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 regulatory changes and developments in global tax regimes, to support you in your tax compliance.

We spoke with Manisha Patel, senior compliance services representative – Insurance Premium Tax (IPT), about their role, how they support Sovos clients and their top compliance tips for captives.

Can you tell me about your role and what it involves?

I’m a senior compliance services representative – IPT at Sovos. I joined the company over five years ago.

My role at Sovos is multi-faceted. My primary responsibility is to oversee IPT compliance for an extensive portfolio of clients, specifically within the captives practice.

I help ensure that all clients’ tax requirements are met, including checking and signing off tax returns and ensuring that correct payments are made to relevant tax authorities within specified statutory deadlines. Additionally, I help advise clients on more complex or urgent queries that have been escalated within the team.

What is a P&I Club?

A P&I Club is a non-profit cooperative association of marine insurance providers that provides P&I insurance to all its member companies. A P&I Club covers a broad range of liabilities, including loss of life, personal injury, cargo loss or damage, pollution via hazardous substances, wreck removal, collision and property damage.

These clubs offer ship owners the highest limits and broadest ranges of coverage. Through their participation in a P&I Club, the member clubs share claims above an individual’s retention via a pooling structure. Pooling together allows members to provide the insurance

cover needed by ship owners and their ships to trade while meeting compulsory insurance and financial security requirements.

What are your tips for captives to ensure IPT compliance?

Increasing numbers of global tax authorities are switching to digital submissions and, in some cases, require more detailed information to complete these submissions.

My tip for captives would be to invest time learning about these ever-changing requirements for your relevant territories and organise yourself in a way that you can easily and readily have the information you need to hand. This will reduce your business’s risk of errors and non-compliance when settling IPT.

What are the most common ways Sovos helps captives?

Sovos’ Captives Team caters to the specific needs of captive insurers. Our team can review any program a client may have before the program’s renewal, where we can assist with premium tax calculations, validate applicable country tax rates and prepare payment summaries. Due to limited in-house expertise, we recognise that sometimes additional guidance is needed.

Our IPT Managed Services Team offers a vast amount of knowledge, providing the expertise to our Captive clients through webinars, tax alerts and newsletters to boost their confidence with tax filing and reporting. Additionally, our Consultancy Team can assist with any further queries.

Ecuador updates how taxpayers cancel electronic receipts.

Ecuador’s Internal Revenue Service (SRI) has published an updated version of its Guide for Taxpayers on Cancellation of Electronic Receipts. The guide details how to cancel electronic receipts already authorised by the tax entity.

The improved and updated version of the previous edition, which the SRI published in 2018, is part of the body’s work to gradually expand its visibility of taxpayers’ activity over taxpayers and optimise the country’s tax practices.

The functionality highlighted in the guide allows taxpayers to carry out the entire process of annulling electronic receipts, including:

Cancellation of purchase settlements

The updated guide includes details of how to request cancellation of a purchase settlement – adding to other electronic vouchers which taxpayers can also cancel such as invoices, withholding vouchers, credit notes, debit notes and remittance guides.

The SRI has established that any request for cancellation from the issuer through the portal must be accepted by the same means by the taxpayer receiving the electronic receipt. They must consent to the status change from “Authorised” to “Cancelled” once the issuer has complied with the annulment process.

The ruling excludes invoices, purchase settlements and delivery notes, as the SRI will cancel them directly if there are errors or the transaction or withholding has not been effective.

Those looking to submit an annulment request must do so exclusively online. The taxpayer issuing electronic receipts and the recipient of the electronic receipt must have an access code to the online SRI portal.

New deadlines for cancellations

An additional relevant change is an extension of the term to request a cancellation to 90 days after the date of issuance of the proof of sale, withholding or complementary document.

It is important to consider that once somebody starts the annulment process, no procedure allows for the withdrawal of the annulment. If the recipient rejects a cancellation request due to “error”, then the issuer can commence another cancellation request.

Finally, documents with the “Pending Cancellation” status have tax validity, while those in the “Cancelled” status do not.

Ecuador: November 2022 E-invoicing Changes

Due to the economic crisis and the necessity of the government to take measures aimed at economic growth and efficient tax collection, on 29 November 2021, the Organic Law for Economic Development and Fiscal Sustainability after the COVID-19 Pandemic was published in Ecuador’s Official Gazette. According to this law, taxpayers obliged to issue invoices must be incorporated into the electronic invoicing system within one year from the publication.

To comply with such measure, on 27 May 2022, the Internal Revenue Service (SRI) published Resolution NAC-DGERCGC22-00000024. It establishes the obligation to issue e-invoices to taxpayers who are required to issue invoices, and the obligation for these taxpayers, qualified as agents of withholding, to issue the Simplified Transactional Annex (ATS) version of withholding documents. These taxpayers will have to adopt the e-invoicing scheme.

New taxpayers in scope for the e-invoicing mandate

1. Income Tax taxpayers who are obliged to invoice but not obliged to issue invoices, sales receipts, withholding and complementary documents in the electronic modality must adopt the e-invoicing scheme into their activity until 29 November 2022, at the latest.

2. Natural persons and companies that are not considered taxpayers of the Income Tax and are obliged to invoice – but not obliged to issue invoices, withholding and complementary documents in the electronic modality – must adopt the e-invoicing scheme into their activity until 29 November 2022, at the latest.

3. Taxpayers required to issue invoices, withholding and complementary documents under the electronic modality, according to numerals 1. and 2. who are qualified as withholding agents by the SRI, must implement the ATS version of withholding documents, following the technical documentation made available by the SRI, until 29 November 2022.

For purposes of the application of this resolution, the subjects obliged to invoice are all taxpayers registered in the Single Taxpayer Registry (RUC) and who must issue and deliver invoices, withholding and complementary documents according to current tax regulations.

Persons with an annual gross turnover below USD 20,000 are not in the scope of this resolution. These taxpayers are known in Ecuador as Popular Businesses (Negocios Populares).

Other measures adopted in the new resolution

• As of 30 November 2022, only taxpayers responsible for issuing bills of sale (notas de venta) may request authorisations, modifications or renewals for the issuance of receipts through registering machines.

• As of 30 November 2022, taxpayers required to issue invoices, retention and complementary documents in the electronic modality may request authorisations for pre-printed documents only after they have obtained the authorisation to issue electronic documents in the production environment of the e-invoicing system.

New limit for pre-printed document issuance

The resolution introduces a limit for invoices or receipts issued under the pre-printed modality, which may not exceed 1% of the total receipts issued in the previous fiscal year.

Pre-printed documents should only be issued in exceptional cases of contingency when, due to force majeure or fortuitous event, taxpayers authorised to issue documents under the electronic modality cannot generate them electronically.

Free tool maintenance will be optional for SRI

According to this resolution, the SRI may keep a free tool available for taxpayers to generate electronic documents without prejudice to taxpayers using their computer systems. There was a significant change compared with the previous resolution, which established that the SRI will “maintain” this free tool, indicating that the maintenance of said tool is now optional for the SRI.

What’s next?

According to the original plan of implementation, the SRI had plans to gradually expand the e-invoice mandate for all taxpayers in the country, with more taxpayers scheduled to start issuing e-invoices from 2023 and 2024. However, with this resolution, the schedule of mandatory e-invoicing implementation has been modified. All these taxpayers must start adopting the e-invoicing system this year until 29 November 2022 at the latest.

The recent popularity of non-fungible tokens (NFTs) has captivated investors, governments and tax authorities. An NFT is a digital asset that represents real-world objects such as a piece of digital art, an audio clip, an online game or anything else. NFTs are purchased and sold online and are typically encoded with the same software as cryptocurrencies. They are stored in the blockchain to authenticate and track ownership of the NFT.

NFTs are generally one of a kind and can fetch tens of millions of dollars for a single NFT. The total market value of NFT sales skyrocketed into the billions in 2021. The high values and increase in sales have inspired several governments to introduce VAT legislation to define and tax these digital assets.

NFT VAT legislation

Multiple countries have announced specific VAT measures for the treatment of NFTs:

Spain: Spain is the first country in the EU to apply VAT to NFTs. The General Directorate of Taxes in Spain issued a ruling stating the supply of NFTs is an electronically supplied service subject to the standard VAT rate of 21%.

Belgium: The Belgian Finance Minister confirmed that the supply of NFTs is an electronically supplied service subject to the standard VAT rate of 21%.

Norway: The Norwegian tax administration defines the supply of NFTs as an electronically supplied service. It’s important to note that the creation or mining of an NFT will not attract VAT in contrast to a sale.

Washington State (U.S.): The Washington Department of Revenue is expected to announce that NFTs are subject to the state’s sales and business taxes as a digital product. This ruling will make Washington the first state to issue sales tax policies on NFTs.

