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.
Events and conferences typically take a long time to organise and in the early part of 2020 several events that were scheduled to take place were impossible because of the various Covid-19 restrictions. Looking at a loss of revenue, and not knowing how long restrictions would last, many hosts went online and hosted virtual events. This changed both the nature and the place of the supply.
Where there is physical attendance at an event then the place of supply is the place where the event takes place for all delegates.
For B2B delegates the current rules mean that virtual admission will be classified as a general rule service so VAT is due where the customer is established.
For B2C delegates the current rules depend on whether the virtual attendance can be considered an electronically delivered service or a general rule service. For electronically delivered services supplied the place of supply is where the customer normally resides and for other services the place of supply is where the supplier is established.
An electronically delivered service is one which can be delivered without any human intervention such as downloading and watching a pre-recorded presentation. Where a service requires human intervention, this is not considered to be electronically delivered.
Online conferences and events typically have a host or compere and will normally also allow delegates to ask questions in real-time via live chat or similar. The human dimension excludes the possibility of this being classified as an electronically delivered service which means that for B2B the place of supply is where the customer is established and for B2C the place of supply is where the host is established.
The changes are being introduced to ensure taxation in the Member State of consumption. To achieve this, it is necessary for all services that can be supplied to a customer by electronic means to be taxable at the place where the customer is established, has his permanent address or usually resides. This means that it is necessary to modify the rules governing the place of supply of services relating to such activities.
The changes apply to “services that can be supplied by electronic means” but this is not defined. It would appear, from the following to be wider than “electronically delivered”.
To achieve this the current law governing attendance by B2B delegates which results in VAT being due where the event is held will specifically exclude admission where the attendance is virtual.
This suggests that “supplied to a customer by electronic means” occurs when attendance is virtual and has the effect of removing the distinction of “human intervention” in respect of electronically delivered services.
The law governing B2C sales will state that where activities are “streamed or otherwise made virtually available”, the place of supply is where the customer is established.
These changes suggest that “supplied to a customer by electronic means” occurs when the service is streamed or made virtually available. The possibility of streaming (which can be live or recorded) does not appear in the amendment to the B2B rule.
The law governing Use and Enjoyment has also been updated to reflect these additions.
For events that are attended virtually the place of supply for both B2B and B2C will be where the customer is established, although this can be amended by application of the Use and Enjoyment rules.
For B2B attendees, the host will not charge local VAT as the reverse charge will apply unless the host and attendee are established in the same Member State.
For B2C attendees the host will charge local VAT according to the location of the attendee. The Union and non-Union OSS will be available to assist reporting where the attendee is in the EU.
Member States are required to adopt and publish the required laws, regulations and administrative provisions by 31 December 2024 and must apply these from 1 January 2025.
In our next blog we will consider some practical issues that may arise from these changes and how they impact VAT compliance.
Get in touch to discuss your VAT compliance needs or download our guide, Understanding VAT Obligations: European Events.
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.
Understand more about Lithuania SAF-T including when to comply, submission deadlines, filing requirements and how Sovos can help.
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Insurance Premium Tax (IPT) can be complex with fragmented rules and requirements levied by the many different tax authorities in the jurisdictions where this tax applies. This only adds to the challenges faced by finance teams when calculating and settling IPT accurately and on time.
Failure to do so can result in penalties, fines and unwelcome audits – all of which will have an adverse effect on profitability.
Unlike other IPT compliance service providers, at Sovos we provide a complete end-to-end service for our customers providing complete peace of mind and allowing them to focus on what they do best while leaving the IPT compliance to us.
We not only produce and file IPT and parafiscal reports for our customers, but we also make the necessary payments and settle liabilities to the relevant tax authorities using cleared funds held in segregated client bank accounts.
We recognise that IPT is niche and not always a core function for finance teams which is why we offer a client money service for our IPT customers. The funds are held in a segregated bank account for our customers with reconciled statements being provided on a monthly basis.
Based on data uploaded we let our customers know in advance the exact amount needed to settle each of their local IPT liabilities as they become due so there’s plenty of time to ensure the funds are available ahead of tax authority deadlines.
Once the funds have been received, we can then ensure the correct payments are made directly to the tax authorities in line with local legislation.
All receipts and payments with the segregated client bank accounts are reconciled with the submitted returns and monthly reports are provided.
Ensuring Insurance Premium Tax (IPT) compliance can be a complex task. With tax rates and filing varying from country to country, many organisations choose to work with Sovos to ease their IPT compliance workload and for tax peace of mind.
