are not transported, the place of taxation is where the goods are made available to the customer. Where the goods are transported, the place of supply is where the transport starts (unless an exemption applies).
There’s a supply of services – For B2B transactions the place of taxation is generally where the customer has established their business. This applies to “intangible” services where the place of consumption cannot be determined easily.
There are certain where the place of consumption can be determined. These are:
A thing called intra-community acquisition of goods occurs – The place of taxation is the place where the transport ends (i.e., the EU country where the goods are finally located after transport from another EU country).
At the point goods are imported – The place of taxation is where goods imported from non-EU countries are generally taxed (i.e., in the EU country where they are cleared for free circulation).
There are many reasons why an EU country uses VAT.
VAT can be adjusted up and down depending on how a country’s economy is performing quickly. This means a country can raise taxes quickly or support a certain sector by reducing VAT.
Once collected, the money can be spent on public services, infrastructure, healthcare and other important growth initiatives.
But wait, what about those pesky questions like “should I charge VAT to EU customers?” or “do I pay VAT if buying from Europe?”. We hear these all the time from customers who struggle with VAT rates across different EU countries.
Standard rates, reduced dates, special rates. What’s the difference?
And then you have super reduced rates and zero rates? Let’s not forget intermediary rates.
If your business is expected to charge VAT to EU customers, or you yourself are faced with paying VAT on a purchase when buying from Europe, it’s important you feel confident applying the right VAT rate each and every time.
Have a question about the many different types of VAT rates in the EU? Our tax experts are yet to receive a question that stumps them, and they will happily help unload you from this burden.
Sometimes companies don’t have to pay VAT. This happens when the goods or products they sell fall into an exempt category.
Some examples of exceptions include education and training, charity fundraising and insurance. Insurers instead pay a tax called (IPT).
A VAT exempt business cannot register for VAT, nor can it reclaim VAT. This is slightly different to zero-rated goods or services. In that case, VAT is charged, but at 0%. Some companies can be partly exempt too.
VAT exemptions differ country to country so it’s important to check a tax authority’s website to see whether your business needs to pay VAT. ? We love setting our clients free from their tax compliance burdens so they can focus on growing their business.
Read our blog to VAT exempt goods and services in Europe.
The seller collects VAT from their buyer and pays to the relevant tax authority.
Learn more about buyer and seller VAT in our blog.
Yes. A person or company buying a service or product pays the tax when the item is chargeable.
Sellers pay VAT on any items they purchase for their own business. The VAT they collect from their own customers is paid to HRMC. In some cases, sellers also need to self-account for the VAT due from their customers.
VAT is 20% in the UK. A buyer pays this to the seller when they purchase an item, product or service. There are also some cases where the seller pays the VAT by way of a self-accounting mechanism.
Sales tax is found in the United States and is a tax applied at state government level on the purchase of goods or services. VAT is a consumption tax and is collected by all sellers in a supply chain, not just charged to the final consumer.
Our large advisory team can help you navigate the complexities of modern VAT compliance. Don’t hesitate to get in touch today.
Serbia is on the final straight to implementing its mandatory e-invoicing, which will come into effect from 1 January 2023. Legislative changes are still being proposed before that deadline to allow for a complete introduction of mandatory e-invoicing to the whole B2B sector.
On 12 December 2022, the Ministry of Finance published the following Laws on Amendments in the “Official Gazette of the RS” No. 138 among others:
One of the changes regarding the scope of the Law on Electronic Invoicing involves natural persons who are not liable for income tax for self-employment, in the sense of the law governing personal income tax, who will be excluded from the provisions of the Law on E-Invoicing.
Regarding the type of transactions that will not be in the scope of e-invoicing, there will be no obligation to issue an electronic invoice for the sale of goods and services free of charge. Lastly, the legal entities and entrepreneurs who are not VAT payers, nor voluntary users of SEF, will not be obliged to record VAT calculation in SEF if they are tax debtors.
In case of a temporary interruption in the operation of the electronic invoice system, the system will consider an e-invoice as delivered at the time operation resumes. The act of the Ministry of Finance that regulates such procedures will be adopted on 1 April 2023 – three months from the date of entry into force of this law.
Also, the following paragraph will be added to Article 6 stating: “An electronic invoice that has been rejected can be subsequently accepted”. This provision will apply from 1 June 2023 for electronic invoices recorded in the central register of invoices, in accordance with the law regulating the deadlines for settling monetary obligations in commercial transactions.
The law will enter into force on 1 January 2023.
The changes introduced to the law on VAT that impacts electronic invoicing processes stipulate that an invoice is an electronic invoice accepted by the buyer, as required by the Law on E-Invoicing.
The law ensures that the taxpayer accepting the electronic invoice within the deadline to submit the tax return may exercise the right to deduct the preliminary tax at the earliest date for the tax period where liability occurred. The taxpayer will also need to notify the tax authority about a change of data relevant to the calculation and payment of VAT contained in the registration form. The notification will be exclusively electronic and excludes notice in writing.
The law will enter into force on 1 January 2023, coinciding with the Serbian e-invoicing mandate go live date.
The Law on Fiscalisation regulates, among other things, the subject of fiscalisation and the procedure conducted through an electronic fiscal device. The supply of goods and services, conducted by a fiscalization obligor to a legal entity or taxpayer of income from self-employment, outside the retail store, is not considered a retail supply. Therefore, such supply will not be subjected to fiscalization requirements and will not need to be recorded through an electronic fiscal device.