In other countries, such as Switzerland, the supply of NFTs is generally considered an electronic service; however, there is a Swiss VAT exemption for electronic works of art directly sold by a creator that may apply to NFTs. VAT treatment of works of art may create implications for tax authorities when classifying NFTs.

Place of supply for NFTs

Another area of VAT concern surrounding NFT transactions is the place of supply. Place of supply for VAT purposes typically requires buyers and sellers to exchange domicile information such as a billing address. NFT transactions conducted through blockchain can avoid sharing personal information with intermediaries via an anonymous ‘wallet,’ which may lead to privacy concerns and other issues for tax authorities as they attempt to bring these transactions within the scope of VAT.

The VAT treatment of NFTs is still in its infancy and will continue to evolve alongside the digital asset industry. More insight into the classification of NFTs and the determination of the place of supply of such transactions will come as more tax authorities issue rulings analysing these unique digital assets.

Insurance Premium Tax in Italy is complex. This blog helps insurers navigate challenges in Italy, from IPT rates to reporting requirements. You can find all recent updates on IPT in Italy below in the update section.

IPT Treatment on Used Vehicle Warranty Services

On 21 May 2024, the Italian tax authority published ruling No. 110/2024 on the IPT treatment of warranty services provided concerning the sale of used vehicles.

The ruling dealt with a scenario in which a company provided warranty services to dealers within the same company group, with the latter offering these warranties to the purchasers of the vehicles. The company also entered insurance contracts with an insurance company to obtain coverage for the costs it incurred in repairing the vehicles sold when required under the terms of the warranty.

The insurance contract concluded between the Applicant and the insurance company would only be subject to IPT in Italy if the policyholder’s relevant establishment was in Italy, which is in line with the location of risk rules.

Italian Tax Reform

The Italian Tax Reform Bill went into effect on 29 August 2023. The bill was adopted by the Italian Parliament on 9 August and published in the Italian official gazette on 14 August.

Only the general principles of the execution of the tax reform were laid down in this bill; no specifics or changes to existing tax legislation were made. On the other hand, the bill includes information about the timeline for these changes, stating: “The Government is delegated to issue, within twenty-four months from the date of entry into force of this law, … one or more legislative decrees that revise the tax system.”

Among other key taxes, such as VAT and the Corporation Income Tax (CIT), Article 17 featured a change in the timeframes for assessing IPT. The revision’s goal is to bring it in line with other indirect taxes. It also necessitates changes to the IPT penalty structure, as well as the procedures and criteria for tax application. Finally, it is said that the new guidelines should rationalise the applicable IPT rates.

The bill also includes generic principles that are applicable to all taxes, such as:

Article 21 envisages an Italian Unified Tax Code to be implemented by 29 August 2024. It will reorganise and combine existing tax legislation into a comprehensive tax code.

This tax code will be divided into two parts: a general part with unified regulations for the common elements of tax systems and a particular section with regulations for individual taxes.

Sovos will keep a close eye on the Italian Tax Reform process, so stay tuned for updates or contact our experts if you have any special queries.

What is the IPT rate in Italy?

Different IPT rates are applicable in Italy, depending on the type of insured risk provided to the policyholder. The rates vary from 0.05% to 21.5%.

For example, the highest IPT rate applies to legal expenses, whilst payments received from insurance policies covering risks of navigation of ships registered in Italy are subject to 0.05%. Some premium amounts are exempt from IPT.

It is important to note that the Italian class of business does not correspond to the European Solvency II Directive class of business. There are 33 business classes in Italy, numbered from AB1 to AB33.

What are the penalties and interest for IPT in Italy?

Italy is known for its strict application of laws and harsh penalty regime, charging up to 400% of the tax liabilities due. Penalties and interest for late payments are time-sensitive, calculated daily and payable alongside tax liabilities.

What is the basis of Italian IPT calculation?

The taxable premium is the income generated under an insurance contract, comprised of the premium plus any accessory fee stated in the contract of insurance (without any deductions). Any amount paid by the policyholder to the insurer is a taxable premium.

What parafiscal charges exist in Italy on the top of IPT?

Beyond IPT, premium amounts derived from various risks trigger parafiscal charges. The most significant parafiscal charge is the CONSAP (Solidarity Fund for Extortion and Usury Victims) with a rate of 1%.

Is IPT due on returned premiums in Italy?

If an insurance company receives a premium, IPT is due even if the insured is subsequently reimbursed.

IPT credits relating to policy cancellations or adjustments are not permitted and should not be reclaimed from the Italian tax authorities, nor offset against current liabilities. According to art. 4. Law 1216/1960, IPT “does not cease to be due even if the premium is fully or partially returned to the policyholder for any reasons”.

Italian trade body ANIA clarified the applicability of this provision, permitting tax reclaims only if the tax has not been fairly collected. This provision includes clerical errors or an incorrect qualification of the risk or scope of the insurance contract based on the information available when the policy was written.

For example: if the insurer mistakenly overcharged the policyholder and the policyholder overpaid the tax, the overpaid IPT can be deducted from tax liabilities arising in the same reporting period, i.e., the calendar year.

What are the IPT filing and payment frequencies in Italy?

Italian IPT is payable monthly, whereas the return is due annually. Prepayment is also necessary with a deadline of November and equals 100% of the IPT plus CONSAP paid in the previous calendar year.

Some parafiscal charges such as EMER are declared and paid alongside the IPT, whilst others like RAVF and HAVF have different deadlines.

Although insurers pay tax liabilities monthly, and file declarations annually, there is a legal obligation to maintain IPT books. IPT books are chronological ledgers on a policy level that must be readily available should the Italian tax authorities request the company records. The authorities mainly request IPT books for tax office audits, investigations or to support formal requests by an insurer.

What are the prepayment rules in Italy?

Insurers are required to make an annual prepayment to the Italian tax authorities in anticipation of future tax liabilities. Prepayment is due by 16th November each year. It is calculated as a percentage (100% for 2022) of total IPT and Consap contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business.

Once settled, this prepayment can be offset against IPT liabilities (excluding Motor Third-Party liabilities) arising from February, when the January tax liabilities are due.

Are life and sickness policies exempt from Italian IPT?

Life plans are exempt from IPT in Italy unless they have been written prior to 1 January 2001. If the life insurance policy was purchased before this date, the premium is subject to a 2.5% IPT rate.

What reports do foreign insurance companies in Italy have to submit?

On top of the annual IPT return, insurance companies must file a variety of reports to several governmental agencies including the Italian Tax Office. The Motor report is embodied in the annual IPT return. There is an obligation for domestic and EU and EEA-based foreign insurance companies to submit separate reports about written insurance contracts, premiums and claims.

There are also a growing number of reports that foreign insurance companies need to submit to the Italian Supervisory Authority (IVASS).

What are the IPT challenges in Italy?

Many factors make IPT in Italy unique and one of the most challenging jurisdictions from a compliance perspective. This includes monthly tax settlements, an annual declaration, prepayment rules, treatment of negative premiums and the various reports that need submitting to the Tax Office, regional municipalities or IVASS.

Updates on Insurance Premium Tax in Italy

Italian Tax Office postpones penalty regime application date

The Italian Tax Office released a new circular on 19 April 2023 granting the opportunity to benefit from the 1/18 penalty regime. This follows the Legislative Decree n. 34/2023 from 30 March 2023.

With Circular No. 9/E, the Italian Tax Office has clarified the procedure, the extent of the measure and the ways of access. The circular emphasises that payments can be made in instalments, up to 20 equal payments over a five-year period.

The application date has been pushed out from 31 March 2023 to 30 September 2023.

Italy implements new tax break measures

The 2022 Italian Budget (Law 197/2022) introduced new measures under the ‘tax break’ scheme (“tregua fiscale”) to promote the settlement of tax irregularities and pending tax assessments.

The Italian tax authority (Agenzia delle Entrate) issued Circular letter no. 02/2023 to provide further clarification and guidance on the new tax measures.

The new regulation allows taxpayers the choice to regularise their tax positions for prior years up to 2021. If they choose to do so, the penalty associated with the regularisation decreases to 1/18th of the minimum penalty – provided that they complete the regularisation by 31 March 2023. In addition to submitting the corrective tax returns, taxpayers must pay the outstanding taxes, penalties and interest by this date.

The law allows taxpayers to make the payments in eight quarterly instalments, with the first due by 31 March 2023. An interest rate of 2% per year applies to the following instalments, which they must pay by 30 June, 30 September, 20 December and 31 March each year.

Additionally, the legislator extended the application of the reduced penalty regime to tax assessments and tax notifications (“avvisi di accertamento, rettifica o liquidazione”) which are already submitted. This ruling applies if the submitted regularisation was not appealed before 1 January 2023, when the regulation came into force, as long as payment is made by 31 March 2023.