We spoke to Neal Bazeley, supervisor of client money about Sovos’ solution for IPT compliance payments and why customers value this service.
Unlike other IPT compliance providers, for our customers we provide a simple endpoint to settle international tax liabilities in a single payment. Through our network of international subsidiaries and partners, we can pay taxes in over 30 countries.
As a team, we’re responsible for client funds from the moment they’re credited to our account to the point the monies arrive at the respective tax office.
We currently have bank accounts in 13 different currencies with our main bank provider here in the UK. We offer clients the choice to send in funds to us in the currency of the territories they have liabilities in or send all combined funds to one account and we transfer accordingly.
Using our proprietary software, we manage the funds sent to us and allocate to each client account accordingly. This software works with Sovos IPT to ensure funds are linked to liabilities. When payments are due, we use Sovos IPT to generate the necessary payment file that is uploaded to our bank online portal. This then creates a payment in the correct format required by the respective tax authorities.
At the start of each month we generate a statement of account for all clients showing funds in and payments made in the preceding month. We work tirelessly to ensure that every statement is entirely accurate and reflects the period’s transactions.
Issues can occur when clients send funds with no clear indication of which entity they relate to or when tax offices collect payment or refund differences without communication. We pride ourselves on ensuring that these issues are dealt with as they arise so our customers can be confident in the knowledge that their statement is entirely representative of the work we do on their behalf.
IPT payments in Greece, Italy, Portugal and Spain
In most cases the central government is responsible for taxation and finance and will accept any payment method, providing it is full and accurate. There are however some exceptions. We maintain currency accounts domiciled in Greece, Italy, Portugal and Spain as these territories require payments to be made from a local account. Italy and Spain present challenges because they require each payment to be routed to each commune or region where tax is due. To complicate matters further, they have specific payment types which cannot be accessed by the layman. These territories are exceptions.
While it may seem that cross-border payments are simple, this isn’t the case. No two countries are the same, with each territory having their own set of rules and regulations. We are constantly updating our processes to adapt to any changes that occur to ensure our customers remain compliant.
Brexit has changed the way we work as a team. Legislation has meant our preferred method of SWIFT payments became prohibitively expensive overnight. We therefore amended our payment deadlines to take these changes into account. We responded quickly to the developing situation – having no prior notice of the change – to ensure we wouldn’t have to pass on these extra fees to our insurance customers.
Paired with Brexit, the Coronavirus pandemic forced our banking partners to begin implementing negative interest rates in currencies where central banks had to adjust their rates to counteract the economic downturn. Being a large client fund we had to implement a system that accurately predicted and recharged the constantly changing fees that were being incurred. Within the space of a couple of months, we had to overhaul our operation to ensure that funds were received and paid by strict deadlines, avoiding negative interest charges on stagnant deposits and leaving enough time for payments to be processed accurately.
Want to learn more about how IPT Client Money can ease your IPT compliance burden? Get in touch.
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.
SAF-T (Standard Audit File for Tax) is an international standard for the electronic reporting of accounting data from organisations to a national tax authority or external auditors used by tax administrations to gather granular data from businesses either on demand or periodically.
The SAF-T standard has been adopted in mostly European countries, alleviating the need for tax authorities to physically visit companies to extract and review wide-ranging corporate data.
This e-book includes:
Countries that have introduced legislation to enforce SAF-T requirements include Austria, France, Lithuania, Luxembourg, Norway, Poland, Portugal and Romania. SAF-T requirements are continuing to be adopted in a number of EU Member States and countries in other regions are actively considering introducing it.
The latest SAF-T standard includes accounting, accounts receivable, accounts payable, fixed assets and inventory datasets. In most cases authorities request a text file on an XML structure.
The SAF-T guideline is flexible, enabling governments to freely adapt SAF-T to suit their tax filing and audit systems, to perform audits, or as a basis for prefiling periodic tax declarations such as VAT returns or inventory statements.
This e-book discusses the introduction of SAF-T back in 2005 and how the standard has evolved since then, as well as the challenges of SAF-T for both businesses and governments.
Sovos helps customers manage their SAF-T requirements across multiple jurisdictions through software solutions that automate the processes to seamlessly extract required data, map data accurately to SAF-T structures in the latest legal formats and perform deep analysis on the SAF-T output generated.
Sovos provides certainty with a future-proof strategy for tackling compliance obligations across all markets as VAT regulations evolve toward continuous e-reporting and other continuous transaction controls requiring increasingly granular data. Sovos’ solution for SAF-T combines extraction, analysis and generation providing our customers with the certainty they need.