Moreover, the amendments specify that the fiscal receipt does not need to contain the value of the transaction per tax rate as a mandatory element. By scanning the QR code for verification, which has all the parts of an electronic signature when printing a fiscal invoice or a hyperlink for verification when a fiscal e-invoice is issued, it will be possible to receive additional information about the fiscal receipt.
The amendments to the Law on Fiscalisation that impact the future e-invoicing mandate cover changes related to the fiscal invoices issued to legal entities and taxpayers on income from self-employment. Transferring these fiscal invoices to the System of Electronic Invoices (SEF) will happen upon fulfilment of technical requirements. The Minister of Finance will further regulate the method and procedure of data transfer in the future.
Based on Article 7, a separate regulation will control the manner and procedure of data transfer to the SEF platform, that will be adopted within 180 days from the day when this Law enters into force. This means adoption will be in June 2023 at the earliest.
The Law on Amendments and Supplements to the Fiscalisation Act will be enforced on the 8th day following its publication, which took place on 12 December 2022.
The above amendments relate to the plans introduced by the MoF to integrate the Fiscalisation system with the E-Invoicing system (SEF), which will most likely start at the earliest in January 2024. As the Minister of Finance Vuk Delibašić announced on 1 December 2022: “The plan is to integrate the E-Invoicing system with the Customs Administration, e-fiscalization, as well as the creation of a semi-automatic VAT declaration, and an electronic excise tax is also being prepared.”
Still have questions about e-invoicing in Serbia? Speak to our tax experts.
The European Commission’s “VAT in the Digital Age” proposal brings significant modifications to the VAT treatment of the platform economy related to the operators in the short-term accommodation (max. of 45 days) and passenger transport services.
It is worth mentioning that the ‘VAT treatment of the platform economy’ only relates to the supply of certain services via a platform. There are also a set of e-commerce rules related to the supply of goods via platforms.
The rise of the platform economy business model has triggered new challenges for the VAT system. As per the view of the EU Commission, one of these problems is VAT inequality that can be experienced if we look at:
We can better understand the EU view of the distortion of the competition if we look at the European Commission’s Impact Assessment report. The report outlines the growing importance of the platform economy in VAT collection and explains the studies conducted to ascertain where the EU Commission needs to take action.
In terms of numbers, the value of VAT revenue from the digital platform ecosystem is estimated at about EUR 25.7 billion per year for the Member States, i.e. 2.6 percent of total VAT revenue.
| Sector | Revenue of digital platforms (EU27) | Revenue of digital providers (EU27) | Ecosystem Value (EU 27) |
| Accomodation | 6.3 | 36.9 | 43.2 |
| Transportation | 7.2 | 31 | 38.2 |
| E-commerce | 16.6 | 93.8 | 110.4 |
Source: Extract from Commission Staff Working Document Impact Assessment Report, pag. 26
The total value of VAT revenue includes EUR 3.7 billion related to accommodation services and EUR 3.1 billion related to transportation services.
In these two sectors, private individuals and small businesses (i.e. underlying suppliers) can provide their VAT-free services (i.e. they do not account for any VAT) via a platform. With the economies of scale and network effect, these businesses can be in direct competition with traditional VAT-registered suppliers.
Taking into account the supporting study, the number of underlying suppliers who are not registered for VAT, can be up to 70%, depending on the type of platform.
For example, in the accommodation sector, over 50% of users of a particular accommodation platform specifically access the platform’s offering over a traditional hotel. In Europe, the cost of accommodation offered via the accommodation platform can be, on average, some 8% to 17% cheaper than a regional hotel’s average daily rate.
In the view of the European Commission this means a distortion of competition between the same services offered via different channels.
Clarifying the nature of services provided by the platform was the most supported intervention across different stakeholders.
In some Member States the treatment of the facilitation service charged by the platform is regarded as an electronically supplied service, whilst in others it is regarded as an intermediary service.
This is relevant because it can lead to different places of supply, which can lead to double or non-taxation. Therefore, clarification of these rules is necessary.
According to the proposal, the facilitation service (where the term “facilitation” extends to include short-term accommodation and passenger transport services) provided by a platform should be regarded as an intermediary service (Article 46a amending Directive 2006/112/EC). This allows for a uniform application of the place of supply rules for the facilitation service.
While this has no impact on the existing rules when the supply is carried out on a B2B basis, the same cannot be said about B2C supplies. Under this scenario, the place of supply will be where the underlying transactions takes place.
According to the European Commission, the main issue with the platform economy is the inadequacy of the current VAT legal framework to ensure a level playing field with traditional businesses, specifically in the transport and accommodation sectors. Supplies made by small underlying suppliers via a platform are not taxed and the facilitation services made by platforms are taxed differently in different Member States. This leads to difficulties for the platforms, suppliers, and Member States.
Introducing a deemed supplier model will solve these issues, by which platforms will account for the VAT on the underlying supply where no VAT is charged by the supplier. This model ensures equal treatment between the digital and offline sectors of short-term accommodation rental and passenger transport.
In addition, clarifications will be given on the treatment of the facilitation service to allow for a uniform application of the place of supply rules, and steps will be taken to harmonise the transmission of information from the platform to the Member States.
In terms of timing, the proposed rules on the platform economy will take effect in 2025. This is a short period to put in place all needed changes to be compliant and it requires the platforms to begin looking into it as soon as possible.
Get in touch about the benefits an expert VAT solution partner can offer to help ease your business’s VAT compliance burden. Read more about Mandatory e-reporting and e-invoicing for EU Intra-Community Transactions here.