Italian parliament approves changes to IPT prepayment rates

The Italian Parliament approved the 2019 Budget Act on 30 December 2018. As anticipated, the approved budget includes increased IPT prepayment rates. The approved rates are as follows:

For completeness, these new rates overrule those approved in last year’s Budget Act. However, the deadline remains 16 November each year.

Take Action

At Sovos, our experienced IPT specialists can help your business ensure compliance in Italy. Get in touch about the benefits a managed service provider can offer to ease your IPT compliance burden.

Sovos recently hosted an online webinar on VAT recovery where we covered reciprocity agreements between the UK and EU Member States when making 13th Directive VAT refund claims. One of the questions that kept coming up is what are reciprocity agreements and why do they matter?

Reciprocity

When making 13th Directive refund claims, each EU Member State has different rules or conditions to meet before agreeing to a VAT refund. One of the conditions that EU Member States may require is a reciprocity agreement. A reciprocity agreement is a deal to reciprocate VAT refunds between two countries.

Therefore, VAT is only refundable when a similar tax is refundable for local businesses in the applicant’s country. For example, suppose a Spanish business was allowed to obtain a VAT refund in Norway through a similar scheme to the 13 Directive. In that case, Spain would likely have reciprocity with Norway and will allow the Norwegian businesses to make a 13th Directive Refund Claim in Spain.

There are currently around 19 EU Member States that require reciprocity agreements for non-EU businesses to make VAT refund claims. Of those, Greece and Slovenia currently only have reciprocity agreements with two countries (Norway and Switzerland), whilst Italy has three (Norway, Switzerland and Israel). When making EU VAT refund claims, businesses should review reciprocity and not assume they will automatically be approved.

UK businesses

Before Brexit, UK businesses could make VAT refund claims through the EU VAT Refund Directive (also known as the 8th Directive) which was built to allow reciprocity freedom for all EU Member States. However, post-Brexit, this mechanism for VAT refund claims no longer applied, and the UK fell within the 13th Directive Refund Scheme as a non-EU business.

Whilst the UK and EU have a Free Trade and Cooperation Agreement in place, there was no specific mention of reciprocity in VAT refund claims as these should be agreed between those particular EU Member States and the UK. Therefore, it may be more difficult for UK businesses, that make refund claims around the EU, to recover VAT incurred in some countries.

Regarding current reciprocity agreements with the UK, the only official announcements we have seen to date have been from Germany, Spain and Hungary. However, we are aware of ongoing discussions between the UK and other EU Member States.

HMRC states they will only refuse a claim if the reciprocal country has a scheme for refunding taxes but refuses to allow UK traders a refund. Therefore, HMRC is willing to allow VAT recovery in the UK for EU businesses providing UK businesses receive the same treatment as the EU. It would therefore be in the interests of EU Member States to allow VAT recovery for UK businesses for businesses in their own country to benefit from the same treatment.

Why does it matter?

Most EU Member States require reciprocity when making VAT refund claims. Therefore, the law of reciprocity is an integral factor when looking to make a VAT refund claim in any jurisdiction. It’s important to understand these reciprocity laws to prevent wasting time and money on making a VAT refund claim from a country that doesn’t allow it.

E-invoicing was introduced in Peru in 2010, following the continuous transaction controls (CTC) trend in Latin American countries for a more efficient collection of consumption taxes. Since then, the government has rolled out measures to encompass a significant number of taxpayers under the country’s mandatory e-invoicing regime and advance new technical and institutional structures within its System of Electronic Emissions (SEE – Sistema de Emisión Electrónica).

June 2022 marked the final deadline for including the last group of taxpayers in the country’s e-invoicing mandate. However, the government continues to expand its system, with the latest update proposed by a draft resolution introducing important changes to the Peruvian e-transport document, the Guía de Remisión electronica – GRE.

Changes in the E-transport Document

The Peruvian tax authority (SUNAT) published on 2 June 2022 a draft resolution introducing changes to the GRE, the electronic transport document that must be issued in connection to invoices (comprobantes de pagos) for the control of goods under transportation. The GRE is only vital while the goods are in transit but is a document commonly kept by companies to maintain internal controls of transported goods.

The new draft resolution aims to regulate the issuance of the e-transport document further, introducing several changes, mainly to optimise the control of goods and eliminate the use of paper.

What this means for taxpayers

Taxpayers must be ready to issue GREs remitente and transportista exclusively through their own systems using a software provider (PSE – proveedores de servicios electrónicos) or the SUNAT Portal. This requirement may represent quite the impact on taxpayers that regularly issue a large volume of GREs through the electronic services operator’s channel, the SEE-OSE (Operador de Servicios Electrónicos).

The most impactful change, however, is that taxpayers will only be able to use the GRE as a support document for the transport of goods. Under current legislation, besides the GRE, the factura guía and the liquidacion de compras, which are regular invoices with additional transport information, can also be used to support transporting goods. Issuance of the factura guía is a common practice since it entails the generation of one single document that serves both the sales transaction and transportation. However, the draft resolution only allows the use of the GRE for this purpose.

The introduction of the QR code is the government’s approach to a modern and efficient control method. The bidimensional code is generated by SUNAT once the CDR (constancia de recepción) acquires accepted status and may be presented in either digital or printed format.

Although taxpayers may still support transportation by providing their registration number (RUC), the series and the GRE number, it is expected that the QR code will become the principal method to support transit, and the RUC will only be used as a contingency method.

A new type of e-transport document has also been introduced. The guía de remisión por evento may only be issued through the SUNAT Portal and is used to complement a previously issued GRE in the case of unforeseeable events not attributable to the issuer. In these cases, current regulation supports the transfer with the same document. The draft resolution, however, requires that the GRE por evento is issued before restarting the transportation of goods.

Another change that taxpayers must be aware of, as it might give rise to complex scenarios, is the creation of a new catalogue of measure units applicable only to GREs, found in Annex III. The already existent measure unit catalogues for all other invoices will not apply to the GRE, which is bound to cause a lack of uniformity since the same concept would use two different catalogues.

Rollout Dates

The draft resolution sets 13 July 2022 as its date of entry into force when taxpayers already in the scope of the GRE may start to issue through the appropriate channels and voluntarily start using the QR code as the support for transportation.

However, until 30 September 2022, taxpayers may exceptionally issue GREs remitente through the SEE-OSE, considering the conditions and requirements in place before the publication of the resolution. The draft also establishes a list of certain taxpayers (issuers and transporters) who will become obliged to issue the GRE and the corresponding dates, in Annex X, according to taxpayer types and the goods in transport, starting 1 January 2023.

What’s next?

As this is a draft resolution, the changes only become definite with the official publication of the final version of the resolution. However, as 13 July 2022 approaches, the resolution is expected to be published in the following weeks. Therefore, taxpayers who are already under the obligation to issue GREs must be ready to comply with the new mandates within a month.

SUNAT accepts comments to the draft resolution, which can be sent via email until 16 June 2022, to the following address: RPATRICI@sunat.gob.pe.

On 1 February, 2024, the Belgian Parliament approved the law implementing mandatory domestic B2B e-invoicing in the country, starting from 1 January 2026. The adopted bill can be found here.

This means that starting from 1 January, 2026 all VAT-registered taxpayers established in Belgium will be required to issue/receive structured electronic invoices. Peppol will be the default transmission method, although taxpayers will be able to use other systems provided that they meet the European Standard.

The bill is now awaiting the King’s signature and will later be published in the Official Gazette.

Belgium Proposes New E-invoicing Timeline and Scope

Belgium’s Ministry of Finance has proposed a new plan for the introduction of a mandatory e-invoicing system in the country with a new timeline and scope.

Its previous proposal failed to reach an agreement with the Belgian federal government, but the Council of Ministers – the highest executive authority at a federal level in Belgium – approved the new preliminary draft on 29 September 2023.

The draft proposal introduces changes to the Value Added Tax Code to introduce a requirement for the issuance of structured e-invoices between taxpayers.

The preliminary draft legislation shall follow the standard legislative process before it becomes law and, as a next step, will be submitted for opinions to the Council of State, the High Council for the Self-Employed and SMEs, Agrofront and ITAA.

The tax authority announced that a broad information campaign will be made available to all stakeholders during the transition period. Taxpayers in scope should use this transition period and start preparing for the e-invoicing obligations to be able to comply in time for the January 2026 go-live date.

Looking for more information on the global adoption of electronic invoices? Our e-invoicing guide can help.

Belgium – tax reform proposal introducing e-invoicing and reporting obligations

On 2 March 2023, the Belgium Minister of Finance (“MoF”), Vincent Van Peteghem, announced the government’s plans for a broad tax reform. Introducing mandatory B2B e-invoicing and e-reporting is part of this tax reform. This proposal follows previous draft legislation on the issue of electronic invoicing, published in 2022, which has not yet been approved.