Experience end-to-end handling with compliance peace of mind with Sovos.
Meet the Expert is our series of blogs where we share more about the team behind our innovative software and managed services.
As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about new regulatory changes and the latest developments on tax regimes across the world, to support you in your tax compliance.
We spoke to Rahul Lawlor, Senior Compliance Services Representative – IPT, about his top compliance tips for large and small insurers.
I’m a senior compliance services representative – IPT at Sovos. I joined the company just over five years ago and in that time have dealt with insurers of all sizes, from multinationals to startups, domiciled in a plethora of different countries in the EU and beyond.
I oversee the compliance activities of a portfolio of insurers. As part of my team there are associates and representatives handling more of the day-to-day data, who I oversee to ensure everything’s on track. Queries from our customers are escalated to me and I also approve returns for customers as well as assisting with reports and annual requirements.
In terms of rules and regulations there is largely no difference in IPT requirements for large and small insurers, one exception could be in Hungary where the IPT rate applied is based on the volume of business.
I would say the main difference between large and small insurers is how they approach IPT compliance. Small insurers don’t tend to have dedicated tax teams – we tend to speak to finance departments who handle invoices and have also been tasked with IPT. When filing IPT in other countries outside their domicile, smaller insurers might not have the language or tax expertise required to file returns or register IPT. Whereas large insurers have specialised teams spanning the globe who deal with a variety of complex tax issues.
Small insurers tend to need more assistance, we help them through the IPT compliance process from start to finish, whereas larger insurers broadly understand IPT and often come to us with queries about more complicated IPT requirements.
Small insurers are often still using legacy systems that were designed before the IPT revolution when the requirements weren’t as extensive as they are now. This means that the information and data necessary for IPT submissions isn’t always being collected at source and on occasion we notice there are elements missing. This then requires going back to policyholders to retrieve the additional information, which can cause submission delays.
Not having the information required for IPT submissions can lead to some countries not accepting the risks and not accepting reports. The cost of non-compliance outweighs the cost of staying with a cheaper system. Setting up a new system might feel like a significant undertaking but in the long-term it provides benefits and minimises the risk of reputational damage associated with not filing risks on behalf of policyholders.
My top tip for small insurers is to educate themselves on IPT, especially if they are writing risks in countries where the tax points aren’t uniform and could pose issues for their systems. The tax point is the date which triggers the tax but it can vary – often it’s cash received, but in can be issuance, written date, maturity date (the list goes on).
Always allow plenty of time ahead of filing and reporting deadlines, especially when entering new markets. We’ve helped many insurers with registration and IPT requirements to avoid any surprises.
Don’t rest on your laurels. Large insurers are more experienced with IPT but when there are wholesale changes, details can sometimes be missed or not fully understood. Make sure you are expanding your horizons and always learning. When changes are required, for example when Portugal went from return to transactional filing or when Spain announced a rate change, it’s important to understand the effect this will have on systems and consequently submission.
Don’t be afraid to ask for help beyond your team. At Sovos we deal with a wide range of insurers and have a wealth of experience, so we’ve most likely helped with a similar query and our team of experts are up to date with the latest IPT requirements.
Don’t be scared to reach out and get a second opinion if you’re unsure, we can help guide you.
Preparation and education are key! There are various stakeholders in the data supply chain, and it is important that everyone is uniform in their understanding of the requirements needed for ongoing compliance.
For small insurers who are still using legacy systems, Sovos’ IPT Determination software can integrate with legacy systems to ensure relevant details are captured. We’ve helped many small insurers with IPT registrations, assisting with the process from preparation stage, submitting documents on a client’s behalf, and advising once registration is complete. You can lean on our expertise to save you time and enable you to focus on your business.
Implementation of Sovos’ IPT Determination software is not limited to solely smaller insurers. For large insurers we also offer an end to end to end solution. Furthermore, our IPT consultancy is on hand to advise on complex tax issues, to give you confidence in high-level decision making.
We have extensive relationships with tax authorities and we have local representatives and associates in countries across the globe who can assist us and our clients with the most complex of IPT queries and requirements.
Have questions about IPT compliance? Speak to our experts or download our e-book, Indirect Tax Rules for Insurance Across the World.
On 5 April 2022, the EU Council formally adopted changes to the current rules governing reduced VAT rates for goods and services. These amendments to the VAT Directive were published in the Official Journal of the EU on 6 April 2022 through Council (EU) Directive 2022/542 of 5 April 2022 and are effective immediately.