The European Commission has announced its long-awaited proposal for legislative changes in relation to the VAT in the Digital Age (ViDA) initiative. This is one of the most important developments in the history of European VAT, and affects not only European businesses, but also non-EU companies whose businesses trade with the EU.
This guide about VAT in the Digital Age will provide you with an overview.
The proposal requires amending the VAT Directive 2006/112, its Implementing Regulation 282/2011, and Regulation 904/2010 on Administrative Cooperation on the combat of fraud in the field of VAT. They cover three distinct areas:
This regulatory change proposal will still need formal adoption by the Council of the European Union and the European Parliament under ordinary legislative procedures before it can come into force. In tax matters such as these, the process requires unanimity among all Member States.
This blog focuses on VAT digital reporting obligations and e-invoicing, whereas future updates from Sovos will address the other two areas.
The European Commission has, at this stage, chosen not to propose regulation regarding the transmission channel of the reported data to the tax authorities. This is currently left to Member States to decide on.
The reason for this decision is likely because it’s a technical issue, and that the discussion would have slowed down the process of publishing this proposal. The European Commission also appears ambiguous about whether it would want to regulate this in the future.
Many countries primed to introduce continuous transaction controls (CTCs) have been waiting for EU regulators to provide an answer to what rules the individual Member State will need to abide by. It remains to be seen whether this proposal will embolden these Member States to move ahead with plans, despite the non-final status of the proposal. It’s noteworthy that Germany filed for a derogation from the current VAT Directive to be able to mandate e-invoicing just a few days before the original date that the Commission had planned to publish this proposal – 16 November 2022.
Speak to our tax experts to understand how these proposed changes will affect your company.
Part V of V – Christiaan Van Der Valk, vice president, strategy and regulatory, Sovos
Click here to read part IV of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of strategy and regulatory, Christiaan Van Der Valk to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Christiaan Van Der Valk: The digitization of VAT and other taxes considerably expands the scope of the finance and transactional systems that need to meet specific – and ever-changing – government requirements. This phenomenon of broadening and decentralizing tax compliance in a company’s system and process landscape happens at the same time that more of these applications (for accounts payable automation, EDI, procurement, supply chain automation, travel and expense management, order-to-cash, customer communications management etc.) are used on a SaaS basis in multitenant mode.
This requires you to take stock of the applications that may come within the scope of VAT requirements in all relevant jurisdictions, and to review vendor contracts to ensure clarity as to responsibility for compliance. Procurement practices to license such external applications may also need to be reviewed to ensure proper contracting around tax compliance from the start.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Christiaan Van Der Valk: A key success factor is the degree to which IT and tax can team up to affect change in the organization. The default response to indirect tax changes will be to view these as evolutionary and best resolved by local subsidiaries. The introduction of CTCs, however, is a paradigm shift and one of the consequences is that solving these challenges in a decentralized manner can be harmful to a company’s digital transformation potential. IT and tax need to work closely together to raise awareness among all corporate and country stakeholders on the importance of a coordinated, strategic response to this profound change. The role of tax technologists who specialize in these interdisciplinary challenges cannot be underestimated.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
Part IV of V – Ryan Ostilly, vice president of product and GTM strategy EMEA & APAC, Sovos
Click here to read part III of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of product and GTM strategy, Ryan Ostilly to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Ryan Ostilly: IT teams will have to work hard to ensure their core finance and transactional tax systems have the enhanced capability to extract, transform, remit and consume real-time data with all tax jurisdictions across their global footprint, in compliance with an ever-changing myriad of legal and procedural requirements. With the pace of disruption accelerating, governments are rewriting the rules on taxpayer control and engagement, forcing direct connection and intimacy with the data itself.
I fear that in a growing number of cases, the owners of the data may be functional departments. The IT department will need to evolve its role in this relationship, viewing the government as a critical business partner – one with whom they must always be connected, continuous and complete.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Ryan Ostilly: In this modern era of government-initiated tax transformation, the successful IT department will pursue a proactive strategy that prioritizes a connected, continuous and complete framework for government mandates and Continuous Transaction Controls (CTCs). These three principles are:
Connected – Architect a simplified integration and vendor strategy. Reduce exposure to multiple integrations and heavy projects when adopting new jurisdictions or implementing changes.
Continuous – Partner with regulatory and legal experts on a regular basis. Review upcoming mandates and assess the impact on your current and future business requirements.
Complete – Think beyond technical aspects and schemas. Partner with tax subject matter experts when translating and validating mandate requirements, as these outputs will define the financial and tax position of your company with the tax authorities in real time.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
Update: 3 November 2022 by Russell Hughes
From Tuesday 1 November 2022, businesses filing VAT returns in the UK will no longer be able to submit via an existing online VAT account unless HMRC has agreed to an exemption from Making Tax Digital (MTD). Businesses that file annual VAT returns will still be able to use their VAT online account until 15 May 2023.
By law, all VAT-registered businesses must now sign up to Making Tax Digital and use compatible software for keeping VAT records and filing returns. HMRC has advised that from January 2023, any VAT registered businesses that fail to sign up for MTD and file returns through MTD-compatible software will incur .
Making Tax Digital’s aim is to help businesses get tax right first time by reducing errors, making it easier for them to manage their tax affairs by going digital, and consequently helping them to grow. More than 1.8 million businesses are already benefitting from the service, and more than 19 million returns have been successfully submitted through Making Tax Digital compatible software so far.
