The General Authority of Zakat and Tax’s (GAZT) previously published draft rules on ‘Controls, Requirements, Technical Specifications and Procedural Rules for Implementing the Provisions of the E-Invoicing Regulation’ aimed to define technical and procedural requirements and controls for the upcoming e-invoicing mandate. GAZT recently finalized and published the draft e-invoicing rules in Saudi Arabia.

Meanwhile, the name of the tax authority has changed due to the merger of the General Authority of Zakat and Tax (GAZT) and the General Authority of Customs to form the Zakat, Tax and Customs Authority (ZATCA).

The finalised rules include a change to the go live date of the second phase from 1 June 2022 to 1 January 2023. They revealed the time limit to report B2C (simplified) invoices to the tax authority´s platform for the second phase.

According to the final rules, the Saudi Arabia e-invoicing system will have two main phases.

Saudi Arabia E-Invoicing System: The First Phase

The first phase begins on 4 December 2021 and requires all resident taxpayers to generate, amend and store e-invoices and electronic notes (credit and debit notes).

The final rules state businesses must generate e-invoices and their associated notes in a structured electronic format. Data in PDF or Word format are therefore not e-invoices. The first phase does not require a specific electronic format. However, such invoices and notes must contain all necessary information. The first phase requires B2C invoices to include a QR code.

There are a number of prohibited functionalities for e-invoicing solutions for the first phase:

Saudi Arabia E-Invoicing System: The Second Phase

The second phase will bring the additional requirement for taxpayers to transmit e-invoices in addition to electronic notes to the ZATCA.

The final rules state the second phase will begin 1 January 2023 and will be rolled-out in different stages. A clearance regime is prescribed for B2B invoices while B2C invoices must be reported to the tax authority platform within 24 hours of issuance.

As a result of the second phase requirements, the Saudi e-invoicing system will be classified as a CTC e-invoicing system from 1 January 2023. All e-invoices must be issued in UBL based XML format. Tax invoices can be distributed in XML or PDF/A-3 (with embedded XML) format. Taxpayers must distribute simplified invoices (i.e. B2C) in paper form.

In the second phase, a compliant e-invoicing solution must have the following features:

The second stage will furthermore bring additional prohibited functionalities for e-invoicing solutions on top of requirements mentioned in the first phase:

What’s next for Saudi Arabia’s e-invoicing system?

After publishing the final rules, the ZATCA is organising workshops to inform relevant stakeholders in the industry.

Some of the details remain unclear at this point, however the Saudi authorities have been very successful in communicating the long-term goals of the implementation of its e-invoicing system, as well as making clear documentation available and providing opportunities for feedback on the documentation published for each phase. We expect provision of the necessary guidance within the near future.

Take Action

Contact us to discuss your Saudi Arabia VAT requirements. In addition, to find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls.

It’s been more than a few years since Romania first toyed with the idea of introducing a SAF-T obligation to combat its ever-growing VAT gap. Year after year, businesses wondered what the status of this new tax mandate was, with the ANAF continuously promising to give details soon. Well, the time is now.

What is SAF-T?

The Organization for Economic Co-operation and Development (OECD) introduced the Standard Audit File for Tax (SAF-T) in 2005. The goal of the SAF-T digital VAT return is to provide auditors access to reliable accounting data in an easily readable format. Companies can export information from their accounting systems (invoices, payments, general ledger journals in addition to master files).

As a result, audits should be more efficient and effective based on the standardized format set by the OECD. As countries can require a different format for capturing data, no two country implementations of SAF-T are exactly the same.

How is Romania implementing their SAF-T?

From 1 January 2022, the new Romania SAF-T mandate comes into effect for large taxpayers. The digital VAT return submissions are via XML with over 800 fields.

It appears Romania is looking to follow the format prescribed by the OECD (SAF-T OECD Scheme version 2.0 – OECD standard format). The technical specifications have been released and can be found on the ANAF portal.

The documents which are available include:

Now that the specifications are available, Romania will soon move into the testing phase of implementation; where taxpayers can take advantage of submitting test data to the ANAF. This is in order to become familiar with the process, understand the requirements, and if necessary, adjust their ERP systems. As a result, this should ensure full compliance for January. Details on how to participate in the test phase are forthcoming and will be available on the portal once finalized.

What’s next?

Sources close to the Romania SAF-T implementation project indicated the hope is to eliminate certain declarations. To possibly provide pre-filled returns based on SAF-T information once the project is in full swing. This would align with the pre-population trend that is slowly making its way across the EU; with Italy, Spain, and Hungary paving the way for pre-populated VAT returns.

Take Action

Get in touch to discuss your Romania SAF-T compliance requirements. To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls or see this overview on VAT Compliance in Romania.

The Turkish Revenue Administration (TRA) has published updated guidelines on the cancellation and objection of e-fatura and e-arsiv invoice. Two different guidelines are updated: guidelines on the notification of cancellation and objection of e-fatura and guidelines on the notification of cancellation and objection of e-arsiv.

The updated guidelines inform taxable persons about the new procedures for objection against an issued e-fatura and e-arsiv invoice. And how this must be notified to the TRA. Due to changes in the objection procedure, the e-arsiv schema has also changed. There has not yet been a change in the e-fatura schema, however it could also change in the near future. The updated guidelines state that the TRA platform can be used to notify the TRA about objection requests made against an issued e-fatura and e-arsiv invoice.

Why are the updated guidelines important?

From July 2021, electronically issued documents won’t be mentioned in the so called ‘BA and BS forms’. The BA and BS forms are generated to periodically report issued or received invoices when a total invoice amount is 5.000 TRY or more. All limited liability and joint stock companies are obliged to create and submit the forms to the TRA even if they don’t have any invoices to report.