The EU Council approval follows the EU Parliament’s official review of the amendments in March 2022.
The Council Directive grants Member States more rate options they can apply and ensures equal treatment between Member States. Article 98 of the VAT Directive is amended to provide the application of a maximum of two reduced rates of at least 5% that may be applied to up to 24 supplies listed in the revised Annex III.
Member States may apply a reduced rate of less than 5% and an exemption with the right to deduct VAT (zero-rate) to a maximum of seven supplies from Annex III. The reduced and zero-rates application is limited to goods and services considered to cover basic needs, such as water, foodstuffs, medicines, pharmaceutical products, health and hygiene products, transport of persons and cultural items like books, newspapers and periodicals. It’s the first time Member States can exempt such necessities.
All Member States now have equal access to existing derogations to apply reduced rates for specific products previously granted on a country-specific basis. Taxpayers must exercise the option to apply the derogations by 6 October 2023.
Annex III contains notable new supplies and revisions to support green and digital transitions: supply and installation of solar panels, supply of electricity and district heating and cooling, bicycles and electric bicycles, admission to live-streaming events (from 1 January 2025), live plants and floricultural products, and others. Environmentally harmful goods such as fossil fuels and chemical fertilizers/pesticides have also been added but will be excluded from 1 January 2030 and 2032.
Member States must adopt and publish, by 31 December 2024, the requisite laws and compliance measures to comply with the new rules scheduled to apply from 1 January 2025.
Member States have begun enacting legislation in response to the new reduced rate Directive since its approval in December 2021. Poland and Croatia reduced the VAT rate on basic foodstuffs to the zero-rate and Bulgaria and Romania are considering the same. Belgium, Croatia, Cyprus, Ireland, Italy, Netherlands, Poland, Romania and Spain have announced VAT reductions on energy supplies (e.g., electricity, heating/cooling, natural gas) and Greece is considering the reduction.
These rate changes have already been proposed or enacted before the 6 April 2022 effective date of the Council Directive. While world events and energy price spikes also contribute to these changes, the long-anticipated reduced rate amendments now allow Member States to do so within the bounds of the VAT Directive.
It‘s expected that more Member States will review their VAT rate structure in response to these new reduced rate opportunities.
For more on these amendments, please refer to our previous blog.
Get in touch about the benefits a managed service provider can offer to ease your VAT compliance burden.
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.
The global trend in the e-invoicing sphere for the past decade has shown that legislators and local tax authorities worldwide are rethinking the invoice creation process. By introducing technologically sophisticated continuous transaction control (CTC) platforms tax authorities get immediate and detailed control over VAT, which has proven a very efficient way to reduce the VAT gap.
However, many common law countries, that don’t have a VAT system, including the United States, Australia and New Zealand, haven’t followed the same path. They have stood out in international comparisons by providing little regulation in the field of e-invoicing. The reason why there is no need to have control over the invoices is the lack of a VAT tax regime. Recent developments, however, indicate that also common law countries try to spur e-invoicing, driven by the business process efficiencies rather than the need for tax control. Accordingly, the upcoming developments will be addressed in this blog, focusing on the Unites States e-invoicing pilot program and the Australian and New Zealand initiatives to promote e-invoicing.
E-invoicing has been permitted for a very long time in the United States but is still not widespread business practice. According to some sources, e-invoicing currently only amounts to 25% of all invoices exchanged in the country. With the introduction of the Business Payments Coalition (BPC) e-invoicing pilot program in cooperation with the Federal Reserve, this may be about to change.
The BPC’s e-Invoice Exchange Market Pilot aims to promote faster B2B communication and provide an opportunity for all kinds of businesses to exchange e-invoices in the US.
The pilot program is a standardised e-invoicing network across which structured e-invoices can be exchanged between counterparties using various interoperable invoicing systems to connect and exchange documents. It’s intended to drive efficiency and productivity while reducing data errors. A federated registry services model enables authorised administrators or registrars to register and onboard participants into the e-invoice exchange framework.
The e-invoice exchange framework operates similarly to the email ecosystem. Users can sign up with an email provider to send and receive emails. The provider serves as an access point to email exchanges for their users and delivers emails between them over the internet. It allows multiple registrars to register participants within the e-invoice exchange framework. This is reminiscent of the globally established PEPPOL model, which standardizes the structure of an invoice as well as provides a framework for interoperability.