If a business hasn’t already signed up to Making Tax Digital or started using compatible software, they must follow these steps now:
If your turnover is under the VAT threshold of £85,000 and you haven’t signed up to Making Tax Digital in time to file your next return by 7 November 2022, you can still use your existing VAT online account for that return only.
New businesses not yet registered for VAT will be automatically signed up for Making Tax Digital while registering for VAT through HMRC’s new VAT Registration Service (VRS). Registering on the VRS provides a quicker VAT registration and improved security. It also helps new businesses fully comply with MTD requirements from day one, subject to using the correct software.
Still have questions about Making Tax Digital compliance? Speak to our tax experts.
Update: 17 March 2022 by Andrew Decker
Beginning in April 2022, the requirements for Making Tax Digital (MTD) for VAT will be expanded to all VAT registered businesses. MTD for VAT has been mandatory for all companies with annual turnover above the VAT registration threshold of £85,000 since April 2019. As a result, this year’s expansion is expected to impact smaller businesses whose turnover is below the threshold but who are nonetheless registered for UK VAT.
Update: 3 March 2021 by Andrew Decker
Since April 2019, the UK has required the submission of VAT returns and the storage of VAT records to be completed in accordance with the requirements of its Making Tax Digital (MTD) regulations.
One of these requirements is that data transfer between software programs be achieved through ‘digital links.’ This requirement was initially waived during a ’soft landing’ period which is set to expire on 1 April 2021. As a result, to remain complaint with MTD requirements, businesses must ensure they can meet the digital link requirement.
Under MTD, businesses must digitally file VAT returns using ‘functional compatible software’ which can connect to HMRC’s API. Additionally, businesses must use software to keep digital records of specified VAT related documents.
A digital link is required whenever a business is using multiple pieces of software to store and transmit its VAT records and returns pursuant to MTD requirements. For example, if a business stores its VAT records in its accounting program but then submits its VAT return using an approved piece of bridging software, the data must be transferred between the accounting and bridging software via a digital link.
A digital link occurs when a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications without the need for or involvement of any manual intervention.
The key to this requirement is that once data has been entered into a business’s software there shouldn’t be any manual intervention in transferring it to another program. This means that data cannot be manually transcribed from one program into another. Additionally, using a ‘cut and paste’ feature to transfer data doesn’t constitute a digital link.
For example, manually typing or copying information from one spreadsheet into another doesn’t count as a digital link but connecting the two spreadsheets using a linking formula does.
Additional examples of digital links include:
The digital links requirement will apply to all businesses subject to MTD rules, however businesses that fulfill certain requirements can request an extension to delay the requirement.
For more information on MTD, including details on extension requests and criteria see VAT Notice 700/22: Making Tax Digital for VAT on HMRC’s website.
Important dates to remember regarding MTD for VAT
1 April 2019 –Business with annual turnover of £85,000 and over became liable to follow Making Tax Digital rule for VAT
1 April 2021 –Digital links requirement will be enforced
1 April 2022 – Taxpayers with turnover under £85,000 will be required to comply with making tax digital (MTD)
Sovos’ Advanced Periodic Reporting technology is fully compliant with Making Tax Digital, including digital link.
Part III of V – Eric Lefebvre, chief technology officer, Sovos
Click here to read part II of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our chief technology officer, Eric Lefebvre to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Eric Lefebvre: Centralization is the key, but there is a process that needs to be followed to execute correctly. At the outset, centralization needs to start with business processes, practices, tools and standardization on data push/pull technologies across the organization. Next, IT needs to consider data based on SLA-based needs. Starting with:
Delivery Data:
Once this has been solidified, IT can then focus on operational data, which contains:
IT departments need to focus on availability of data by adding multiple replicated sources of that data. Location of data is another critical need driven by mandates mostly shifting to keeping data local, as we are seeing in countries such as Saudi Arabia and many other East Asian nations. IT departments need to ensure that satellite data stores can be provided, which are critical to countries with those specifications. Centralization of processes and tools for delivery of data is step one. For step two, data needs to be split, moving away from storing data for years in a single data store, making it impossible to move/replicate and make it available.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Eric Lefebvre: As organizations make the move to a centralized approach, they need to be aware that the blast radius of “failure” affects more than a single country. To combat this, IT organizations need to have strong procedures and plans in place that help to both avoid these situations and quickly limit the damage if a problem does occur. I view it as three distinct focus areas:
Change control procedures. Strengthen impact controls not just for code changes or operational updates, but also include regulatory changes and configuration changes.
Testing procedures. Step away from just regional scope testing and incorporate global end-to-end synthetic testing, starting from the edge service to all the backend servers and back.
Incident management. Pivot from backend monitoring to a central monitoring and outage single pane view, supported by a global operations center in a follow the sun style model.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
It might not quite be THAT red phone that’s ringing, but rest assured, management is currently dealing with a serious problem, and they are looking at IT to solve it for them.
There are two things that make Boards and C-Suites nervous beyond all else. Risks that have the potential to impact the bottom line and company/brand reputation. This current issue can do both and fast if not dealt with timely.
I’m talking about government tax mandates.
Now you may ask, haven’t government mandates been around for decades? Why the urgency now? Yes, they have been around for a long time, but they have never existed in their current form or had the ability to impact your operations so quickly.
Allow me to explain. In the past, organizations around the world were required to report on transactions after the fact and pay the amounts they were legally obligated to pay. If they didn’t, the government might get around to auditing them a few months or years down the road and assess a penalty if things were found to be out of order. In the grand scheme of things, it was a minor inconvenience for businesses and not a real deterrent for having faulty processes or negligence.