The TRA recently published a new provision stating that electronically issued documents will not be shown in BA and BS forms and instead will be reported directly to the TRA in the clearance (e-fatura) and reporting(e-arsiv) process. Considering that the TRA receives the invoice data for electronically issued invoices in real-time, relieving taxpayers from reporting invoices through BA and BS forms creates a more efficient system in which the relevant data will be collected only once from taxpayers.

At its current stage, e-documents won’t be mentioned in these forms. However, in order for the TRA to have accurate invoice data about each taxpayer, it needs to be notified which are the final invoices and disregard any objected or cancelled documents when evaluating taxpayer data.

Although the cancellation process is already performed through the TRA platform for basic e-fatura and e-arsiv, objection requests are made externally (through a notary, registered letter or registered e-mail system), meaning the TRA does not have visibility of all objections. There could therefore be a risk that the TRA considers a cancelled document (due to objection) as issued which could result in discrepancies between the taxpayer records and the data that the TRA considers relevant for tax collection.

Therefore, taxpayers must now notify the TRA about objection requests to avoid any discrepancies between their records and BA and BS forms. The final goal of this application is that the BA and BS forms will be completely auto populated by the TRA in future.

How will the new process work?

According to the Turkish Commercial Code, any objections or cancellation requests must be made within eight days. Suppliers and buyers can raise an objection request which must be made externally (through a notary, registered letter or registered e-mail system) and registered in the TRA system.

For e-arsiv application, there are two ways for suppliers to notify the TRA about the objection request. They can either use the e-arsiv schema (automated) or register the request in the TRA portal. Buyers can see this request on the TRA platform and may respond, although they are not obliged to. Because e-self-employment receipts are also reported through e-arsiv application, the same objection rules apply.

For e-fatura, since there is no change in the schema, it is not possible for suppliers or buyers to notify the TRA using e-fatura schema. Currently, they can only notify the TRA about e-fatura objections through the TRA platform. Taxpayers can also respond to objection requests only through the platform.

What’s next?

The TRA has taken a step towards the digitalization of cancellation and objection requests. However, there is still not an automated way to perform these actions. Before the digitized objection process becomes reality in the country, the authorities must take a more sophisticated approach towards automating the process as well as introducing or amending applicable legislation.

Take Action

Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.

There are a variety of different approaches to Insurance Premium Tax (IPT) treatment for marine insurance across Europe. Before looking at how individual countries treat marine insurance, it is worth noting the challenges in determining the country entitled to levy IPT and any associated charges.

The location of risk relating to marine vessels falls within article 13(13)(b) of the Solvency II Directive. This outlines that in the case of ‘vehicles of any type’ the risk location is the ‘Member State of registration’. There is no definition provided for ‘vehicles of any type’. So there is some uncertainty as to whether this is limited to land motor vehicles or whether it extends to marine vessels and aircraft. Most EU jurisdictions adopt the latter, broader approach, but Malta limits it to motor vehicles.

Marine Insurance IPT Across Europe

Additionally, the German tax authority has been known to rely on a 2017 decision made by the Cologne Fiscal Court to levy IPT in circumstances where a P&I club member had a registered office in Germany, but no ship was registered there. This raises the possibility of double taxation. This is with IPT potentially levied in both Germany and the country of the registration of the vessel. The Law on the Modernisation of Insurance Tax passed in December last year.

Once an insurer has navigated the choppy waters of the location of risk rules, regimes across Europe vary considerably. Marine insurance is a class of business that sees a number of IPT exemptions. Some countries like Bulgaria and Ireland offer fairly broad exemptions for damage and loss to marine vessels.

Other countries adopt a more nuanced approach in distinguishing between commercial vessels and pleasure craft. Belgium offers an exemption in the case of the former, whereas they levy IPT as normal in the case of the latter. A similar distinction exists in France between vessels conducting commercial activities and those operating for pleasure.

Germany has a reduced IPT rate of 3% in relation to marine hull. Where the ship exclusively serves commercial purposes and has insurance against perils of the sea.

Denmark has an exemption for its tax on non-life insurance, but it does impose a separate tax on pleasure boats. Denmark calculates on the sum insured of the vessels themselves.

Reduced Rate Extension

One final point of note is the extension of the regime for the reduced rate, like that in the Portuguese territory of Madeira, in April. The extension lasts until the end of this year at least. The European Commission has extended the State aid initiative which gave rise to the reduction until 31 December 2023, so it may be that this will be reflected in Portuguese legislation in due course.

It’s essential for insurers to understand the tricky location of risk rules associated with marine insurance. In addition to the various approaches taken by different countries in Europe. This ensures companies pay the correct amount of Marine Insurance Tax to the correct administration.

Take Action

Get in touch to discuss your marine insurance requirements with our IPT experts.

INFOGRAPHIC, PRODUCT BROCHURE

IPT compliance – taking care of the detail so you don’t have to

Insurance premium tax (IPT) is a complex thing to deal with. Get it wrong and the implications can be problematic.

At Sovos we take care of the detail, giving you the complete peace of mind you need. We are compliance specialists and we solve tax for good. IPT is one of our specialisms, so we know it well. We’ve been in it from the start and, as a result, many of the world’s largest insurers trust us with their IPT compliance business.

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Trade effectively and without problems

As regulations change and become more complicated throughout Europe, you need the certainty that you can trade effectively and without problems. That’s what we provide. Our team of tax compliance specialists cover over 100 countries and know the ins and outs of each jurisdiction. It’s this depth and accuracy of knowledge that ensures you have the right level of compliance, are only paying what you need to pay, while having the latest information to always keep you aware of changes and stay ahead of the curve.

Compliance peace of mind

Our leading software gives you the freedom to achieve this yourself. It integrates seamlessly into your existing system and is easy to use. Simplify the preparation of IPT and parafiscal returns and use accurate, real-time rates and calculations to help you reduce both the amount of errors and reprocessing needed.