Belgium’s e-invoicing proposal

A phased roll-out for the B2B electronic invoicing mandate will start in July 2024. The Belgian administration has communicated the following timeline for e-invoicing issuance obligations, based on the company’s turnover:

E-Reporting obligations for Belgium

Alongside the electronic invoicing mandate, the MoF proposes the introduction of electronic reporting obligations. According to the tax reform proposal, the new reporting obligations would allow for the elimination of the ‘customer list return’, which taxpayers are obliged to submit annually to record all sales in excess of €250 made to customers that are VAT-registered in Belgium.

The proposal for the broader tax reform is still awaiting further development, namely the publication of draft legislation detailing the invoicing and reporting requirements. Nevertheless, July 2024 looks very likely to be the date when the mandatory B2B e-invoicing roll-out will begin.

In line with the obligations set by the European Directive 2014/55 on electronic invoicing in public procurement, Belgium introduced a mandate for public entities to receive and process electronic invoices in 2019.

For Brussels, Flanders, and Wallonia the initiative went beyond the bare minimum of the EU Directive requirements and introduced obligations to also issue e-invoices for suppliers to public sector entities in these regions.

With recent legal changes, Belgium is now preparing to extend the e-invoicing obligation to even more businesses by introducing mandatory e-invoicing in the B2B sector.

Belgium E-invoicing in public procurement

On 31 March 2022, the Belgian Official Gazette published the Royal Decree of 9 March 2022, which intends to expand the obligation to issue electronic invoices to all suppliers of public institutions in the context of public contracts and concession contracts.

As previously mentioned, such obligation was already present in multiple regions including Brussels, Flanders, and Wallonia, however, now the mandate covers suppliers of public bodies in all regions. The dates concerning issuing electronic invoices in the public contracts, based on their value are:

Only public contracts and concessions, which estimated value is less or equal to €3,000 excluding VAT are exempt.

Belgium E-invoicing in the private sector

As reported previously, Belgian authorities have indicated the ambition to move beyond B2G e-invoicing. On 11 May 2022, the Belgium Chamber of Representatives published a draft law amending the law of 2 August 2002 on combating late payment in commercial transactions, as last amended by the law of 28 May 2019, with the aim to implement electronic invoicing between private companies (B2B).

The rationale behind the proposal is the need to enable companies to invest in electronic invoicing, after already supporting the digitalization of invoicing in the B2G sector. The benefits that will follow are a much faster invoicing process, which is more secure and minimises the risk of errors and missing data.

Moreover, the chances of fraud will decrease while privacy protection increases, without the need for human intervention in the invoicing process.

Lastly, the environmental aspect concerning less paper consumption is highlighted. In terms of financial gain, as calculated by the Administrative Simplification Service (DAV), full digitalization of invoices in Belgium could reduce the administrative burden by €3.37 billion.

Based on the draft law, companies (with the exception of micro-enterprises) will be obliged to send their invoices in structured electronic form (in line with the European standard for electronic invoicing EN 16931-1:2017 and CEN/TS 16931-2:2017) as well as receive and process invoices electronically.

Nothing in the draft law describes the involvement of a centralised clearance platform, or the reporting of e-invoice data to the tax authorities. At this time, there is therefore no formal indication that the proposed mandate would be designed as a Continuous Transactions Control (CTC) e-invoicing system, however it is possible that the system will evolve to connect with PEPPOL.

The law will come into effect on 1 January 2025 regarding SMEs, thereby ensuring that companies have adequate time to prepare for the transition. If it comes to large enterprises, it is expected that mandatory e-invoicing will be present from January 2024. Originally the date concerning large taxpayers was July 2023, and small taxpayers from 2024, therefore those dates will most likely be postponed.

Our previous articles covered audit trends we have noticed at Sovos and common triggers of a VAT audit. This article discusses the best practices on how to prepare for a VAT audit.

Each country and jurisdiction may have different laws and requirements related to the VAT audit process. Tax authorities can carry out audits in person or by correspondence, the latter often being the case for non-established businesses in the country in question.

A business may be audited at random or because there are reasons for the tax authority to believe that there is a problem with the company’s VAT return.

Generally speaking, authorities use audits and inspections to verify the accuracy of taxpayers’ declarations, identify possible errors or underpayments, and approve refunds.

As discussed in our previous article, to understand how to best prepare for a VAT audit, it’s essential to identify the reason why the audit was initiated.

What items are needed for a VAT audit?

Although specific checklists are available depending on the country of the audit, there are several actions that a business can carry out to prepare for an VAT audit. The most important of which is to collect documents and answers in advance. Frequently requested items during an audit include:

It is important that records of the above-listed documents, where applicable, are kept in line with local record keeping requirements. The need to prepare these documents in advance and the ability to produce them quickly becomes essential when a company is, for example, due to request the refund of VAT credits, to submit a de-registration or has, in general, any reason to expect for an audit to be initiated.

Authorities can open a cross check of activities with the company’s customers and suppliers, which will be initiated in parallel to the audit to verify that the information provided from both sides is consistent. Therefore, it is recommended to inform suppliers about any ongoing audit, communicate any questions or clarify outstanding queries. If, for example, a correction of invoices appears to be necessary, these should be finalised already in preparation for the VAT audit.

The tax authorities may impose very short and strict deadlines once an audit is initiated. Although it may be possible to request an extension, it is not necessarily guaranteed to be granted. In certain circumstances, authorities may impose penalties for late responses. Providing a clear and understandable set of documents to the tax office queries is essential to avoid any detrimental effects.

Why it makes sense to plan ahead

Whether a business decides to handle the audit in-house or request the support of an external advisor, it is essential to consider the consequences of the audit, especially if high amounts of VAT to recover are at stake. In the event of an audit, the main objective should be to resolve it successfully and quickly, limiting as much as possible any detrimental impact to the business.

The most recent update to the Portuguese Stamp Duty system has included some of the most comprehensive tax reporting changes seen in recent years. Stamp Duty is the oldest tax in Portugal and has been around since the Royal Decree in 1660. Considering its age, updates to bring it in line with the global standard of tax reporting were much needed. Although the tax rates within Portugal have remained unchanged, the reporting process to incorporate the provincial liabilities within one return has been greatly appreciated.

Portuguese Stamp Duty – Required information

The additional information that insurers are obliged to collect, disclose and submit in their Stamp Duty Declaration is as follows:

Negative impacts of Portugal’s stamp duty reporting changes

It’s important to note that the ability to offset taxes relating to previous periods has been revoked by Law Decree no. 119/2019, which allowed insurers to report reduced tax amounts for overpaid liabilities. The modifications to the reporting procedure enable companies to amend previous periods through their internal system. Consequently, this permits adjustments to prior periods and the reclaiming of overdeclared liabilities directly from the Portuguese tax authority. It is our understanding that reclaims will be reimbursed to the client two months after an amended return is submitted.

How can Sovos help with reporting?

Sovos has developed a unique relationship with the Portuguese tax authority, allowing for comprehensive reporting between Sovos systems and the Portuguese API. The reporting procedure can confirm validated IDs to ease data validation and reporting. This collaborative process has allowed Sovos to provide our customers with a smoother and more fluid submission process for Stamp Duty reporting.

Knowing how to calculate IPT and the corresponding parafiscal surcharges (hereinafter collectively referred to as IPT) is an art. Rules differ by national jurisdiction so ensuring compliance with IPT obligations is not just a regulatory requirement for insurers – it’s essential to avoid financial penalties and reputational risk.

That’s why it’s critical to have a clear understanding of which tax rules apply to the insurance products underwritten, and to stay informed about the specific requirements in each relevant jurisdiction.

This blog will provide an overview of IPT calculations, explaining how to calculate IPT, the different methods of calculation, IPT rates and exemptions, and more. If you’ve found yourself asking, “How is IPT calculated?” then read on, because this page is for you.

How to Calculate IPT: Two Main Methods

There are two basic methods for calculating the tax on insurance premiums in Europe:

These calculation models are just the basics; IPT regulations are built upon these models, adding several specific rules, which can make an IPT calculation fairly complex.

Percentage of Model

For the first calculation method, the Percentage model, one or multiple tax rates apply depending on the risks covered.

For example, businesses in Bulgaria can easily determine the tax amount by multiplying the taxable basis by the country’s 2% tax rate. This rate applies to all classes of businesses. However, in Italy or France, the applicable tax rate depends on the risks covered.

Several IPT calculations are based on this basic rate model but there are some models where the tax rate applies on the sum insured value and not on the premium amount.

Fixed Amount Model

In the second calculation method, the Fixed Amount Model, local regulations determine the tax amount that needs to be multiplied – usually per policy, but sometimes per insured person.

Irish Stamp Duty and Danish Guarantee Fund contribution are examples of this calculation method in practice.

Key Variables That Impact IPT Amount Calculation

While many factors can ultimately impact the IPT amount calculation, there are certainly some primary factors that many calculations will need to get right.