The US is following the European e-invoicing model based on open interoperability functionality. It enables parties using various invoicing systems to connect and exchange documents through the e-invoicing network easily. The digitization process in the e-invoicing sphere will enable large and small organisations in the US to save resources, promote sustainability and provide business efficiency.
Similarly, to the US, the move towards e-invoicing in Australia and New Zealand is not primarily driven by tax issues but process efficiency. Neither country has any plans concerning a traditional B2B e-invoicing mandate. However, the New Zealand and Australian governments have committed to a joint approach to e-invoicing, and the first steps are ensuring that all government entities can receive e-invoices.
In Australia, all commonwealth government agencies must be able to receive PEPPOL e-invoices from 1 July 2022. Moreover, the government also seeks to boost e-invoicing in the B2B space without the traditional mandate for businesses to invoice electronically. Instead, the proposal is to implement what is referred to as Business e-Invoicing Right (BER).
Under the government’s proposal, businesses would have the right to request that their trading parties send an e-invoice over the PEPPOL network instead of traditional paper invoices. Businesses need to set up their systems to be able to receive PEPPOL e-invoices. Once a business has this capability, it would be able to exercise its ‘right’ and request other companies to send them PEPPOL e-invoices.
This reform is expected to be introduced in July 2023, by which businesses will be able to request to receive PEPPOL e-invoices only from large businesses, followed by a staged roll-out to eventually cover all businesses by 1 July 2025.
Following the Australian e-invoicing reform from July 2022 for the B2G sector, the New Zealand Government is encouraging businesses and government agencies to adopt e-invoicing. One step in this direction is the possibility for all central government agencies to be able to receive e-invoices based on PEPPOL BIS Billing 3.0 since 31 March 2022.
Outside of these B2G requirements, there are currently no published plans to move the full economy to mandatory e-invoicing.
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Need help ensuring your business stays updated on the changes in the US, Australia and New Zealand e-invoicing systems? Get in touch with our team of experts to learn how Sovos’ solutions can help.
The Italian government has taken important steps to broaden the scope of its e-invoicing mandate, more specifically by widening the scope of taxpayers subject to electronic invoice issuance and clearance obligations, starting 1 July 2022.
On 13 April 2022, the draft Law-Decree, known as the second part of the National Recovery and Resilience Plan (Decreto Legge PNRR 2 – Piano Nazionale di Ripresa e Resilienza), was approved by the Italian Council of Ministers (Consiglio dei ministri).
The Italian government-approved National Recovery Plan is part of the European Union’s Recovery and Resilience Facility (RRF), an instrument created to assist Member States financially in recovering from the economic and social challenges raised by the Covid-19 pandemic.
The expansion of Italy’s e-invoicing mandate is one element of the government’s anti-tax evasion package and addresses, in particular, the advancement of digital transformation, one of the six pillars of the RRF.
The draft Law-Decree PNRR 2 expands the obligation to issue and clear electronic invoices through the Italian clearance platform Sistema di Intercambio (SDI) to certain VAT taxpayers exempt from the mandate thus far. This means that from 1 July 2022, the following additional taxpayers are obliged to comply with the Italian e-invoicing mandate:
The regime forfettario is available to taxpayers who fulfil specific requirements, allowing them to adopt a reduced flat-rate VAT regime of 15%, decreased to 5% for new businesses during the first five years. These taxpayers have, up until now, been exempt from the obligation to issue e-invoices and clear them through the SDI, according to Legislative Decree 127 of 5 August 2015.
Additionally, amateur sports associations and third sector entities with revenue up to EUR 65,000 who have also been exempt from the e-invoicing mandate, are included as new subjects. Starting 1 July 2022, e-invoicing will also become mandatory for them.
The mandate still excludes microenterprises with revenues or fees up to EUR 25,000 per year, which instead will be required to issue and clear e-invoices with the SDI starting in 2024.
The draft decree also established a short transitional grace period from 1 July 2022 until 30 September 2022. During this time taxpayers subject to the new mandate are allowed to issue e-invoices within the following month when the transaction was carried out, without being subject to any penalties. This gives the new subjects time to conform to the general rule stating electronic invoices must be issued within 12 days from the transaction date.
The definitive text of the decree has not yet been published in the Italian Official Gazette; only once this final step is taken will the decree formally become law, and the extended scope become binding. The start of the second semester of this year brings additional significant changes in Italy concerning the mandatory reporting of cross-border invoices through FatturaPA, also set to begin on 1 July 2022.