Or, if you prefer, we can manage it all for you, from registration through to fiscal representation. Either way, we’re always here for you to make the process simple and smooth no matter what the future holds. And because our team works together in the same location and knows how different tax authorities prefer to operate, you can be sure that whether you’re trading in a new jurisdiction, or across multiple different jurisdictions, the process will be fast and free from any niggles, big or small.

We’re a market leader for IPT compliance in Europe with award winning solutions.

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We actively work with 80% of insurers across Europe including many of the top 100 UK insurers, FTSE Eurotop 100, in addition to Fortune Global 500 companies.

As the challenges and complexities of IPT compliance continue to rise, more companies are realising the benefits of taking both a holistic and global approach. Sovos was built to solve the complexities of the digital transformation of tax with complete connected offerings for tax determination, and tax reporting and more.

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Update: 9 March 2023 by Hector Fernandez

IPT in Spain is complex. Navigating the country’s requirements and ensuring compliance can feel a difficult task.

Sovos has developed this guide to answer prominent and pressing questions to help your understanding of Insurance Premium Tax in the country. Originally created following a Spain IPT webinar we hosted, the guide contains questions asked by industry insiders and answered by legislative experts.

What is the IPT rate in Spain

The current IPT rate in Spain is 8%, as of 2022 and is applied to all classes of insurance, with some exemptions. Classes exempt from IPT include life, health, reinsurance, group pensions, export credit, suretyship, goods and passengers in international transit, agricultural risks, aviation and marine hull insurance.

What makes Insurance Premium Tax in Spain challenging?

The most challenging aspect is correctly submitting to the five different tax authorities: Alava, Guipuzkoa, Navarra, Statal and Vizcaya.

What is the Basis of Spanish IPT Calculation?

The basis of the IPT calculation is the total amount of the premium payable by the insured, excluding funds for the insurance of extraordinary risks and fire brigade tax. Companies must show the tax in addition to the premium.

Spanish IPT Liability

The insurer is liable for calculating and paying the tax. EEA insurers operating under the Freedom of Service regime must appoint a fiscal representative in Spain.

Is all health insurance exempt from IPT in Spain?

Health and sickness insurance is exempt from IPT in Spain, under Article 5 of the IPT law. However, this doesn’t include Accident cover which should be taxable at 8%.

International insurance risks belong to the exemptions. Is this also true for international freight forwarder liability insurance? And for international marine cargo insurance?

Article 5 of the IPT law provides an exemption for “insurance operations related to ships or aircraft that are destined for international transport, except for those that carry out navigation or private recreational aviation”.

Under Act 22 of Law 37/1992 (VAT Law), “international transport is considered to be that which takes place within the country and ends at a point located in a port, airport or border area for immediate dispatch outside the Spanish mainland and the Balearic Islands”.

Therefore, we understand insurance, such as freight forwarder liability and marine cargo, gain the IPT exemption, to the extent they relate to international transport.

I’m preparing CCS monthly reporting manually in Excel. Is there a Microsoft tool that can create the final report?

We’re unaware of any Microsoft tools to prepare the CCS file for monthly reporting. This file can be complex.

What is CLEA?

CLEA is the surcharge to fund the winding-up activity of insurance undertakings. It was included in the Modelo 50 CCS and is due for all insurance contracts signed on risks in Spain. This excludes life insurance and export credit insurance on behalf of or with the support of the State.

The type of surcharge destined to finance the winding-up activity of insurance companies is made up of 0.15% of the premiums above.

Do insurers have to be registered in all the provinces in Spain?

All insurers should register in the provinces where the location of risk is. It is a compliant requirement because insurers must declare premium taxes to the correct tax authorities according to the location of risk.

Policies can be submitted monthly to Consorcio even if the postcode is wrong. How should we proceed in the future for Insurance Premium Tax in Spain?

The postcode is compulsory data that must be sent to the Consorcio monthly, as the CCS needs to know the Location of the risk for each policy subscribed in Spain.

The Fire Brigade Charge (FBC) annual reports are also submitted through the CCS portal. The postcode is a compulsory field that helps the different Councils identify the policies that were subscribed in their territories and collect their portion of FBC accordingly.

When reporting Consorcio liabilities in Spain, should the lead insurer declare on behalf of its co-insurers?

Insurers can elect to declare only their share of the co-insurance agreement, should that be the agreement amongst the insurers that are party to the contract.

Where Consorcio cannot recover an outstanding sum from a co-insurer, it will likely hold the lead insurer accountable for that amount. Alternatively, the lead insurer can pay the surcharges for all fellow insurers. So there is, to some extent, an element of discretion by the relevant insurers.

Is there a list or explanation of each movement and declaration type to report to Consorcio?

We’re able to provide this to our customers upon request. Get in touch with our IPT experts for support.

More Questions about Insurance Premium Tax in Spain?

Watch our webinar, IPT: Spotlight on Spain for a deep dive into Spain’s CCS

Learn how to navigate the complex region with our ebook, Is IPT simplicity in Spain possible?

Read our blog to understand the more challenging aspects of IPT reporting in Spain

Need immediate help for IPT in Spain?

Our team of tax experts are ready to help. Get in touch today. For more information about IPT read our free guide to Insurance Premium Tax. For an overview about other VAT-related requirements in Spain read this comprehensive page about VAT compliance in Spain.

An amendment in the General Communiqué No. 509 has announced healthcare service providers and taxpayers providing medical supplies and medicines or active substances must use the e-invoice application from 1 July 2021.

The mandated scope for transition to e-invoice and e-arşiv invoice applications in the healthcare industry

Published in the Official Gazette the implementation will cover healthcare service providers who have signed contracts with the Social Security Institution (SSI) and all taxpayers providing medicines and active substances and medical supplies.