Step-by-Step Example: How to Calculate IPT

While each IPT calculation will vary based on the factors at play, we can provide a sample calculation to illustrate how the process can work.

Identify Risk Class

The first step is to identify the risk category the policy falls under, as this will dictate the location of risk.

Determine the Location of Risk

Determining the location of the risk(s) will determine the country of which the IPT calculation rules apply. Most European countries include a section in IPT regulations to determine the location of risk, citing the Solvency II EU Directive location of risks (LoR) rules.

Determine the Reporting Currency and the Exchange Rate

The reporting currency is the currency in which the tax should be settled to the local tax office. If the premium amount in the policy is determined in a currency other than the reporting currency, then it is important to use the correct exchange rate. Exchange rate rules are not harmonised in the EU. It can be the national bank average monthly/quarterly rate, or rate on the last day of the reporting period.

Calculate the Taxable Basis

The taxable basis is vital for determining the compliant IPT and parafiscal amounts. Look for the local legislation for the definition of the taxable basis. Taxable basis can be the net premium, the sum insured, the value as per the land registry, or net premium plus fees, commissions or even taxes.

Choose Applicable Rate or Fixed Amount

Knowing the correct tax rate/fixed amount is vital. Search for the local IPT legislation, review the risk covered and determine the correct tax rate.

Apply Any Parafiscal Charges

Depending on the risks covered, some countries also levy parafiscal charges on insurance premiums, impacting the total IPT amount to be paid. France is an example of a country that levies various surcharges on the premium amounts depending on the risk(s) covered.

Search for the Exemptions

It is also vital to determine which insurance premiums fall into an exempt class. Usually, risks covering international or exports class of businesses are exempt, such as export credit, or international goods in transit. Some of the EU countries exempt sickness policies too.

Verify Rounding Rules

Lastly, it is essential to follow rounding rules when calculating the total IPT amount to be settled towards the local tax offices, because the settlement of the IPT amount can be rounded. In France, for example, you are required to round to the nearest whole EUR. In Hungary, IPT is declared in thousands HUF.

What are some common mistakes in IPT calculations?

With IPT often being complicated to calculate, especially if you don’t know the nuances of the country where the location of risk sits, mistakes can be common.

There are simple mistakes like determining the wrong location of risk or using the incorrect or out-of-date IPT rates (e.g. incorrectly interpreted transitional rules), and misunderstanding exemptions.

More errors come from miscalculating the value of the premium or the sum insured or incorrectly applying surcharges.

Rules for IPT amount calculation

There are rules taxpayers must abide by to comply with IPT regulations. Here is a selection of IPT rules for amount calculation.

Conclusion

As you can tell, IPT calculations can be complex—but they don’t need to be. If you are aware of the common pitfalls and the key considerations in these calculations, you can work out the amount payable with accuracy and confidence.

Knowing the rules and requirements of the country you are operating in is key, from the tax rate to how they require insurers to calculate Insurance Premium Tax. Non-compliance can be costly, both financially and reputationally, so be sure to put your best foot forward by knowing how to calculate IPT correctly.

FAQ

What countries use a sliding scale for IPT?

Hungary is the only country that utilises a ‘pure’ sliding scale rate model to calculate its Insurance Premium Tax. The sliding scale model is a method of calculating IPT where the tax rate changes once the insurance premium exceeds a threshold. Malta, on the other hand, applies a mixture of fixed amount and sliding scale model.

Can IPT be refunded if a policy is cancelled?

Yes, there is generally a chance that Insurance Premium Tax (IPT) can be refunded on a cancelled policy. Refunds are done pro rata on policies that have been active for longer than the mandatory 14-day cooling-off period. There are exemptions from this general rule, with the best example being Italy.

Does IPT apply to reinsurance?

While countries have their own nuances regarding IPT, the general rule of thumb in countries like the UK is that Insurance Premium Tax does not apply to reinsurance.

This is because countries like the UK want to avoid double taxation, as the original direct insurance policy is already subject to IPT.

Is IPT calculation harmonised in the EU?

No, IPT is not harmonised in the EU. Although the Solvency II EU directive provides some basic rules which are mandatory for EU countries to follow, the specifics of the IPT calculation, such as the rates and taxable basis are not harmonised.

What is the highest and lowest IPT rate in the EU?

Currently, the highest IPT rate in the EU is 30%, applying to certain policies in France. The highest generic IPT rate of 25.5% applies in Finland. The lowest IPT rate, not mentioning the exemptions, is the 1.4% IPT rate applied for certain specific policies in Belgium. The lowest generic IPT rate is 2% in Bulgaria.

How do you calculate IPT?

Put simply, Insurance Premium Tax (IPT) is calculated as a percentage of the insurance premium. The percentage, also known as the IPT rate, depends on the type of insurance policy and the rates of the country to which the policy applies.

To calculate the IPT amount, you multiply the insurance premium by the appropriate tax rate. The insurer then adds the cost to the figure paid by the policyholder.

This calculation is the simplest, but it’s worth mentioning that there are various calculation methods e.g. fixed amount method, sliding scale methods.

What factors influence IPT calculation?

There are various factors that need to be considered to compliantly calculate IPT. These factors include, but are not limited to, location of risk, the risk covered, the exchange rate, the definition of the taxable premium, the IPT and parafiscal tax rates and the exemptions.

The implementation of the qualified electronic signature requirement to establish the presumption of integrity and authenticity for e-invoices has been postponed, as announced in the 2024 State Budget. It had already been postponed several times in recent years.

This requirement was initially expected to be enforced on 1 January 2024. However, after the latest postponement, the eSignature requirement is now expected to be enforced from 1 January 2025.

New grace period for invoice reporting and postponement of stricter integrity and authenticity requirements

The Portuguese State Secretary of Fiscal Affairs (SEAF) recently issued issued Order 8/2022 XXIII, which introduces a grace period for reporting obligations, as well as yet another of the stricter integrity and authenticity (I&A) requirements for electronic invoices.

The Order aims to highlight and promote Portugal’s plans to reduce the invoice data reporting obligations time window, as established by article 3 of Decree-law 198/2012. The Order also aims to establish the constant move towards real-time transmission of invoice data, as observed in other countries throughout the world.

Additionally, the Order affects the requirements of Decree-law 28/2019, by which the Portuguese government enacted a series of measures concerning invoice issuance, processing, and archiving, with the aim of simplifying and digitizing invoicing compliance in the country.

Changes in invoice reporting obligations

Since 2019, the Portuguese government has continuously reduced the time window for the invoice data reporting obligation. Starting 1 January 2023, the deadline for the monthly communication of invoice data will be until the 5^th day of the month following the issuance of the invoice.

The new Order introduces a grace period concerning this obligation, with no penalties applied if reporting is carried out until the 8^th day of the month following the invoice issuance. This is also applicable for cases where there is non-issuance of invoices during the relevant time period, where a nil monthly submission should also be made until the 8^th day of each month.

The Portuguese government has also decided to implement a system of informative alerts by the tax authority in 2023. The aim is to promote voluntary compliance within the 5-day deadline by notifying taxpayers who don’t communicate invoice data until the 5^th of the month following the issuance of the invoice.

Postponement of the stricter e-invoice integrity and authenticity requirements

Decree-law no. 28/2019 established several measures regarding invoicing, including a stricter integrity and authenticity requirement for invoices and fiscally relevant documents issued electronically. One of these requirements is the obligation to apply a qualified electronic signature (QES) or seal or use electronic data exchange system (EDI) for e-invoices, as per the European model.

This requirement has been postponed multiple times since enacted and was due to become mandatory on 1 January 2023. The newly published Order, however, explicitly states that until the 31 December 2023 all PDF invoices are considered electronic invoices for all fiscal effects.

Therefore, from the 1 January 2024, taxpayers must comply with the requirement of applying a QES or use EDI per the European Model to ensure integrity and authenticity of e-invoices.

Additional upcoming Portuguese requirements

Besides the stricter integrity and authenticity requirement and the grace period for communication of invoice data, taxpayers are expected to comply with new e-invoicing mandates underway in Portugal.

Namely, the mandatory B2G invoicing in the CIUS-PT format starting on 1 January 2023 for medium, small and micro enterprises. No further guidance has been issued at this time regarding a postponement of the adoption of the CIUS-PT format for these last taxpayer groups, meaning that public entities may reject invoices issued in other formats after the go-live date.

Portugal: Postponement of the Stricter Authenticity and Integrity Requirements

In 2019, the Portuguese government enacted Law Decree n. 28/2019, introducing a full reform of the rules concerning the issuance, processing and archiving of invoices, with the main goals of implementing electronic invoicing, simplifying compliance for taxpayers and reducing the VAT gap.

