On 30 September 2020, the European Commission published its “Explanatory Notes on VAT E-Commerce Rules,” to provide practical and informal guidance on the upcoming July 2021 e-commerce regulations. This “EU VAT e-commerce package” was initially adopted (under Directive 2017/2455 and Directive 2019/1995) and set to be implemented on 1 January 2021 but has since been delayed until 1 July 2021.
The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe: specifically, B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services. The explanatory notes provide further guidance on the application of the new One Stop Shop (“OSS”) and import One Stop Shop (“iOSS”) regimes, including scenarios where Electronic Interfaces (such as marketplaces) are deemed liable for the collection and remittance of VAT relating to underlying suppliers transacting on their platforms.
The OSS scheme:
For EU-EU goods deliveries, suppliers are no longer compelled to register and file VAT returns in every EU Member States where distance selling thresholds are exceeded. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods. Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return in respect of all their EU distance sales. A similar scheme known as the Mini One Stop Shop (“MOSS”) already exists for electronically supplied services by EU and non-EU suppliers. Its scope will be broadened so that it includes all B2C services where the VAT is due in a country where the supplier is not established.
B2C suppliers who choose to participate in OSS must use it for all supplies that fall under the scheme. This shouldn’t be seen as a drawback, however, because the OSS scheme is designed to reduce admin burdens wherever it’s used. For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements relating to service invoices only, but not for goods).
The iOSS scheme:
Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new iOSS simplification regime, designed to facilitate a smooth and simple collection of VAT on B2C imports from outside the EU. With the concurrent repeal of the €22 low-value consignment relief (and the absence of an alternate threshold or de-minimus) this is an attractive option for suppliers looking to reduce administrative and compliance burden. Under this mechanism, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for iOSS in a single Member State, and collect VAT in the respective EU country of destination, and remit monthly iOSS VAT returns in support.
The explanatory notes to the new e-commerce rules emphasize the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration. Nevertheless, the new rules are massive in scope, and businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.
In our Brexit and VAT series, we delve into some of the most important issues of the day to bring you clarity and advice.
Last week we looked at goods, services, and VAT. This week, we address UK border controls post-Brexit and importing goods.
Movement of goods post-Brexit
Currently, the concept of dispatches and acquisitions applies to goods that move between Great Britain and the EU. After 31 December, the movement of goods will be subject to export and import treatment. When it comes to exports, zero rating can apply if the relevant conditions are met. However, imports are liable to import VAT and potentially customs duty.
The path to post-Brexit clarity on imports has been long and winding. In February 2020, the UK Government introduced a range of measures to ease the potential impact of a hard Brexit. The introduction of Transitional Simplified Procedures (TSP) for customs entry into the UK intended to reduce burdens on business. The UK Government also announced postponed accounting for import VAT. This allows for the tax to be accounted for at the time of the return filing rather than at import.
After signing the transition deal, the Government abandoned these measures. Controversy around the removal of postponed accounting for import VAT and the catastrophic progress of the COVID-19 pandemic are likely to have affected the UK Government’s thinking. The Spring Budget in March reintroduced postponed accounting. Then in June, Downing Street introduced updated guidance and a phased implementation in three stages for border controls. This approach serves to mitigate, to some degree, the changes brought about by the pandemic and speaks to the capacity of the UK Government itself in the coming months.
Three stage approach to border controls post-Brexit
Stage 1: January 2021. In this stage, basic customs requirements such as sufficient records for the import of standard goods will be introduced. In line with TSP, there will be up to six months to complete customs declarations. Any duty payable will be on submission of customs declaration, not at the time of entry.
Stage 2: April 2021. In stage two, all products of animal origin (POAO) and all regulated plants and plant products will require pre notification and health documentation.
Stage 3: July 2021. The final stage of implementation will require businesses moving all goods to make declarations at the point of import. Any customs duty will be due at this time.
As of stage one, controlled goods like alcohol and tobacco will be subject to checks. In the event there is no preferential agreement with the exporting country, for example a Free Trade Agreement with the EU, the new UK Global Tariff lists (UKGT) will apply. The UKGT is a worst-case scenario document, showing the tariffs that will apply to imported goods in the absence of a Free Trade Agreement. The sharp eyed among us will note the changes between the current UKGT and the 2019 temporary list. In the latter, 88% of goods were tariff free, whilst the new UKGT reduces the level to 60%.
Mechanisms for change
In addition to the checks, controls and costs of imports, there are a series of changes to mechanisms for importing goods that businesses must consider post-Brexit. Customs Freight Simplified Procedures (CFSP); the existing electronic customs declarations system; and Entry In Declarants Records (EIDR) will be available without application until 30 June 2021. This is as long as businesses meet the relevant conditions. After this, they’ll require approval.