This includes:

The transition process to e-invoice and e-arşiv invoice applications in the healthcare industry

Within this scope, organisations must use the e-invoice application as of 1 July. Organisations signing contracts with SSI after this date must use e-invoice prior to their issue of invoices to SSI.

From 1 January 2020 all organisations included in the e-invoice application scope have to apply the e-arşiv invoice on the date of e-invoice application. Any healthcare organisations included in the amendment will then have to apply the e-arşiv invoice on 1 July.

What are the benefits of e-invoice and e-arşiv invoice transition to the healthcare industry?

The digitisation process will minimise physical contact, a significant benefit following the Covid-19 outbreak. Furthermore, organisations will no longer have to prepare or store physical documents as they are stored electronically.

For organisations that issue invoices to SSI, transactions such as payment terms will become faster and more efficient via the e-invoice and e-arşiv invoice applications. In addition to the transfer of all invoice-related processes to the digital environment.

Organisations that carry out the e-issuance process via the TRA Portal or via a third-party integrator will benefit from easy access to documents, improved efficiency, and business continuity as a result.

Take Action

Get in touch to find out how Sovos tax compliance software can help you meet your e-transformation and e-document requirements in Turkey.

Italy postpones e-document legislation until 2022. In September 2020, Italy introduced major changes to the country’s rules on the creation and preservation of electronic documents. These new requirements were expected to be enforced on 7 June 2021 however the Agency for Digital Italy (AGID) has now decided to postpone the introduction of the new rules until 1 January 2022.

The new ‘Guidelines for the creation, management, and preservation of electronic documents’ (“Guidelines”) regulate different aspects of an electronic document. By following the Guidelines, businesses benefit from the presumption that their electronic documents will provide full evidence in court.

The postponement of the introduction of the Guidelines is a reaction from the AGID to claims of local organizations who have particularly expressed concern about the obligation to associate metadata with e-documents. The Guidelines set forth an extensive list of metadata fields for keeping alongside e-documents in a way that will enable interoperability.

Metadata requirements modified

In addition to delaying the introduction of the new e-document legislation, the AGID has also modified metadata requirements. They included new pieces of metadata and changing the description of some fields. The AGID has also corrected references – especially to standards – and rephrased statements to clarify some obligations.

The updated Guidelines and their corresponding Appendices are available on the AGID website.

Take Action

Get in touch to discuss e-invoicing requirements in Italy.

This blog is an excerpt from Sovos’ Annual VAT Trends report. Please click here to download your complimentary copy in full.

VAT requirements and their relative importance for businesses have changed significantly in recent years. For data that is transactional in nature, the overall VAT trend is clearly toward various forms of continuous transaction controls (CTCs).

The first steps toward this radically different mode of enforcement, known as the “clearance model”, began in Latin America in the early 2000s. Other emerging economies, such as Turkey, followed suit a decade later. And today, many countries in the Latin American region now have stable CTC systems where a significant amount of the data required for VAT enforcement is based on invoices. Other key data is harvested and pre-approved directly at the time of the transaction.

Common clearance system features

There are several high-level features and processes that many clearance systems have in common.

However, many variations exist on this reference model in practice; many countries with a clearance system have implemented extensions and variations on these “standard” processes:

1. OK TO ISSUE: Typically, the process starts with the supplier sending the invoice in a specified format to the tax authorities or a state agent licensed to act on its behalf. This invoice is ordinarily signed with a secret private key corresponding to a public certificate issued to the supplier.

2. OK/NOT OK: The tax authority or state agent (for example, an accredited or licensed operator) will typically verify the signed supplier invoice and clear it by registering it under a unique identification number in its internal platform. In some countries, a proof of clearance is returned, which can be as simple as a unique transaction ID, possibly with a timestamp. In some cases, it’s digitally signed by the tax authority/state agent. The proof of clearance may be detached from the invoice or added to it.

3. VALID: Upon receipt of the invoice, the buyer is often obligated or encouraged to check with the tax authority or its agent that the invoice received was issued in compliance with applicable requirements. In general, the buyer usually handles integrity and authenticity control using crypto tools, also used to verify a signed proof of clearance. In other cases, the tax authority or agent completes the clearance check online.

4. OK/NOT OK: If the buyer has used an online system to perform the validation described in the previous step, the tax authority or state agent will re-turn an OK/not OK response to the buyer.

The first “clearance” implementations were in countries like Chile, Mexico and Brazil between 2000 and 2010. They were inspired by this high-level process template. Countries that subsequently introduced similar systems, in Latin America and worldwide, take greater liberties with this basic process model.

Global expansion of CTCs

Europe and other countries passed through a stage allowing original VAT invoices to be electronic. This is without changing the basics of the VAT law enforcement model. This phase of voluntary e-invoicing without process re-engineering is “post audit” e-invoicing. The moment a tax administration audit comes into play is post-transaction. In a post audit system, the tax authority has no operational role in the invoicing process. It relies heavily on periodic reports transmitted by the taxpayer.

Largely due to the staggering improvements in revenue collection and economic transparency demonstrated by countries with existing CTC regimes, countries in Europe, Asia and Africa have also started moving away from post audit regulation to adopting CTC-inspired approaches.

Many EU Member States, for example, are moving toward CTCs not by imposing “clearance” e-invoicing but by making existing VAT reporting processes more granular and more frequent via CTC reporting. These countries will eventually adopt requirements for real-time or near-real-time invoice transmission. This is as well as electronic transmission of other transaction and accounting data to the tax authority. However, it’s not a foregone conclusion that they’ll all take these regimes to the extreme of invoice clearance.

CTC reporting from a purely technical perspective often looks like clearance e-invoicing, but these regimes are separate from invoicing rules. In addition, they don’t necessarily require the invoice as exchanged between the supplier and the buyer to be electronic.

The impact of CTCs on business

The VAT trend towards CTCs is obvious, but situations in individual countries and regions remain fluid. It’s important to align your company with local expertise that understands the nuances of your business and what regulations and rules you’re subject to.