That all began to change a few years back when governments began looking at a tax gap that was growing with no easy solutions to reign it in. Think I’m exaggerating? According to the 2021 report on the VAT Gap issues by the European Commission, in 2019 alone EU countries lost out on €134 billion in Value-Added Tax (VAT) revenues legally owed to them by businesses.
This was a wake-up call to every country that employs the VAT system of taxation anywhere in the world. Not only were they losing out on much needed revenues, but the problem was growing worse. Something needed to be done and done fast or they wouldn’t be able to fund vital programs in their countries.
Fast forward to today. Countries have taken a serious look at the problem and have decided that technology is the answer. They have invested heavily in digitization and have brought their capabilities not only up to par with business, but in many cases, probably for the first time in history, have surpassed the capabilities of private industry to monitor and report on financial transactions.
Today, there is no more reporting after the fact. Governments have set up shop right in your data stack and are reviewing transactions in real-time. And with real-time monitoring has come real-time enforcement. If you are not reporting the information the way the government has mandated, you can expect swift action ranging from expensive fines right up to the revocation of your business license in that country. Both would be devastating shots to your company’s financial outlook and reputation.
This is why there is so much urgency to get IT on board and have a strategy to address the issue on a global basis. Things are only going to get more complicated and the ability to scale systems to meet changing tax mandates in all places you do business has become a top priority for companies.
It’s a new world out there as far as VAT is concerned and this is a lot to come to terms with. If this is new information to you or you are in the process of coming to terms with how it impacts your organization, I’d encourage you to remember and share the following five things with your colleagues:
1. The government is in your data
Real time tax reporting is becoming the new norm for businesses worldwide. Governments are no longer satisfied with receiving data after the fact and are now requiring a permanent presence in your data stack.
2. Government data mandates are taking control away from companies
With government mandated e-invoicing taking the world by storm, businesses are left with little time to prepare for this shift. To remain operational and comply with these mandates, IT must create a strategy to ensure that they are meeting mandate obligations while keeping with the parameters of long-term plans and budgets.
3. Data mandates are moving and evolving quickly
As governments are rapidly moving towards mandated e-invoicing implementation, organizations are now faced with an extremely short window to update their tax codes and mandates. For IT departments, overseeing and executing these changes will become one of their top priorities.
4. Data mandates lack consistency from country to country
For international organizations staying up to date on new processes, technologies and regulations are all essential components to running a successful business. However, the different approaches being adopted by each individual regulatory authority are causing a lot of uncertainty for businesses. The challenge for IT is to create the infrastructure that allows the business to meet the individual mandates of each country’s regulatory authority, while also integrating with one another to provide a real time global dashboard of the organization’s compliance status.
5. Governments have increased the severity and speed of enforcement
Tax authorities are becoming more aggressive than ever to close tax gaps. With the use of digital tools and processes, governments can quickly expedite compliance and track tax fraud effectively. In today’s digital world, penalties can be swifter and more severe than in the past. IT needs to ensure that transaction data is presented to regulatory authorities in the format and time frame they demand.
I’m hopeful this information will give you some things to think about as you work through the changing realities of global tax mandates.
After reading this, if you have questions, feel free to reach out to our experts.
Invoicing in Chile is changing on 1 December 2022. This is when resolution 66 from the Chile Internal Revenue Service comes into force.
This new regulation concerns organisations with foreign currency operations. Banks, stockbrokers, exchange houses and financial institutions are affected. Other intermediaries or entities that carry out foreign currency purchase and sale operations themselves or on behalf of third parties are also included.
All these organisations must issue the following:
Every electronic tax document must consider the specifications described by “Electronic Tax Document Format”. This document is available on the Internal Revenue Service’s website and is regularly updated.
Resolution 66 also contains technical instructions. These establish the details necessary for electronic tax documents that support foreign currency purchase and sale operations.
The resolution states the following must be included:
There are other requirements not listed above, so it’s important to check the guidelines.
This change allows the Internal Revenue Service to receive, validate, and process electronic tax documents. This ensures the operations are accurately reflected and prevents inconsistencies.
In the case of commissions, the taxpayer must issue an invoice or electronic ticket containing all the information indicated by the Technical Annex.
If the document doesn’t include an affected item, consider the following:
An example is when there is no commission.
Likewise, when differences in collections and values are subject to VAT, an electronic credit or debit note must be issued.
The following information must be recorded separately as well:
Are you in financial services or working at a bank with more questions about invoicing in Chile? Speak to our tax experts.
A recent preliminary ruling request to the European Court of Justice, Case C-664/21, NEC PLUS ULTRA COSMETICS, has re-emphasised the importance of collecting documentation when carrying out a zero-rated supply in the EU. The 2017 NEC PLUS ULTRA COSMETICS case involved a company established in Switzerland selling cosmetics products under the Ex Works clause from their warehouse in Slovenia to business customers established in Romania and Croatia. Ex Works (EXW) is an Incoterms rule, a set of definitions outlining the responsibilities of buyers and sellers in international transactions. With Ex Works the transport obligations, costs and risks are the buyer’s responsibility.
The tax administration of the Republic of Slovenia inspected NEC PLUS ULTRA COSMETICS and requested evidence and supporting documentation relating to these supplies to verify that goods had been transported to another EU Member State.