The expanded scope of those obliged to use a billing software certified by the Portuguese Tax Authority, the inclusion of a QR code and a sequential unique number code (ATCUD – código único de documento) and the stricter integrity and authenticity requirements when issuing invoices and other relevant fiscal documents were some of the most impactful mandates introduced by this law.

However, many taxpayers struggled to comply with the new requirements. As such, the tax authority has delayed the launch of different components of the Decree, and some of them remain to be implemented.

In a recent Ministerial Decision from 26 May 2022, the goal line for implementing the stricter integrity and authenticity requirement, this article’s focal point, has been moved yet again, now to 1 January 2023.

The stricter integrity and authenticity requirement

The Decree from 2019 established that in order to guarantee the requirements of authenticity and integrity of electronic invoices and other relevant fiscal documents have been met (per article 233 of the EU VAT Directive 2006/112/EC), taxpayers must use a qualified electronic signature, a qualified electronic seal (QES) or an electronic data exchange system (EDI) with security measures per the European Model EDI Agreement. This change is important as it limits the choice of compliance methods generally recognised within the EU to one between only QES and EDI.

To achieve this goal, the Decree determined that taxpayers would only be able to use previously accepted advanced electronic signatures or seals (the lower level of signature security) until 31 December 2020. After that, all invoices would be required to incorporate a qualified signature or seal or be issued through EDI.

When is the new deadline?

The original deadline for implementing the stricter integrity and authenticity requirements has been postponed many times. The first delay was ordained through Despacho n. 437/2020-XXII of 9 November 2020 of the State Secretary for Fiscal Matters (SEAF – Secretário de Estado dos Assuntos Fiscais). According to this, PDF invoices without a QES would be accepted until 31 March 2021 and considered electronic invoices for all fiscal purposes.

Since then, the mandate has been postponed four additional times, with the last one taking place on 26 May 2022, by Despacho n. 49/2022-XXIII of the SEAF. According to this act, PDF invoices with no specific security measures must be recognised as electronic invoices for fiscal effects until 31 December 2022, instead of the previously established date, 30 June 2022.

Therefore, from 1 January 2023, taxpayers covered by Law Decree n. 28/2019 must comply with the requirement to ensure authenticity and integrity either by applying a Qualified Electronic Signature/Seal or by using “EDI by-the-book” (EDI under the European Model EDI Agreement).

Additional upcoming requirements

Besides the stricter authenticity and integrity requirement, taxpayers must be ready to comply with additional new invoicing mandates underway in Portugal. On 1 July 2022, it will be required to only use structured electronic invoices in CIUS-PT format for B2G transactions. The B2G mandatory e-invoicing is already under implementation through a phased roll-out. It is set to be finalised and become compulsory for small and medium companies and microenterprises on 1 July 2022. Furthermore, the inclusion of the ATCUD code on invoices and other fiscal relevant documents, which has also been previously postponed, is set to become mandatory on 1 January 2023.

Since becoming the first EU country to make electronic invoicing mandatory through a clearance process in 2019, Italy has kept a steady pace in improving its continuous transaction controls (CTC) system to close the gaps in VAT compliance.

Over recent years, Italy has gradually expanded its system by introducing various mandates. The following changes reflect the government’s efforts to tie up loose ends and assert more far-reaching control mechanisms to achieve an efficient and well-rounded system.

The changes listed below become effective on 1 July 2022, with some already available on a voluntary basis and others allowing a short grace period for adjustment.

Mandatory cross-border invoice reporting through the SDI

Taxpayers may continue to exchange invoices in any agreed way, including the FatturaPA format. The reporting, however, must be done through the SDI using the FatturaPA format. This has been optional since January 2022.

New taxpayers in scope for the e-invoicing mandate

A short grace period has been established from 1 July 2022 until 30 September 2022. During this period these taxpayers may issue e-invoices within the following month from when they carried out the transaction without any penalties being applied.

The new mandate also states that microenterprises with revenues or fees up to €25,000 per year will be required to issue and clear e-invoices with the SDI, but this only starts in January 2024.

Mandatory e-invoicing between Italy and San Marino

Following the Italian CTC mandate, Italy and San Marino began negotiations to accommodate invoice exchange between the two countries through the more modern clearance-based system, which requires taxpayers to issue and clear e-invoices using the FatturaPA format. This was established by creating a “four-corner” model with the Italian SDI as the access point for Italian taxpayers and the HUB-SM platform as the SDI counterpart on San Marino’s side.

The mandate covers the sale of goods shipped to San Marino for taxpayers who are residents, established or identified in Italy. For sales of goods to Italy, an e-invoice must be issued by the economic operators with identification attributed to them by the Republic of San Marino. A significant effect of this mandate is that the reporting obligations through Esterometro will come to an end.

Getting ready for change

The start of the second semester of 2022 will bring significant changes, and taxpayers have limited time to conform as July approaches. Understanding how these new requirements can affect your company will ensure compliance and avoid unnecessary mistakes.

Implementation waves of Phase 2 of E-invoicing in Saudi Arabia

Implementation of Phase 2 of Saudi Arabia’s e-invoicing initiative started in January 2023 with the first wave of taxpayers. Subsequent waves – which are announced by Saudi Arabia’s Zakat, Tax and Customs Authority (ZATCA) – are based on the generated revenue subject to VAR in Saudi Arabia.

In addition to announcements on ZATCA’s website, ZATCA notifies taxpayers at least six months before the enforcement date of their new e-invoicing requirements.

Current timeline for Phase 2 waves

Waves dictate when taxpayers of particular revenue statures are required to take part in Saudi Arabia’s e-invoicing program. The table below details the waves, revenue threshold and applicable dates for the initiative’s second phase.

Read our overview for more information regarding Saudi Arabia’s push towards e-invoicing.

Voluntary participation in Phase 2

Taxpayers now have the option to start complying with the Phase 2 requirements on a voluntary basis before the integration enforcement date arrives.

Companies were previously not allowed to voluntarily start the implementation of Phase 2. ZATCA changed its approach to voluntary participation in December 2022.

Looking for further clarification on Phase 2 of Saudi Arabia’s e-invoicing system? Contact our experts now.

Upcoming phase 2 requirements for e-invoicing in Saudi Arabia

Phase 2 of Saudi Arabia’s e-invoicing system rollout is fast approaching. See below for details about the timeline and the requirements for the integration stage of implementation.

Rollout and timeline of Phase 2

Implementation will begin in January 2023 and taxpayers will need to issue and submit e-invoices in a specific format.

Phase 2 is planned as a gradual implementation. The first wave of implementation covers taxpayers with an annual turnover of 3 billion riyals (approximately 800 million USD) or more for the 2021 period.

Taxpayers who are in the scope of the first wave are notified by the tax and customs authority (ZATCA) about their obligations under Phase 2 – these obligations start six months after this notification, even though the official date has been announced as 1 January 2023.

The second wave of taxpayers are businesses with revenue subject to VAT which exceed half a billion riyals during 2021. Taxpayers in this group will be notified during the first six months of 2023 and their Phase 2 obligations start six months after this notification. The second wave of Phase 2 will be implemented during the period of 1 July 2023 to 31 December 2023.

Integration phase requirements

Firstly, all invoices must be issued in UBL 2.1 format. B2B invoices are subject to a CTC clearance regime, whilst B2C invoices are reported to the tax authority within 24 hours.

Under the new regime, B2B invoices can only be sent to the buyer after the tax authority’s approval which gives legal validity to invoices.

Each invoice must be generated in a single sequence and include a hash value computed from previous invoices’ elements. This hash function ensures that invoice data isn’t modified or tampered with.

Also, an invoice counter value and a globally unified identification number (UUID) must be included. The QR code is generated by ZATCA during the clearance of an invoice, and it must be shown in case B2B and B2G invoices are sent to the buyer in human-readable form. For B2C invoices, the QR Code is generated and applied by the taxpayer during issuance of the invoice. In addition, self-billing is permitted for domestic B2B transactions and the invoice must contain a statement declaring it is self-billed.

Taxpayers who are yet to be notified by ZATCA for phase 2 implementation should continue to comply with phase 1 requirements without any change.

How to prepare for the changes

We advise all taxpayers to follow upcoming updates to ensure they are prepared for phase 2’s complex requirements. Considering the impact of this CTC regime, other e-invoicing initiatives are expected to be implemented in the Gulf region in the near future

Still have questions about Saudi Arabia’s e-invoicing phase 2 implementation? Speak to our tax experts.

ZATCA launches e-invoicing developer portal for e-invoicing phase 2

Saudi Arabia´s e-invoicing system is being rolled out in two phases; the second phase’s requirements differ from the first phase. The first phase started as of 4 December 2021 for all resident taxable persons. The second phase will go live on 1 January 2023, and the impacted taxpayer group has not yet been announced. However, the Zakat, Tax and Customs Authority (ZATCA) has made considerable progress in kicking off phase 2.