Take Action

Start by downloading the full Trends Report here or contact us

On 22 March 2021 the EU Council approved DAC7, which establishes EU-wide rules meant to improve administrative cooperation in taxation. In addition, the Directive addresses additional challenges posed by a growing digital platform economy.

What is DAC7?

In 2011, the EU adopted Directive 2011/16/EU on administrative cooperation in the field of taxation in the EU (‘DAC’). The aim of the Directive is to establish a system for secure cooperation between EU countries’ national tax authorities. The Directive also sets out the rules and procedures EU countries must apply when exchanging information for tax purposes. DAC7 is the seventh set of amendments to the Directive.

What are the new rules under DAC7?

The new DAC7 tax rules will require digital platforms to report the income earned by sellers on their platforms to EU tax authorities. As a result, reportable activities will include:

Reportable information will include tax identification numbers, VAT registration numbers, in addition to other demographic information for sellers. The new rules extend the scope of automatic exchange of information among EU tax officials to the information reported by the digital platform operators.

The object of these new rules is to address the challenges posed by an ever-expanding global digital platform economy. Each year, more and more individuals and businesses use digital platforms to sell goods or provide services. Sales made online have become an even larger share of total global sales in the last year due to the COVID-19 pandemic.

Income earned through these digital platforms is often unreported and tax is not paid, which causes loss of tax revenue for Member States and gives an unfair advantage to suppliers on digital platforms over their traditional business competitors. The new amendments should address these issues, enabling national tax authorities to detect income earned through digital platforms and determine the relevant tax obligations.

Other rules included within the amendments will improve the exchange of information and cooperation between Member States’ tax authorities. It will now be easier than ever to obtain information on groups of taxpayers. Lastly, the new rules set up a framework for authorities of two or more Member States to conduct joint audits.

When will DAC7 apply?

The new DAC7 tax rules will apply to digital platforms operating both inside and outside the EU from 1 January 2023. The framework for authorities of two or more Member States to conduct joint audits will be operational by 2024 at the latest.

Take Action

Get in touch with our experts to discuss your EU tax requirements. To find out more about what we believe the future holds, download VAT Trends: Toward Continuous Transaction Controls.

Russia introduces a new e-invoicing system for traceability of certain goods on 1 July 2021. Federal Law No. 371-FZ will amend the Russian Tax Code to introduce the new procedure for the traceability system, which will bring the introduction of mandatory e-invoicing for taxpayers dealing with traceable goods.

Since its introduction, B2B e-invoicing in Russia has remained voluntary. However, this is changing as of this summer when the issuance and acceptance of e-invoices will be mandatory for taxpayers trading goods subject to the traceability system.

What is the traceability system?

The traceability system aims to monitor the movement of certain goods imported into Russia and the Eurasian Economic Union (EAEU). In the scope of the traceability system, each consignment of goods is assigned a registration number during import. This is then controlled at all transaction stages. Businesses within the scope of this new traceability system will need to include the registration number in invoices and primary accounting documents. They must also provide information on the transactions involving the traceable goods through VAT returns and related transaction reports.

Legal entities and individual businesses participating in the circulation of traceable goods are in scope of the traceability requirements. From 1 July 2021, invoices for these goods must be electronic. Buyers of goods subject to traceability must accept invoices in electronic form. Furthermore, the new requirement for mandatory electronic invoices for sales of traceable goods doesn’t apply to export/re-export sales and B2C sales.

What type of goods are subject to the traceability requirements?

The goods included in the list of traceable goods are currently:

What’s next for Russian regulation of electronic documents?

Considering that by the end of 2024 Russia aims to have 95% of invoices and 70% of waybills in electronic form, it’s likely more digitization changes are coming. The digitization of accounting records is another area the Russian tax authority is making progress on. It would therefore not come as a surprise to see more changes in the Russian legislation in the next couple of years.

Take Action

Get in touch to discuss the July 2021 e-invoicing requirements in Russia. Download VAT Trends to discover more about CTCs and how governments across the globe are enacting complex new policies to enforce VAT mandates.

It’s difficult to pinpoint exactly when new taxes or tax rate increases will happen. Covid-19 has impacted almost everything, including a massive deficit in the economy. Many banks have applied negative interest and governments have put funding in place to aid recovery. It’s highly likely that tax authorities will be looking at ways to bring in additional funding, including Insurance Premium Tax (IPT) rate increases.

Europe’s IPT rate increases

Some of the steepest increases across Europe can be recognised not as an instant from one rate to another but a gradual incline.

The Dutch IPT regime is one of the highest rates across Europe, currently at 21%. Until 2008, the IPT rate was 7% and raised in various stages, finally settling at 21% in 2013. An increase of 14% in a five-year period!

Why the sudden rate increase? Was it because the Dutch tax authorities realised theirs was one of the lowest rates in Europe? Was it due to the economic climate at the time to gain extra revenue? Or was it because tax authorities were beginning to realise IPT was becoming a more recognised tax?

The Netherland’s isn’t the only country to have experienced a dramatic IPT rate increase over a short period of time.

HMRC, the UK tax authority, has also taken the opportunity to implement more rigorous increases, especially with their standard rate. In 2011, the rate increased to 6%, increasing at various intervals until stabilising at 12% in 2017. The rate doubled in a five-year period!

The similarity between the two territories and the way they have increased their rates is uncanny. The five-year structure of rate changes either by 1 or 2%, ultimately reaching much higher rates than initially expected in the market. Looking back at the economy during the time of the increase, Europe was beginning to recover from a recession that hit most territories hard with rising interest rates on loans and mortgages and increased unemployment.

There are changes in the market now that could influence IPT rates. Many insurance companies have increased the scope of insurances offered. Classes of business are more varied and premiums quoted are higher. Emphasis is on ensuring the invoicing is correct with the insurer versus carefully considering insured taxes.