NEC PLUS ULTRA COSMETICS provided copies of the invoices and of the ‘Convention relative au contrat de transport international de marchansises par route’ (CMR) consignment notes. The company failed to provide the evidence requested by tax officers to prove the right to tax exempt the supplies to their customers (delivery notes and other documents mentioned in the CMRs).
The company clarified that the reason for the late submission was that the Hamburg office responsible for supplies to Croatia ceased its activities in August 2018, making it more difficult to find the documents asked for by the tax officers.
Consequently, the Slovenian tax authorities provided the company with an additional VAT assessment notice and ordered it to pay the relevant amount.
In the implementation of the Quick Fix related to the proof of transport in 2020, the European Commission has clarified that where the supplier arranges transportation of the goods, it must be in possession of either:
If the acquirer is responsible for transport of goods (i.e. under the Ex Works clause), they must provide the vendor with a written statement by the 10th of the month following the date of supply that the goods have been transported by the acquirer or on the acquirer’s behalf. The written statement must include the following:
In the case of the Ex Works clause:
If you don’t feel reassured by your customer, change the agreement and Incoterms clause before the supply takes place.
Still have questions about VAT exempt supplies and the Incoterms Ex Works clause? Speak to our tax experts.
Part II of V – Oscar Caicedo, Vice president of product management for VAT Americas, Sovos
Click here to read part I of the series.
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our vice president of product management for VAT, Oscar Caicedo to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Oscar Caicedo: For me, this breaks down into four distinct categories:
1. Business Process Architecture – As regulatory entities become more advanced, it is important to look at the overall functional business process, not only the technical mechanism to report. Many business processes were solidified much before current capabilities were readily available. It is important to revisit the business process to be able to determine the best technical path forward.
2. Source of Truth – With the complex environment IT departments must navigate, you need to redefine the expectations of data/process source of truth. Back-end system ecosystems were not built with current compliance/regulatory needs in mind. In mature markets, where governments continue to advance technical capabilities, it is critical to have a clear strategy to protect against source-of-truth risks. Otherwise, local regulatory entities tend to become the ultimate source of truth.
3. Data Aggregation/Reconciliation – A lack of clarity on the source of truth for each functional business process can lead to major risks. Registering data in real time with local regulators was the initial challenge. The current challenge is ensuring all systems involved are maintained in sync and are always fully harmonized. IT departments must recognize it is now a must-have to navigate the current environment.
4. Master Data – Data in back-end systems was already complicated enough to support in a centralized manner. Once real-time regulatory needs were introduced, the data issue got exponentially larger. Data structures, data libraries and extraction programs are all attempts to solve the problem, but normally these attempts fail due to gaps in understanding what is mandatory vs. optional. Clear guidance on the local needs is critical before deciding on a technical strategy.
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Oscar Caicedo: I would prioritize a clear regulatory understanding of the markets/geographies in which you operate. This seems obvious, but it is not always the case. Ninety-nine percent of the time when I speak with a large multinational organization, they are not clear on the needs of the local market. Efforts to centralize or take a cohesive approach fail because key IT decision makers didn’t understand the regulation.
In addition, you need to focus on business processes and the data requirements to make them successful and solve the problem end to end. The challenge does not end with registering data. The problem ends when you have the proper visibility, maintenance, support, reconciliation and intelligence to be fully prepared.
Don’t take chances. The regulatory environment is very dynamic, so it is important to ensure the proper testing of all business scenarios needed to operate. Failure to have clear testing scripts can lead to surprises in production environments, which can carry large implications for the operation.
Finally, consolidate as much as possible. This means simplifying end points, communication protocols, data structures, etc. This will allow for a more efficient way to manage the mandated processes in the different jurisdictions.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
Imagine this scenario.
Your business partner changes the rules on you mid-stream and your ability to conduct business with them is now contingent on changing your entire reporting structure to meet their new demands.
Oh yeah, I should also mention the time frame to meet these demands is extremely tight and if you don’t, you can forget about doing business in their region until you get it right. And if at any point moving forward you fail to live up to these standards, they can fine you or shut you down.
Sound farfetched? It isn’t. It’s exactly what is playing out in major economic markets from Brazil to Italy and parts of Asia and Africa. You see, governments have caught up to businesses when it comes to technology, and in many ways, they have moved past them when it comes to digitization.
It means that governments have now taken on a more proactive approach to reviewing financial transactions and are demanding real-time reporting. As part of that, they have implemented real-time enforcement to ensure that it’s meeting the proper mandated specifications. To accomplish this, they have taken up permanent residence within your data stack. And make no mistake, when it comes to e-invoicing, they are calling the shots.
Governments throughout the world are implementing mandated e-invoicing for its ability to facilitate compliance and track fraud quickly and efficiently. After the fact reporting, which had been the norm until now, was more difficult to enforce and took lengthy and costly audits to recoup what was rightfully owed. Many organizations didn’t take the penalties seriously and would simply set aside some money to deal with these inconveniences as they emerged.
This approach resulted in a tax gap that is continuing to grow. In 2019, the VAT gap of the European Union’s 28 member states was over 134.4 billion euros for all member states combined. This had become unsustainable and unacceptable to many governments and thus a new technology that focused on digitization was made to ensure that all legally owed revenue was being collected timely and in full. Failure to comply would lead to faster and more impactful enforcement measures.
This trend is growing rapidly with countries across the globe adopting new mandates and methodologies for tracking and enforcing the rules. In the next five years nearly every country that employs the VAT system of taxation is expected to update their systems to some degree.