Launch of the e-invoicing portal

Phase 2 will introduce a Continuous Transaction Controls (CTC) regime in which e-invoices, electronic credit and debit notes will be transmitted to the ZATCA platform in real-time. A clearance regime is prescribed for B2B invoices, while B2C invoices must be reported to the tax authority platform within 24 hours of issuance. Therefore, ZATCA was expected to introduce its e-invoicing platform well in advance of the launch of phase 2.

As expected, the ZATCA recently announced the launch of an E-Invoicing Developer Portal (Sandbox). Users will use the Sandbox to simulate the integration with ZATCA’s platform and can access details on the APIs and other requirements through this platform upon registration.

Proposed changes to e-invoicing rules

ZATCA has proposed specific changes to e-invoicing rules. The proposed changes are under public consultation and interested parties may submit their feedback until 10 June 2022.

The changes aim to clarify some requirements (e.g. Cryptographic Stamp, hash, counter etc.) rather than introducing new ones.

The next steps

The last clarifying changes to the e-invoicing rules are underway, and the developer portal has been launched. We’re now expecting ZATCA’s announcement of the taxpayer groups in the scope of the mandate and expect it to happen at least six months before the go-live date. As the ZATCA plans to roll out phase 2, there will be different timelines for different taxpayer groups. We expect this information within the coming months.

Israel e-invoicing

Israel is set to implement a continuous transaction controls (CTC) model that will require businesses to submit invoice data in electronic format for the tax authority to validate.

The mandate, set to come into force in May 2024, will require invoice data to be validated by the country’s tax authority before being sent to the final recipient. Read on for an overview of Israel e-invoicing requirements – we encourage you to bookmark the page to stay updated as the mandate develops.

Get in touch

1. At a glance: Characteristics of invoicing data submission in Israel

2. Electronic invoicing laws in Israel

3. Benefits of using e-invoicing in Israel

4. Timeline of e-invoicing clearance in Israel

5. What is the future of e-invoicing in Israel?

6. What happens if I don’t comply?

7. Setting up e-invoicing in Israel with Sovos

8. FAQ

9. Additional resources

At a glance: Characteristics of invoicing data submission in Israel

CTC Type
CTC Clearance

Format
JSON

Allocation Number
Assigned by the ITA

E-invoicing
Not mandatory

Electronic Signature
Not applicable (though needed in case of e-invoicing)

Archiving
Not applicable

Electronic invoicing laws in Israel

From 5 May 2024, Israel will make clearance CTC clearance mandatory. Authorised dealers (taxpayers) will have to clear invoices above a threshold of NIS 25,000 (before VAT), obtaining an allocation number acquired by the SHAAM – a computer system provided by the Israeli Tax Authority (ITA).

The invoice value threshold will be gradually reduced annually until 2028, ending at NIS 5,000 pre-VAT. Nevertheless, suppliers may report invoice data to the tax authority for clearance and request an allocation number for any amount.

Besides CTC clearance, e-invoicing rules remain in place and do not change with the new CTC requirements. Electronic invoices are still optional.

Since 2019, public entities in Poland have been mandated to receive and process e-invoices. While currently optional for suppliers of public entities, the transmission of e-invoices will be required for B2G and B2B transactions when the mandate is implemented (this was planned for 1 July 2024 until it was postponed in January 2024).

CTC clearance model

Israel’s model will include a clearance system from 5 May 2024. Businesses that exceed a specific threshold will be required to obtain an allocation number for invoices regarding B2B transactions. They can do so by issuing the invoice to the tax authority before sending it to the final customer.

Without receiving this number and including it on invoices, businesses will not be able to deduct input VAT.

Israel B2B e-invoicing

Israeli CTC clearance covers B2B transactions between authorised dealers.

However, e-invoicing is not mandatory under the new CTC clearance system. In case invoices are issued in electronic format (structured or unstructured format, including PDF), they must be cleared by the ITA and assigned with an allocation number before exchanged with the trading party.

Without receiving this number and including it on invoices, businesses will not be able to deduct input VAT.

Benefits of using e-invoicing in Israel

Although CTC Clearance mandate does not require e-invoicing, there are numerous benefits for businesses that electronically issue and receive invoices, including:

Cost savings through the reduction of paper, postage and manual labour
Saving time by using automated and structured processes
Streamlining operations through interoperable, uniformed initiatives and systems
Fewer issues and risks through the validation and authentication of data

Timeline of e-invoicing clearance in Israel

While combating fraudulent invoices has been discussed in Israel for a long time, the implementation of the upcoming CTC model is a relatively recent development.

February 2023: The 2023-2024 state budget and economic plan are approved, outlining a clearance CTC model
June 2023: The ITA announces plan for CTC implementation
July 2023: The ITA publishes technical specifications for the upcoming CTC model
October 2023: Clearance model is postponed from 1 January 2024
1 January 2024: The original date that the clearance e-invoicing model would be implemented
1 January 2024: The ITA platform becomes operational
5 May 2024: CTC clearance comes into effect
January 2025: Invoice threshold lowers to NIS 20,000 pre-VAT
January 2026: Invoice threshold lowers to NIS 15,000 pre-VAT
January 2027: Invoice threshold lowers to NIS 10,000 pre-VAT
January 2028: Invoice threshold lowers to NIS 5,000 pre-VAT

What is the future of e-invoicing in Israel?

While electronic invoice data will be required as part of the CTC initiative, Israel does not yet have a specific electronic invoicing mandate requiring dealers to issue invoices electronically.

Currently, Israel’s e-invoicing rules – which are classified as post-audit – include e-signing, content remarks and prior notification to the tax authority.

Israel has the potential to go the way of countries like Romania and Spain, mandating the use of e-invoices across transactions with governments and businesses. There is no official word on Israel’s future e-invoicing plans beyond the current CTC mandate.

What happens if I don’t comply?

If an allocation number is not requested for the invoice by the supplier, the buyer cannot deduct its VAT based on that invoice.

Setting up e-invoicing in Israel with Sovos

Sovos’ continuous transaction controls (CTC) software was purpose-built to help customers stay on top of their obligations wherever they do business, even as the rules change.

Currently, e-invoicing is permitted in Israel, provided it is prominently stated on the invoice that it is a ‘computerized document’ and prior notification is made to the ITA. A digital signature compliant with the local law is required to ensure the integrity and authenticity of the electronic invoice.

Storage of e-invoices must be within Israel – unless derogation has been granted. Both issuance and storage of e-invoices can be outsourced to third parties like Sovos.

Taxpayers opting to use e-invoices must comply with the abovementioned rules, as well as the CTC clearance requirements rolling out in 2024.

As CTCs and e-invoicing continue to grow in global adoption, it is vital to partner with a provider that closely monitors the decisions of tax administrations and understands the regulations you face. Sovos can help to stay compliant wherever you do business.

Get in touch today.

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Israel CTC Clearance and E-invoicing FAQ

Is e-invoicing mandatory in Israel?

No, e-invoicing is not mandatory in Israel. Israel’s continuous transaction controls (CTC) mandate involves the electronic submission of invoice data and is set to come into effect on 5 May 2024.

What do I need for an invoice in Israel?

Electronic invoice data must include specific information when submitted to the tax authority, including invoice ID, VAT number, invoice date, invoice amount and accounting software number. They also need to be given an allocation number by the ITA for the buyer to use this invoice for a tax deduction, as per the CTC clearance mandate.

Sovos has the first global solution for e-invoicing compliance, including e-reporting functionality.

Is there a contingency measure to address potential failures in systems?

Within the CTC mandate, the use of emergency allocation numbers is instituted as a contingency measure to address potential failures in its computer systems. In anticipation of such events, taxpayers must acquire and store these emergency numbers.

Do I need to sign the e-invoice?

In case the taxpayer chooses e-invoicing, electronic invoices in Israel must be signed with a digital signature compliant with the local law.

How does Israel’s CTC clearance platform work?

Israel’s mandated CTC clearance platform requires electronic invoice data to be submitted to and approved by the Israeli Tax Authority in real time. The authority will assign an allocation number and verify or reject the invoice data. Once validated, the allocation number will be returned to the seller so it can be issued to the buyer (in electronic or paper format).

Additional resources for e-invoicing compliance

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 Hooda Greig, compliance services manager about ways insurers can make the Insurance Premium Tax (IPT) process more efficient.

Can you tell me about your role and what it involves?

I lead an IPT team that delivers compliance services in Europe. I oversee the day-to-day management and delivery of IPT compliance for an extensive portfolio of global clients. We are the first point of contact between Sovos and our clients. My focus is ensuring all tax requirements for the clients are met, that is filing and paying their liabilities to the various territories they are registered in. I also work closely with other departments within our company, particularly our consulting team to assist with more technical aspects of IPT compliance.

How can insurers make the IPT process more efficient? What are your top tips?