What’s Next?

Many territories now require more granular detail for submissions. Will this trigger more audits? Will it cause more tax authorities to analyse this information to enforce their penalty regimes? Or will there be a number of rate increases across the board? Increases could begin at 1 or 2% and follow the trend of five years as set out above. Either way, there is a financial gap which will need to be filled.

We’ll be keeping a close eye on the latest Insurance Premium Tax rate updates to see how tax authorities respond to this current economic climate.

Take Action

Get in touch about the benefits a managed service provider can offer to ease your IPT compliance burden.

INFOGRAPHIC, PRODUCT BROCHURE

Blending human expertise and software - VAT Managed Services

Companies around the world face growing VAT compliance obligations. Governments globally continue to look for ways to prevent fraud, increase revenue and ultimately close VAT gaps. It’s a challenge and especially as VAT requirements can be complex and fragmented across different markets. European Union countries alone lost an estimated €140 billion in VAT revenues in 2018. So it’s easy to see why governments are taking steps to reduce this.

Keeping up with VAT rates and reporting changes is daunting. For multinational companies, that complexity only intensifies. If you trade across multiple borders the associated workloads also increase.  For these reasons, companies need to ensure they have a robust compliance continuity plan in place to ensure their VAT compliance obligations are met wherever they operate.

The cost of noncompliance can be high. And errors can be caused by various reasons. These include late filings, using incorrect tax rates, misinterpretation of the regulations or simply due to human error.  Whatever the cause, the repercussions can be costly leading to loss of VAT deductions, invasive and time consuming audits and other financial penalties and reputational damage.

As the challenges and complexities of VAT compliance continue to rise, more companies are realising the benefits of embracing a managed service approach to all or part of their VAT compliance obligations.

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Technology enabled VAT Managed Services

Ease your compliance workload reducing risk wherever you trade

Sovos VAT Managed Services is a blend of human expertise and software. Our multi-lingual team of VAT experts use our proprietary software which is updated as and when VAT regulations change. Our team is your team. In addition, our global regulatory specialists monitor all regulatory changes, so you don’t have to. Allowing you more time to focus on your business.

Sovos VAT Managed Services takes care of your compliance for both periodic and continuous reporting obligations. This applies across all markets where you operate today and for the markets you intend to dominate tomorrow. A dashboard provides you with full visibility of the status of each of your filings. And, at a later date, if your strategy changes and you want to bring your VAT compliance function back in-house, that’s not a problem. Your partnership with us as a global tax technology provider is flexible. So this means you can readily switch to a fully insourced software solution.

VAT legislation is complex and continues to change. Businesses need the support of both managed services and technology to help them meet their VAT compliance obligations and to allow them to continue to trade with confidence. Appointing Sovos with our blend of human expertise and technology empowers companies to comply with and face the changing VAT landscape head-on.

Keeping up with VAT rates and reporting changes is daunting. For multinational companies, that complexity only intensifies. If you trade across multiple borders the associated workloads also increase.  For these reasons, companies need to ensure they have a robust compliance continuity plan in place to ensure their VAT compliance obligations are met wherever they operate.

The cost of noncompliance can be high. And errors can be caused by various reasons. These include late filings, using incorrect tax rates, misinterpretation of the regulations or simply due to human error.  Whatever the cause, the repercussions can be costly leading to loss of VAT deductions, invasive and time consuming audits and other financial penalties and reputational damage.

As the challenges and complexities of VAT compliance continue to rise, more companies are realising the benefits of embracing a managed service approach to all or part of their VAT compliance obligations.

EU E-Commerce VAT Package: New Rules for 2021

Easing cross-border transactions

From 1 July 2021, the existing Mini One Stop Shop (MOSS) scheme transitions to a new framework. This is the 2021 EU e-commerce VAT package.  This e-book guides you through the EU’s OSS, IOSS and the new VAT rules for e-commerce.

The growth of e-commerce and cross-border trade is having a radical effect on VAT. Companies large and small are caught up by sweeping changes. With more change on the horizon, now is the time to prepare.

The introduction of the new EU VAT e-commerce package, in addition to the UK’s recent changes to the rules regarding overseas goods sold to customers in the UK, means businesses across the world should implement new systems. Now is the time to familiarise themselves with how the new frameworks affect their operations, commercial position and liabilities in both the EU and the UK.

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The goal of the EU VAT e-commerce package is to simplify cross-border B2C trade in the EU, ease the burden on businesses, reduce the administrative costs of VAT compliance and ensure that VAT is correctly charged on such sales. EU businesses will be able to compete on an equal footing with non-EU businesses that charge VAT.

Moving forward there will be:

  • Import One Stop Shop (IOSS) for goods delivered from outside the EU
  • One Stop Shop (OSS) for intra EU B2B deliveries of goods and for services provided B2C by EU established suppliers
  • Non-Union One Stop Shop (non-Union OSS) which replaces and extends the current MOSS 

This e-book answers questions about the upcoming EU e-commerce package helping businesses ensure they prepare for the change and make informed decisions.

  • How will the One Stop Shop work?
  • What are the benefits of the One Stop Shop?
  • When will the One Stop Shop changes come into effect?
  • How do I register for the One Stop Shop?
  • What do I need to do to prepare for the One Stop Shop?
  • Is the One Stop Shop right for my business?
  • I am a business established in the EU, what do I need to consider?
  • I am a business established outside the EU, what do I need to consider?

As well as providing practical advice for EU and non-EU established businesses, the e-book also includes OSS and IOSS examples. We provide an in-depth view of the potential iterations that apply to direct to consumer businesses and those that sell via online marketplaces.

Download the e-book to understand the implications of the 2021 EU e-commerce VAT package and ensure your business is ready by 1 July 2020 for the significant changes ahead.