Make no mistake. Due to the demands for real-time information, this is an IT problem, not a tax issue. For multinational companies that do business in dozens of countries, there could be some painful moments along the way if they don’t plan early and develop a sound strategy for each of the locations in which they have operations.
IT should focus on the end goal: implementing a centralized approach to managing these government mandated e-invoicing laws to ensure a globally consistent approach to all digital filings. I can’t overstate the importance of implementation synergies as requirements increase and expand. This is only going to get more complex as time goes on.
And perhaps most importantly, don’t be afraid to ask for help. This is complicated stuff that is changing by the day. This is not the time or the issue to try going it on your own.
Reach out to our experts for more help and information.
Part I of V – Steve Sprague, chief commercial officer, Sovos
Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are now an omni-present influence in your data stack reviewing every transaction in real time as it traverses your network. Real-time monitoring has also brought about real-time enforcement that can range in severity from significant fines to shutting your business down completely. All of this has created a new reality for IT leaders who need a strategy to deal with these global changes. We asked our chief commercial officer, Steve Sprague to offer his guidance on how this will affect IT departments and how they can best prepare.
Q: With government authorities now in companies’ data and demanding real or near real-time reporting, what impact will this have on IT departments?
Steve Sprague: CIOs need to make a choice – do they pivot with these changes and adopt a centralized approach to their data, systems, business processes and applications, or do they run a decentralized platform where every country is left to make their own decisions? More than 95% of companies have implemented a decentralized approach as these mandates have grown country by country. However, as Latin America has grown from only three countries instituting these mandates in 2014 to more than 14 countries implementing them now, and with another 30 countries around the globe beginning the process of implementing similar regimes, including economies across Asia and Europe, like France and Germany – a decentralized approach leads to several long-term problems, including:
• Limited visibility outside of the country
• Multiple tools and vendors across different countries
• Disjointed processes with a focus on fulfilling local obligations only
• Solving the “problem at hand” vs. looking at the bigger picture
• Poorly defined roles and responsibilities
• Inconsistent approach to implementing additional countries
Q: To meet government mandates and ensure operations continue uninterrupted, what should IT prioritize? What approach would you recommend?
Steve Sprague: IT should focus on the end goal: implementing a centralized approach to these government mandated e-invoicing laws to ensure a globally consistent approach to all digital filings. There will be cost reduction as the number of vendors and tools are consolidated, and risk will be further mitigated through increased standardization and visibility. I can’t overstate the importance of implementation synergies as requirements increase and expand. This is only going to get more complex as time goes on. The clarity of roles and responsibilities is the other benefit to IT teams, as this approach will lead to clearly defined areas of focus for the team. Finally, alignment of analytics through one data hub will now be possible, providing a centralized dashboard for your global operations.
A lot has changed in the world of government mandated e-invoicing. Continued investment in technology by government authorities has put regulators in the position to demand greater transparency along with more detailed and real-time reporting. To meet these demands, companies are looking to their IT organizations. The good news is you don’t need to go it alone. Sovos has the expertise to guide you through this global evolution based on our experience working with many of the world’s leading brands.
Need help keeping up with global mandates? Get in touch with Sovos’ team of tax experts.
France is implementing a decentralised continuous transaction control (CTC) system where domestic B2B e-invoicing constitutes the foundation of the system, adding e-reporting requirements for data relating to B2C and cross-border B2B transactions (sales and purchases).
Under this upcoming regime, data or invoices can be directly sent to the Invoicing Public Portal ‘PPF’ (Portail Public de Facturation, so far known as Chorus Pro) or to a Partner Dematerialization Platform ‘PDP’ (Plateformes de Dématerialisation Partenaires). In addition, there are also Dematerializing Operators (Operateurs de dématérialisation) that are connected to either the PPF or a PDP.
Requirements for these portal and platforms have been published.
The Ministry of Economy published Decree No. 2022-1299 and Order of 7 October 2022 on the generalisation of e-invoicing in transactions between taxable persons for VAT and the transmission of transaction data (together known as ‘new legislation’), providing long-awaited details for PDP operators and PPF.
The new legislation introduces rules concerning the application process for PDP operators. Although French establishment isn’t required, PDP operators must fulfill a number of requirements, such as operating their IT systems in the EU.
France is implementing a model where third-party service providers are authorised to transmit invoices between the transacting parties. With the mandatory use of the PPF or PDPs for exchanging e-invoices, trading parties cannot exchange invoices between them directly. Therefore, PDPs must be able to receive and send invoices in structured formats, whether the ones supported by the PPF (CII, UBL, or FACTUR-X) or any other required by their clients. Also, to ensure interoperability, PDPs are expected to connect with at least one other PDP. Besides this requirement, it’s stated by the new decree that PDPs must be able to send e-invoices to PDPs chosen by their recipients which implies a complete interoperability between PDPs.
It was previously announced that taxpayers could submit PDF invoices for a transitional period. The new legislation outlines the transitional period as until the end of 2027. During this period PDPs and PPF must be able to convert the PDF into one of the structured formats.
The new legislation also provides information about the content of e-invoices, which has new mandatory fields, and the content of transaction and payment data to be transmitted to the tax authority.
It also announced frequencies and dates of data transmission. Deadlines for transaction and payment data transmission are based on the tax regimes of taxpayers. For example, taxpayers subject to the normal monthly regime should transmit payment data within ten days after the end of the month.