Postponed VAT Accounting, introduced by HRMC on 1 January 2021, will provide some respite for businesses. It will apply to both imports from the EU and those from outside of it, and crucially, it won’t require an application. However, it doesn’t free businesses from the payment of duties, which will be applicable in line with the UKGT list.
Hopes were high for positive change on Intrastat, the mechanism for EU-UK trade statistics. Renowned for its headache causing qualities and reliance on manual data manipulation, an end to Intrastat was expected by many to be a Brexit bonus. When publishing the Border Operating Model in July 2020, HMRC confirmed that Intrastat arrivals declarations will continue to be required from those businesses that have a liability to submit in 2020. There will be no requirement for dispatches to be submitted. It should be noted that the position for businesses in Northern Ireland will be different. This is due to the Northern Ireland protocol.
What are the next steps?
Understanding import obligations and preparing well in advance of each stage of the phased implementation for border controls post-Brexit is essential.
The sands of transition period time are draining away. As we edge ever closer to the final Brexit deadline, there are a raft of VAT related considerations for businesses to attend to.
Though uncertainty reigns about the shape of the trading relationship, most of the Brexit scenarios up for debate would render the UK a third nation for VAT purposes. This means there are VAT implications to Brexit which will be substantial and, in many cases, immediate.
Our Brexit and VAT articles in the coming weeks, will address some of the key areas of concern for business providing information, advice and actionable insights. Here, we tackle goods, services and VAT recovery post Brexit.
Moving goods, moving goal posts
On 1 January 2021, the treatment of goods moving between Great Britain and the EU will change. At present, the concept of dispatches and acquisitions applies to GB-EU trade. Post 1 January, it will be replaced by exports and imports. Though zero rating for exports exists if the relevant conditions are met, crucially, imports are liable to import VAT and potentially customs duty.
To ease the impact of this, Member States including France, Belgium and the Netherlands implement postponed accounting, allowing for import VAT to be accounted for on VAT returns. This maximises cash flow, but may require an application or licence – both of which are conditional, can be revoked, and aren’t automatic like the current mechanism for accounting for acquisition tax. HMRC is implementing postponed import VAT accounting for goods arriving from the EU – this is automatic and will also be available for imports from countries outside the EU.
Usual service will be maintained
When it comes to the treatment of services, businesses can breathe a tentative sigh of relief. The UK is expected to maintain the application of VAT place of supply rules in line with the VAT Directive. However, businesses will need to consider the liability to be registered in the EU and the UK on an ongoing basis. With this in mind a word of advice – any business that engages in UK-EU trade of goods should review supply chains and contingency plan for all scenarios in the new year.
VAT recovery post-Brexit
Getting VAT back is a primary concern for businesses. The bad news is that it’s likely to become more complex. If a UK company is registered in the EU it can continue to recover VAT via returns, but it may be necessary to appoint a fiscal representative. If a business is neither registered nor liable to register, recovery will be via the 13th Directive, which has many drawbacks. Firstly, it’s a paper-based system with its own unique time limits. Secondly, it may cause issues of reciprocity, potentially preventing UK businesses from making claims in some countries.
EU businesses registered for VAT in the UK can continue to recover input tax via the VAT return. However, if a business is neither registered nor liable to be, recovery will be via a paper-based system. It’s important to note that the UK currently applies the reciprocity principle if a UK business would be denied a claim in the country of the claimant. For EU businesses, this means running the risk that they are denied VAT returns if there is no reciprocity between their country and the UK.
Whatever the individual situation, planning must be a priority. Claims can be made for 2020 under the current mechanisms, but deadlines will be reduced. Claims under new processes must be evaluated to ensure that no recoverable VAT is lost.
What next?
As we move into the final phase of the Brexit process, time is of the essence. With the type and likelihood of a deal still unclear, the best steps for any business trading cross border are to proactively plan, review supply chains and consider registration liabilities.
With a VAT gap across EU countries estimated at €140 billion in 2018, tax authorities are continuing to take steps to boost revenues, increase efficiency and reduce fraud. As a result, VAT compliance obligations are becoming more demanding. Failure to comply can not only result in significant fines but also reputational damage.
Many multinational companies find successfully navigating VAT compliance a challenge. Even more so when trading cross-border where VAT registration and reporting requirements differ significantly between territories. As demands increase, more companies are realising the benefits from embracing a managed service approach. This is to all or part of their VAT obligations.
From conversations with our customers, we identified three reasons for appointing a managed service provider (MSP) for VAT compliance. They are varied and apart from cost, fall broadly into three categories.