Get Ready for the 2021 EU e-Commerce VAT Package

Download our infographic to understand the upcoming changes.

If you’re an EU business with B2C sales in other EU Member States or based outside the EU with B2C sales to the EU, 1 July 2021 will bring significant change.

The EU VAT e-Commerce Package aims to simplify cross-border trade and ensure VAT is charged correctly on cross-border B2C sales.

The change to the Distance Selling threshold means that VAT will be immediately due in the Member State of consumption and this could lead to a requirement for several additional VAT registrations. This will add cost and complexity to businesses and so the package introduces a One Stop Shop (OSS) to ease the burden.

OSS has many benefits but it’s not simple.

It’s important that companies prepare and make informed decisions now as to whether or not OSS is right for their business.

Our One Stop Shop infographic will help you understand the key changes the new EU VAT e-Commerce Package will bring including:

·       Union OSS, Non-Union OSS and Import OSS

·       OSS record-keeping requirements

·       Excise goods eligibility

·       Place of supply rules

·       Changes to distance selling thresholds

·       Marketplace liability

·       Low value consignment relief  

·       How to prepare for OSS

·       The consequences of OSS noncompliance

As part of the changes, it’s important to understand which OSS applies to your business to ensure VAT compliance. Requirements vary for EU and non-EU businesses, for sales D2C or via an online marketplace depending on the final steps of the supply chain.

The three variations of OSS are:

·       Union OSS

·       Non-Union OSS

·       Import OSS (IOSS)

As OSS isn’t currently compulsory it’s better to understand internal timeframes and implement OSS when your business is ready, rather than try and rush to meet the 1 July 2021 introduction date.

The main choice businesses with total intra-community sales of >€10,000 need to make is whether to use OSS or register in every Member State where they trade.

Download our infographic to understand the upcoming changes and how they could affect your business.

Sovos can help you prepare for OSS

Implementing the changes required to comply with the 2021 EU e-Commerce VAT Package into your ERP system could take significant time and resources. Sovos can help ease the tax burden and help you prepare for and understand the right solution for your business.

Our large advisory team can help you navigate the complexities of modern VAT compliance.

Update: 25 August 2023 by Carolina Silva

Croatia to Introduce E-Invoicing and CTC Reporting System

According to official sources from the Ministry of Finance, the Croatian tax authority will introduce a decentralised e-invoicing model alongside a continuous transaction control (CTC) real-time reporting system of invoice data to the tax authority. This move is part of the Fiscalization 2.0 project the authority announced earlier this year.

This is the outcome of a recent project where the tax authority analysed CTC clearance and reporting systems from multiple jurisdictions within the EU – i.e. Spain, France, Italy and Hungary – which all have the common purpose of combating VAT fraud. Further examination of the efficacy of such systems revealed that these procedures are successful in this fight and increase VAT revenue.

Upcoming obligations in Croatia

According to recent news, there will be a phased implementation of two obligations:

These are two independent obligations for taxpayers and take place separately.

Trading parties will issue and exchange e-invoices and, in parallel, each party will deliver certain invoice data to the fiscalization system within a two-day deadline. The e-invoicing process and data reporting to the fiscalization system can both be performed through service provider access points.

Companies will not perform the e-invoice exchange through a centralised platform but through access points; they can outsource their e-invoicing and real-time reporting processes to service provider access points. To this end, the tax authority will make a directory of access points available.

The Croatian tax authority will use data obtained from the fiscalization of invoices to simplify and facilitate the existing VAT reporting obligations (i.e. forms, records and tax returns), ultimately replacing some of the current returns. Measures proposed are:

What is next?

The proposed system should be implemented by the end of 2024, giving time for the necessary adjustments of the current legal framework to be made and for publishing further CTC documentation and specifications before the implementation begins.

Need help preparing for these upcoming changes in Croatia? Sovos can help.

 

Update: 13 February 2023 by Carolina Silva

Croatia’s Proposed CTC System

The Croatian Tax Administration has announced a new project called “Fiscalization 2.0”, which would implement a broad CTC system that combines e-reporting, mandatory e-invoicing, e-archiving and e-bookkeeping obligations.

Fiscalization 2.0

Fiscalization 2.0 seems to be an extension of Croatia’s current fiscalization system for cash transactions, called online fiscalization. The government is looking at other CTC systems in Europe, and specifically mandatory B2B e-invoicing, as the vehicle to achieve business automation and tax autonomation in the Croatian economy.

Based on the announcement, it is not clear yet what form of CTC system may be implemented and what the requirements will be.

Croatia’s proposed measures are:

The project should be implemented by the end of 2024, giving the authorities enough time to produce necessary CTC legislation and documentation and prepare businesses to comply with the new requirements.

What is next?

Expect the Croatian Tax Administration to publish further documentation and specifications before implementation.

Currently, the tax administration is forming working groups to jointly study the best practices and find the right solutions for the new CTC system. Additionally, the tax authority is conducting a survey on the current state of e-invoicing in the country and expectations for the future.

For more information on Croatia’s evolving fiscalization system, speak to our expert team.

 

Update: 8 April 2021 by Joanna Hysi

Croatia was one of the first countries in the world to introduce a real-time reporting system for cash transactions to the tax authority. Known as the online fiscalization system, new requirements have been introduced to improve tax controls for cash transactions.

Croatia’s online fiscalization system

The system aims to combat retailer fraud by providing the tax authority with visibility of cash transactions in real-time and encouraging citizens to play a part in tax controls by validating the fiscal receipt through the tax authority’s web application.

Previously, the online fiscalization system required issuers to send invoice data to the tax authority for approval and include a unique invoice identifier code (JIR) provided by the tax authority in the final receipt issued to the customer. Registration of the sale could be verified by entering the JIR code through the tax authority’s web application.

What’s new for Croatia’s online fiscalization system?