With the aim of having traceability over documents, the lifecycle statuses of the domestic B2B e-invoices are exchanged between the parties and transmitted to the PPF. Lifecycle statuses that are mandatory (“Deposited”, “Rejected”, “Refused” and “Payment Received”) are listed in the new legislation.
Further details regarding the Central Directory, which consists of data to properly identify the recipient of the e-invoice and its platform, are provided within the Order.
PDP operator candidates can apply for registration as of Spring 2023 (precise date still to be confirmed), instead of September 2023 as previously set. From January 2024, a six-month test run is expected to be conducted for enterprises and PDPs before the implementation in July 2024.
Still have questions about France’s upcoming continuous transaction control mandate? Get in touch with our tax experts.
Update: 2 March 2023 by Kelly Muniz
Postponement of EFD-REINF Deadline for Events Referring to Withholding IRPF, CSLL, PIS and COFINS
The publishing of Normative Instruction RFB n. 2.133, of 27 February 2023 postpones the deadline of the obligation to submit EFD-REINF (Digital Fiscal Record of Withholdings and Other Fiscal Information) events related to withholding:
This postponement refers to taxpayers who are currently obliged to submit the DIRF (Withholding Income Tax Return) and were required to comply with the EFD-REINF obligation from March 2023.
The obligation to submit the EFD-REINF for these taxpayers will now begin from 8:00 am on 21 September 2023, in relation to taxable events that occur from 1 September 2023.
The postponement is to allow time for taxpayers to carry out adjustments to their computerised systems and for the Brazilian Federal Revenue Agency to finalise the necessary tests to guarantee the consistency of the rules for validating the information captured in the record.
Need to discuss how Brazil’s EFD-REINF changes affect your business? Speak to our tax experts.
Update: 25 October 2022 by Kelly Muniz
Since 2007, the Brazilian government has imprinted high efforts in digitizing the relations between revenue offices and taxpayers, by introducing electronic instruments to ensure taxpayers provide accurate and timely information on the collection of the various existent taxes, duties, charges, and contributions.
One result of such efforts was the creation of the Public Digital Bookkeeping System (Sistema Público de Escrituração Digital) or SPED. This platform is where taxpayers submit fiscal and accounting information using different electronic instruments referred to as SPED modules.
There are significant upcoming changes to one of the modules, the Digital Fiscal Record of Withholdings and Other Fiscal Information (Escrituração Fiscal Digital de Retenções e Outras Informações Fiscais), known as EFD-REINF.
The latest regulatory updates within this module concern steps towards the substitution of other records by the EFD-REINF, with important changes taking place in 2023.
In August 2022 version 2.1.1 of the EFD-REINF layout was introduced, expanding the reach of events covered by the record. The current 1.5.1 version is valid until February 2023 and from March 2023 layout version 2.1.1 must be used.
The main change is the inclusion of the ‘R-4000’ series events. These events cover the registration of withholdings on income tax (IR), Social Contribution on Net Income (CSLL), Social Integration Program (PIS), and Contribution to the Financing of Social Security (COFINS), among other fiscal contributions.
Another relevant change is the removal of the requirement to submit the EFD-REINF ‘without movement’. Previously, only a certain group was permitted for this exemption if they didn’t generate any records to be reported in the respective declaration period but this has now been expanded to all taxpayers in scope of the EFD-REINF.
Earlier this year, RFB Normative Instruction n. 2.096 of 2022 postponed mandatory submission of the EFD-REINF for the fourth and last group of taxpayers: entities that are part of the ‘Public Administration’ and entities classified as ‘International Organisations and Other Extraterritorial Institutions’. Since August 2022 this group is now obliged to comply.
However, the same regulation established that from 1 March 2023 taxpayers currently obliged to submit the DIRF (Withholding Income Tax Return) will be required to comply with the EFD-REINF obligation. This is an extensive list found in article 2 of RFB Normative Instruction n. 1.990 of 2020, which includes individuals and legal entities that have paid or credited income for which Withholding Income Tax (IRRF) has been withheld and certain entities of the Federal Public Administration, among others.
Finally, the annual submission of the DIRF will be abolished regarding events that occur from 1 January 2024, meaning that taxpayers won’t be required to submit it in 2025. Until then, the information declared in the DIRF and EFD-REINF will coexist.
Keeping up with the mosaic of fiscal requirements within the federal, state, and municipal levels in Brazil normally requires engaging the services of an expert or risk incurring high penalties. Modifications to fiscal obligations are implemented regularly in the country, which means companies must ensure readiness to comply.
Still have questions about Brazil’s EFD-REINF? Speak to our tax experts.
Update: 9 July 2018 by Ramón Frias
A complement to eSocial (which covers tax withholdings on wages), EFD-REINF reports withholdings made to individuals and corporations resulting from the application of the income tax and social security taxes (CSLL, INSS COFINS, PIS/PASEP). It also applies to payments received by sport associations and revenues generated by sport events.
EFD-REINF replaces reporting obligations that the Brazilian taxpayers have to comply with under the EFD-Contribucoes.
There are three groups of reports, or “events,” that must be submitted to the tax administration:
The EFD- REINF is being rolled out in three stages.
Events that are incomplete, or reported with errors, will a face fines totaling 3% of the amount involved, with a minimum of $100 Real in the case of legal entities, and half of the above amounts when the taxpayer is an individual. Fines for late reports will range between from $500 Real to $1,500 Real per month or fraction of month.
To learn more about other changes impacting companies operating in Brazil and throughout Latin America, download the Definitive Guide to Error-Free Compliance in Latin America.