Need help ensuring your business stays compliant with evolving e-invoicing obligations in Italy? Contact our team of experts to learn how Sovos’ solutions for changing e-invoicing obligations can help you stay compliant.
It’s been just over nine months since the introduction of one of the biggest changes in EU VAT rules for e-commerce retailers, the E-Commerce VAT Package extending the One Stop Shop (OSS) and introducing the Import One Stop Shop (IOSS).
The goal of the EU E-commerce VAT Package is to simplify cross-border B2C trade in the EU, easing the burden on businesses, reducing the administrative costs of VAT compliance and ensuring that VAT is correctly charged on such sales.
Under the new rules, the country specific distance selling thresholds for goods were removed and replaced with an EU wide threshold of €10,000 for EU established businesses and non-EU established businesses now have no threshold. For many businesses this means VAT is due in all countries they sell to, requiring them to be VAT registered in many more countries than pre-July 2021. However, the introduction of the Union OSS allowed them to simplify their VAT obligations by allowing them to report VAT on all EU sales under the one OSS return.
Whilst for many businesses the thought of having to charge VAT in all countries they sell to may have been overwhelming to begin with, they are now seeing the many benefits that the introduction of OSS was meant to achieve. The biggest benefit for businesses is the simplification of VAT compliance requirements with one quarterly VAT return as opposed to meeting many filing and payment deadlines in different EU Member States.
Businesses who outsource their VAT compliance have been able to reduce their costs significantly by deregistering from the VAT regime in many Member States where they were previously VAT registered. Although some additional registrations may be required depending on specific supply chains and location of stock around the EU. Businesses also receive a cash flow benefit under the OSS regime as VAT is due on a quarterly basis as opposed to a monthly or bi-monthly basis as was the case previously in many Member States. As part of the implementation of the EU E-Commerce VAT Package we also saw the removal of low value consignment relief, which meant import VAT was due on all goods coming into the EU. This has brought many non-EU suppliers into the EU’s VAT regime with the European Commission (EC) announcing that there are currently over 8,000 registered traders.
We have seen some early hiccups with EU Member States not recognizing IOSS numbers upon import, leading to double taxation for some sellers. But for the majority of businesses IOSS has enabled them to streamline the sale of goods to EU customers for orders below €150. The EC has also recently hailed the initial success of this scheme by releasing preliminary figures which show that €1.9 billion in VAT revenues has been collected to date.
The EC is currently undergoing a consultation, gathering feedback from stakeholders on how the new schemes have performed with a view to making potential changes. Some of the changes being discussed include making the IOSS scheme mandatory for all businesses, which would significantly widen its use as it brings significantly more traders into scope. There has also been talk of increasing the current €150 threshold which would allow more consignments to be eligible for IOSS, although with the current customs duties threshold also being €150 it would be interesting to see how they align these rules. The EC will also be publishing proposals later in the year on the possible extension of the OSS to include B2B goods transactions, with a view to implementing this by 2024.
Get in touch with our team to find out how we can help your business understand the new OSS requirements.
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Under the Freedom of Services (FoS), Croatia currently levies an Insurance Premium Tax (IPT), Compulsory Health Insurance Contributions (CHIC) and Fire Brigade Charge (FBC) on the premium amounts of insurance policies written by EU and EEA insurance companies.
In Croatia, IPT only applies to selected classes of business such as motor coverage, which includes the mandatory Motor Third Party Liability insurance policies. Only the latter policies are subject to CHIC. FBC is applicable only to fire premium amounts.
Read on to understand the different IPT requirements and classes of business in Croatia.
There are currently two different IPT tax rates in force for motor insurance policies in Croatia:
Motor vehicle IPT is an insured-borne tax that is required to be reported monthly and payable within 15 days following the end of the month. There is an annual Motor IPT Report obligation too, which must be submitted on 31 January following the end of the reporting year.
This contribution is payable to the Croatian Institute of Health Insurance but must be disclosed quarterly to the Croatian Tax Office. In addition, the annual return must be submitted to the Tax Office by 30 April.
Until 31 March 2023 the rate of the contribution rate was 4%. The rate was raised to 5% as of 1 April 2023.
The Act on Firefighting governs the fire brigade regime in Croatia. The FBC rate on fire insurance premiums is 5%.
The law does not include a definition for the fire premium. Sovos gained clarification on the definition of the fire premium from the Croatian Financial Services Supervisory Agency (HANFA), the body which supervises FBC. HANFA indicated there is no specific definition of the fire premium, but the insurance company should determine this amount on a case-by-case basis.