The government has introduced a new requirement for fiscal receipts to make citizen participation easier and increase the level of control of tax records and evidence.

As of 1 January 2021 a QR code must be included in fiscalized receipts for cash transactions. Consumers can now validate their receipts by entering the JIR via the web application or by scanning the QR code.

As part of the tax reform, a new procedure for fiscalization of sales via self-service devices came into force on 1 January 2021.

To implement the fiscalization procedure via self-service devices, the taxpayer must enable the use of software for electronic signing of sales messages and provide internet connection for electronic data exchange with the tax administration.

When implementing the fiscalization of self-service devices only the sale is fiscalized and sent to the tax administration, no invoice is issued to the customer.

Secondary legislation specifying the process and measures for data security and exchange has still not been published despite the requirement having gone live, but is expected in the near term.

Take Action

To learn more about European VAT compliance download our eBook. Follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and updates.

VAT accounts for 15-40% of all public revenue globally. We estimate that the global VAT gap – i.e. lost VAT revenue due to errors and fraud – could be as high as half a trillion Euros. The GDP of countries like Norway, Austria or Nigeria are at a similar level and this VAT gap is big enough to significantly impact the economy of many countries. For this reason, tax authorities globally are taking steps to boost lost revenue through VAT digitization.

Up until recently, VAT requirements have traditionally followed three broad categories.

1. Invoice and storage requirements

At a high level, the requirements that apply during the processing of business transactions break down into requirements related to:

2. Periodic reporting requirements

These are reports for business transaction data in summary or aggregate form or full data from individual invoices. Historically such reporting requirements have often been monthly, with certain less-common reports being quarterly or yearly.

3. Audit requirements

These occur when, during the mandatory retention period for invoices and other records and books, which is typically seven to ten years, a tax authority request access to such records to assess their correspondence to reports.

The trend toward continuous transaction controls (CTCs)

The requirement types listed above, and their relative importance for both business and tax authorities, have changed significantly in recent years. The overall trend is clearly toward various forms of CTCs.

This radically different mode of enforcement, known as the “clearance model” began in Latin America over 15 years ago. Other emerging economies, like Turkey, followed a decade later. Many countries in Latin America now have stable CTC systems where a large amount of the data required for VAT enforcement is based on invoices and other key data is harvested (and often pre-approved) directly at the time of the transaction.

Europe and other countries went through a stage where original VAT invoices could be electronic without changing the basics of the VAT law enforcement model. This phase of voluntary e-invoicing without process re-engineering is often known as “post-audit” e-invoicing. In a post-audit system, the tax authority has no operational role in the invoicing process relying heavily on periodic reports transmitted by the taxpayer. Being able to demonstrate the integrity and authenticity of e-invoices from the moment of issuance until the end of the mandatory storage period is key for trading partners in post audit regimes.

Largely due to the staggering improvements in revenue collection and economic transparency from countries with existing CTC regimes, countries in Europe, Asia and Africa have also started adopting similar schemes. This rapid adoption of CTCs in many additional countries doesn’t follow the same simple path of quick migration of the early adopters. In fact, as the trend spreads around the world, it’s becoming increasingly clear there will be many different models adding to the complexity and challenges faced by multinational companies today.

Take Action on VAT Digitization

Download VAT Trends: Toward Continuous Transaction Controls to read more about the ever changing VAT landscape, VAT digitization and how global companies can prepare.

Given the complexity of international VAT and the potential risk, pitfalls and associated costs, finance directors face a predicament. Unlike direct taxes, which tend to be retrospectively determined, VAT is effectively calculated in real-time. It’s linked to various aspects of the supply chain. If the related transaction has incorrect VAT calculations or erroneous codes, these errors can result in unintended financial consequences. These include fines, loss of the right to deduct input VAT etc.

For most finance departments their first and only involvement with VAT is when they are processing sales or purchase invoices. In the absence of a customer purchase order, there is often little, or no appreciation of what sales invoices are coming through until they need raising. However this may be too late. The transaction completing crystalises the VAT liability and the taxpayer cannot make any retrospective changes.

Incoterms and VAT

One component of VAT determination for goods is an understanding of if they are moving across a border and if yes, who is responsible for moving them – supplier or customer.

Within international trade the Incoterms issued by the International Chamber of Commerce are used to determine which party has responsibility for which aspect of the movement.

Within the EU the Incoterm used doesn’t determine the correct VAT treatment of a movement of goods. Although it can help to understand the intention of the parties. Most contracts for the supply of goods within the EU do, nevertheless, mention incoterms. In many cases contracts quote “Delivery Duty Paid” (DDP) even though it is often inappropriate. If a French company sells goods DDP to a German customer then the incoterm implies that the French supplier is responsible for all taxes due on the delivery. But if this is a B2B transaction, meeting the exemption conditions, then it’s the German customer who accounts for the acquisition tax.

While the UK was a member of the EU, incoterms weren’t really relevant for VAT. It also had little impact on the ability to move goods within the EU. It also had little impact on the need for EU VAT registrations since in many cases the customer would account for acquisition tax.

Unintended Consequences

But now, post-Brexit, UK companies may have “DDP” contracts with EU customers where there are potentially unintended consequences:

Renegotiate Incoterms

Now the only possible course of action is to renegotiate incoterms. This will take time and will only work if the goods haven’t already been delivered.

If the goods have been delivered but the required VAT registration is not in place there is the possibility of penalties and interest for late registration and late payment of VAT.

Automation can help here. A tax engine can process order information and determine the correct tax code. This is when placing the order and not when raising the invoice.

If this gives an unintended result, there may be time to renegotiate the incoterms or arrange the relevant VAT registration.

Take Action

Need help reviewing your VAT position and contracts post-Brexit? Find out how Sovos can help your business simplify VAT determination for every transaction, in any jurisdiction.