Modernising the tax process will help insurers operate efficiently. There are still many insurers reliant on manual reporting methods for IPT. Strategic management of the end-to-end process is key to improving efficiencies, with a focus on managing risks by investing in digitization. Tax technology tools will make compliance for insurers simple, as will collaborating with tax teams with specialised IPT knowledge at a local level.

My top tip to manage risk is the use of tax technology. Tax authorities are introducing more demanding reporting requirements and digitization of filing and reporting processes can result in efficiency, accuracy, and cost reductions.

What are some of the issues insurers face with IPT?

Efficiency, accuracy, and the costs of getting it wrong are concerns for insurers. The consequences of IPT non-compliance are not limited to statutory or legal penalties, the indirect costs to insurers are often more significant, the cost of correcting a mistake and non-compliance could also have an impact on the company’s reputation. Tax authorities are becoming more stringent in their reporting requirements. It’s important for insurers to work closely with a managed services team to help meet all their tax obligations and in preparation for future IPT requirements to ensure compliance now and in the future.

How can Sovos help insurers with their IPT requirements?

To minimise risks, we’re seeing an increasing number of insurers looking to technology solutions to change the way they operate. Sovos’ mission is to solve tax for good and we specialise in tax technology and data analysis with specialised knowledge at a local level, ensuring insurers’ compliance requirements are met. Keeping abreast of all regulatory changes can be difficult, Sovos issues regular tax alerts, newsletters and hosts webinars to keep clients up to date with the latest IPT updates.

It’s no surprise that inflation is on the forefront of everyone’s mind, with prices continuing to sky-rocket month by month. Data from the United Kingdom shows that the Consumer Prices Index (CPI) inflation jumped to a 40-year high of 9% in the past 12 months. Governments around the world are looking for ways to reduce the burden for consumers to keep global economies afloat. One method – implementing VAT rate cuts to certain goods and services – looks to be coming out on top as multiple countries around the world announced emergency budget sessions or introduced proposals to temporarily cut VAT rates.

Temporary VAT rate cuts are generally quick and easy to implement, which is why they are favored by governments globally. These cuts essentially allow for a boost to the economy by providing consumers with an overall higher amount to spend, incentivizing consumers to spend now while rates are lower.

Country proposals for VAT rate cuts

As expected, many countries have already announced VAT rate cuts or measures to stimulate their economies:

Additional countries such as Estonia, Netherlands, Latvia, Greece, and Turkey are also taking measures to implement VAT rate cuts to fight the ever-rising costs for consumers.

These VAT rate cuts coincide with new measures passed recently by the European Commission allowing Member States to apply reduced rates to more items, including food. Though many Member States seem to be moving towards taking advantage of this new flexibility on VAT rate reductions, it’s expected that as costs continue to rise more Member States and countries around the world will introduce VAT rate cuts to ensure consumer spending doesn’t continue to trend downward.

Since many audits seem to occur at random, it’s not always possible to identify the reason why a tax office would decide to initiate one.

Trigger events for VAT audits

There are specific “trigger” events among the most common reasons that could cause further queries from the tax office. Generally speaking, these are changes in the company’s status such as a new registration, a de-registration, or structural changes within the company.

VAT refund requests also fall into this category. In some countries (Italy and Spain, for example) a refund request is almost certainly a reason for an audit to be initiated since the local tax office cannot release the funds before checks are completed. In this case, the likelihood of an audit increases when a refund is particularly substantial and the business requesting it is newly VAT registered. However, it doesn’t mean that the tax authority will not initiate an audit if the amount requested in a refund is relatively small.

Business model

Certain types of businesses are naturally more subject to audits due to their structure and business model. Groups commonly selected for scrutiny include, for example, large companies, exporters, retailers and dealers in high-volume goods. Therefore, elements such as a high number of transactions, high amounts involved and complexity of the business structure could be another common reason for an investigation to be initiated by the local tax authorities.

Taxpayer metrics

Tax authorities often identify individual taxpayers based on past compliance and how their information compares with specific risk parameters. This would include comparing previous data and trading patterns with other businesses in the same sector. Therefore, unusual patterns of trading, discrepancies between input and output VAT reported, and many refund requests may appear unusual from the tax office perspective and give rise to questions.

Cross checks

Another common reason for the tax authorities to request further information from taxpayers is the so-called “cross check of activities”. In this case, either a business supplier or client is likely to be subjected to an audit. The tax office will contact their counterparts to verify that the information provided is consistent on both sides. For example, if a business is being audited following its refund request, the tax office will likely contact the suppliers to verify the audited company didn’t cancel the purchase invoices and that they have been paid.

This category also includes cross checking activities on Intra-Community transactions reported by a business. In this scenario, the cross check would be based on information exchanges between local tax authorities through the VAT information exchange system (VIES). The tax authorities can check Intra-Community transactions reported to and from specific VAT numbers in each EU Member State and then cross check this information with what has been reported by a business on their respective VAT return. If any discrepancy arises, the tax office will likely contact the business to ask why they have (or haven’t) reported the transactions declared by their counterparts.

Regardless of whether it’s possible to identify the actual reason the tax authority initiated an audit, a business can undertake several actions in preparation for a check of activities, which will be covered in the next article of this series.

Since January 2023, Romania‘s mandatory e-transport system has monitored the transport of certain goods in the national territory. The e-transport system operates in parallel with Romania’s e-invoicing system.

This blog answers frequently asked questions about Romania’s e-transport system including what and who is in scope, document format and fines for non-compliance.

What transportation is in scope?

From January 2023, the Romanian e-transport system monitors the transport of high fiscal risk goods on the national territory.

In addition to the transportation type, the categories of road vehicles in scope are as follows:

Transportation of high fiscal risk goods that don’t fall within this scope do not need to be declared in Romania’s e-transport system.

The carriage of goods intended for diplomatic missions, consular posts, international organisations, the armed forces of foreign NATO Member States or as a result of the execution of contracts, are not in the scope of the RO e-Transport system.

From December 15^th, 2023, the scope of the e-transport mandate was expanded to include the international transport of all goods. Whilst the change was effective immediately, there is a grace period in place until 1 July 2024, after which, penalties will be imposed.

What are the high fiscal risk products that must be declared in Romania’s e-transport system?

Romania’s National Agency for Fiscal Administration (ANAF) established a list of high fiscal risk products using the same criteria as the e-invoicing system (E-Factura), with a few differences.

The product categories of high fiscal risk products for the e-transport system are:

If the transportation includes both goods with high fiscal risk and goods outside the high fiscal risk category, transportation must be declared in the Romanian e-transport system.

How does the Romanian e-transport system work?

Romania’s e-transport system is operational through the Virtual Private Space (SPV), the tax authority portal used for tax purposes, including the Romanian e-invoicing system. The e-transport system can be used through an API or a free application provided by the Ministry of Finance.

Who is required to report to the e-transport platform in Romania?

The entities required to report transport data in the e-transport platform are as follows:

What information needs to be sent to the RO e-transport system?

The declarant must submit an XML format file following the official schema including the following:

What are the fines for non-compliance with the e-transport system in Romania?

Noncompliance with the e-transport system rules will result in a fine reaching RON 50,000 (approx. €10,000) for individuals and RON 100,000 (approx. €20,000) for legal persons. In addition, the value of undeclared goods will be confiscated.

Concerning the international transport of goods, other than goods falling under the ‘high fiscal risk’ category, fines will only apply from July 2024, after the established grace period ends.

Automating RO e-transport reporting

Stay on top of your obligations with Sovos. Map, clear, correct, confirm and delete outbound eWaybill and much more with our specialist solution.

Waves	Threshold (Annual taxable revenue)	Integration date
Wave 1	3 billion Riyals (approx. USD 800m) for 2021	1 January 2023
Wave 2	500m Riyals (approx. USD 133m) for 2021	1 July 2023
Wave 3	250m Riyals (approx. USD 66m) in 2021 or 2022	1 October 2023
Wave 4	150m Riyals (approx. USD 39m) in 2021 or 2022	1 November 2023
Wave 5	100m Riyals (approx. USD 26m) in 2021 or 2022	1 December 2023
Wave 6	70m Riyals (approx. USD 18m) in 2021 or 2022	1 January 2024
Wave 7	50m Riyals (approx. USD 13m) in 2021 or 2022	1 February 2024
Wave 8	40m Riyals (approx. USD 10m) in 2021 or 2022	1 March 2024
Wave 9	30m Riyals (approx. USD 8m) in 2021 or 2022	1 June 2024
Wave 10	25m Riyals (approx. USD 6m) in 2022 or 2023	1 October 2024
Wave 11	15m Riyals (approx. USD 4m) in 2022 or 2023	1 November 2024
Wave 12	10m Riyals (approx. USD 2.6m) in 2022 or 2023	1 December 2024