The declaration on the fire premium is due annually, by the end of February following the payment year. The return should be submitted to the Croatian Firefighter Association.
There is no set date in the law for the payments, but payments are said to be due at least quarterly.
5% FBC payments should be split and sent to:
If you would like to settle this tax compliantly:
Firstly: You need to know the postcode of the property. But what is the postcode of an immovable property?
Secondly: You need to match a county with a postcode. This would not be too challenging as the first two digits of the five-digit Croatian postcode reveal the county’s name if you search Croatian postcodes online.
Thirdly: You need to know your local firefighting organisation’s name and bank account number or, if these organisations have established an association, the association’s name and bank account number. That is difficult but not impossible if you know where to look.
Finally: In the annual return you need to list each payment you made in the previous year.
Following the complaint method might be time-consuming if the insurance firm has written multiple fire businesses in Croatia. Because there is no minimum contribution threshold, even EUR 0.01 cent FBC should be paid to the local firefighter’s organisation or association (i.e., 40% of FBC)
Sovos has developed a robust system to settle your Croatian fire brigade charges. We have also established a constructive relationship with the Croatian Firefighters Association and HANFA.
Please contact our representative for information, or if you would like to appoint Sovos as your IPT representative in Croatia.
E-commerce continues to grow, and tax authorities globally have struggled to keep pace. Tax authorities developed many VAT systems before the advent of e-commerce in its current format and the evolution of the internet. Around the world this has resulted in changes to ensure that taxation occurs in the way that the government wants, removing distortions of competition between local and non-resident businesses.
The European Commission made changes on 1 July 2021 with the E-commerce VAT Package, which modernised how VAT applies to e-commerce sales and also how the VAT is collected. As the previous system had been in place since 1 July 1993, change was well overdue.
The principle of the taxation of e-commerce in the European Union (EU) is that it should occur in the place of consumption – this normally means where the final consumer makes use of the goods and services. For goods, this means where the goods are delivered to and for services, where the consumer is resident – although there are some exceptions.
Where the VAT is due in a different Member State than where the supplier is established, this requires the supplier to account for VAT in a different country. Micro-businesses are relieved of the requirement to account for VAT in the place of consumption. Though, most e-commerce businesses selling across the EU will have to account for VAT in many other Member States which would be administratively burdensome.
To overcome this problem, the European Commission decided to significantly expand the Mini One Stop Shop (MOSS), which was previously in place for B2C supplies of telecoms, broadcasting and electronically supplied services. Three new schemes allow businesses to register for VAT in a single Member State and use that OSS registration to account for VAT in all other Member States where VAT is due.
Union OSS allows both EU and non-EU businesses to account for VAT on intra-EU distance sales of goods. It also allows EU businesses to account for VAT on intra-EU supplies of B2C services.
Non-Union OSS allows non-EU businesses to account for VAT on all supplies of B2C services where EU VAT is due.
Import OSS allows both EU and non-EU businesses to account for VAT on imports of goods in packages with an intrinsic value of less than €150.
Currently, none of the OSS schemes are compulsory, and businesses can choose to be registered for VAT in the Member State where the VAT is due. The European Commission is currently consulting on the success of the OSS schemes, and one of the proposals is that the use of Import OSS would become compulsory. There are also questions about whether the threshold should be increased, although that would require consideration of how to deal with customs duty as the €150 threshold is the point at which customs duty can become chargeable.
The use of the Union and non-Union OSS schemes can provide a valuable alternative to registering for VAT in multiple Member States. However, there can be other reasons why a business will need to maintain VAT registrations in other countries. Businesses should carry out a full supply chain review to identify the VAT obligations.
There are also many benefits to using the Import OSS, including the ability to recover VAT on returned goods and a simplified delivery process for both the supplier and customer.
Any businesses using any OSS schemes should fully understand the scheme’s requirements. Non-compliance can result in exclusion with the requirement to register for VAT in those countries where it is due. This will remove the benefit of the OSS schemes, increasing costs and administrative burden for the business.
Get in touch with our team to find out how we can help your business understand the new OSS requirements.
Want to know more about the EU E-Commerce VAT Package and One Stop Shop and how it can impact your business? Download our e-book.
Insurance Premium Tax (IPT) in Luxembourg moved to online filing from the first quarter 2021 submission. Alongside this, they also changed the authority deadline to the 15th of the month following the quarter. This change caused some upheaval as many insurance companies were already pulling data from the underwriting systems, reviewing the information (sometimes manually), and ensuring the declarations would be correct for other territories also due by the 15th.
Luxembourg wasn’t the first or last territory to move to an online platform. Germany and Ireland followed within a year of Luxembourg’s implementation. In contrast, French authorities have delayed implementing their online filing process until 2023. Additionally, more tax authorities require accounts for Direct Debit set up rather than the usual SEPA or priority payments being made with specific references.
It’s clear why tax authorities are moving to online platforms. Having a digital filing process is an easier and more efficient process for what could be thousands of declarations being submitted by various sources. Plus, online filing gives tax authorities greater visibility, meaning they have more opportunities for analysis. What puzzles us, is why so many tax authorities choose to have their deadlines on or around the 15th? This deadline only provides a short timeframe for insurance companies to close the month, pull the data and make the declarations.
Apart from these updates, Luxembourg hasn’t implemented many changes in the past, regarding IPT. The most recent that we can recall is the introduction of the Tax for Rescue Services on Motor Class 10 policies, which came into effect on 1 October 2016. As the tax rates are relatively low compared to other territories, it’s entirely plausible that we could see a future increase.
IPT is a niche tax that isn’t always at the forefront of the business radar. It wasn’t until we began to look at the actual process of filing the online declarations did we realize that the process is an adaption of what is used for VAT and other taxes or designed around domestic insurers rather than freedom of services. At least that’s what it seems for Luxembourg.
Over the past year, we have found that the online filing system has become quicker and easier to navigate, with the delays between authentication of a declaration taking seconds rather than minutes. The declaration is still similar to what was submitted on the paper form, breaking down the liabilities per class of business, entering the premiums and then an automatic application of the percentage rate.
Is this the end of territories moving to an online filing solution? Probably not. Will there be more digitization from tax authorities to bring IPT in line with most other tax reporting? We think so.
Need to understand Luxembourg’s IPT requirements? Get in touch with our experts and keep up to date with ever-changing European IPT rules by following us on LinkedIn and Twitter.
The Philippines continues in constant advance towards implementing its continuous transaction controls (CTC) system, which consists of near real-time reporting of electronically issued invoices and receipts. On 4 April, testing began in the Electronic Invoicing System (EIS), the government’s platform, with six companies selected as pilots for this project.
The initial move toward a CTC system in the Philippines started in 2018 with the introduction of the Tax Reform for Acceleration and Inclusion Act, known as TRAIN law, which has the primary objective of simplifying the country’s tax system by making it more progressive, fair, and efficient. The project for implementing a mandatory nationwide electronic invoicing and reporting system has been developed in close collaboration with the South Korean government, considered a successful model with its comprehensive and seasoned CTC system.
Electronic invoicing and reporting are among many components set forth by the TRAIN law as part of the country’s DX Vision 2030 Digital Transformation Program. With this, the Philippines is making headway toward modernising its tax system.
The Philippines CTC system requires the issuance of invoices (B2B) and receipts (B2C) in electronic form and their near real-time reporting to the Bureau of Internal Revenue (BIR), the national tax authority. The EIS offers different possibilities in terms of submission, meaning that transmission can be done in real-time or near real-time. Documents that must be electronically issued and reported include sales invoices, receipts, and credit/debit notes.
According to the Philippines Tax Code, the following taxpayers are covered by the upcoming mandate:
However, taxpayers not covered by the obligation may opt to enroll with the EIS for e-invoice/e-receipt reporting purposes
E-invoices must be issued in JSON (JavaScript Object Notation) format and contain an electronic signature. After issuance, taxpayers can present their invoices and receipts to their customers. The tax authority´s approval is not needed to proceed. However, electronic documents must be transmitted to the EIS platform in real-time or near real-time.
The Philippines introduced somewhat unusual requirements in this period of digitization, when it comes to e-invoice archiving. The preservation period is ten years and consists of a system in which taxpayers are obliged to retain hard copies for the first five years. After this first period, hard copies are no longer required, and exclusive storage of electronic copies in an e-archive is permitted for the remaining five years.
With tests officially underway, the next phase should begin on 1 July 2022, with the go-live for 100 pilot taxpayers selected by the government, including the six initial ones. After that, the government plans to advance a phased roll-out in 2023 for all taxpayers under the system’s scope. Meanwhile, taxpayers can take advantage of this interim period to conform with the Philippines CTC reporting requirements.
Need to ensure compliance with the latest e-invoice requirements in the Philippines? Speak to our team.