People
Staffing, training and retaining a team of indirect tax specialists can be expensive and time consuming. Accessing external expertise allows you to benefit from wider and more detailed knowledge and experience in complying with local tax authority regulations. Understanding local rules requires fluency in both the local language and in understanding tax law plus its implications to interpret the rules accurately. This can be a huge benefit in helping to simplify the complexities of domestic obligations. It can apply to initial VAT registrations, ongoing filings, as well as correspondence with revenue authorities whenever reviews and/or audits occur. Why struggle with the headache of resourcing and keeping up with the changing compliance landscape when there are specialist providers to ease this pain?
Technology
While the future of VAT reporting is increasingly tech-enabled, building and maintaining your own in-house software is onerous and for many companies is the key driver to getting external help with their VAT compliance obligations. By using a technology enabled MSP, you’ll have access to their VAT compliance software. It will help you stay ahead of changing VAT rates and requirements as they happen wherever you do business. Using a MSP that is technology enabled allows them to take care of any real-time/continuous reporting requirements. This includes Spain’s SII. This should also be far more cost effective than doing this in-house. Automating at a regular cadence prevents being caught out by missed filings that need to happen all too frequently to be done cost effectively by a person.
The future
Keeping up with the ever changing requirements of VAT rates, new mandates and reporting requirements can be daunting. The VAT compliance landscape will continue to shift as more tax authorities move to enforce continuous transaction controls. The aim is to boost economic efficiency and close VAT gaps. The right VAT compliance MSP will ensure your business is able to meet your current VAT compliance requirements. They should also have experience in markets you may want to enter in the future. They’ll be able to guide you through VAT registrations and filing requirements as well as interpreting local complexities where needed. A valued VAT compliance MSP will also ease the burden of audits. They’ll help you whenever an audit occurs but ultimately with robust processes in place, they should also be able to prevent disputes occurring.
VAT legislation is complex and constantly changing. Businesses need the support of both managed services and technology to meet their VAT compliance obligations. In addition to continue trading with confidence. Appointing an experienced global MSP blends human expertise and technology. This can provide the perfect balance to face the changing VAT landscape head on.
Take Action
To learn more about the benefits a managed service provider can offer to ease your VAT compliance burden, watch our recent webinar on demand VAT Reporting: Managing Change.
Since 31 January 2020, the UK is officially no longer part of the EU but is considered a third country to the union although EU legislation will still apply to the country until the end of 2020. Although Northern Ireland is part of the UK, the region will remain under EU VAT legislation when it comes to the supply of goods also after 1 January 2021. The EU Commission has proposed an amendment to the VAT Directive creating a new country code for Northern Ireland to be used in tax identification numbers of Northern Irish companies.
An overall obligation for EU taxpayers to use and perform supplies under an EU-approved tax ID number exists. Thus, applying EU law to supplies performed to/from Northern Ireland demands an EU-compatible VAT identification number. Currently, EU Member States use a prefix country code following the ISO 3166-1 standard that assigns the country code “GB” to the UK and Northern Ireland.
The new prefix for Northern Irish tax ID numbers
From 1 January 2021, the indiscriminate use of the “GB” prefix in VAT numbers may pose a problem for supplies of goods to/from Northern Ireland. From that date, intra-community supplies and acquisitions of goods to/from Northern Ireland will remain in the scope of the EU VAT law. Consequently, Northern Irish taxpayers must hold a specific EU VAT number to be identified as such under the European rules. Provided that the country code “GB” will be used by the UK and assigned according to British legislation, the EU Commission has proposed a new country code “XI” to be attributed as a prefix of Northern Irish tax ID numbers.
A valid EU tax identification performs many roles, such as ensuring (or facilitating) the correct tax and customs treatment for intra-community supplies. The VIES platform, that runs the EU VAT Information Exchange System, is an example of the importance the EU gives to valid tax ID numbers. To ensure parties to a transaction can check each other’s tax ID numbers and are eligible to exemptions on intra-community supplies, the EU has established the VIES system, which will likely be the first EU mechanism directly affected by the creation of the new Northern Irish country code.
Such a proposal from the EU Commission may impact Member States’ systems. Upon adoption, the new Directive will require Member States to quickly adjust their apparatus to process “XI” invoices from January 2021. Countries operating some degree of continuous transaction controls, such as Italy, Hungary, and Spain, may be expected to update their platforms to comply with the amendment.
Impact on accounting and ERP systems
If passed, the proposal will impact taxpayers’ accounting and ERP systems which will need to process and recognize the “XI” country code in issued and received invoices as a Northern Irish indicator. Moreover, many systems allow the use of user-assigned country codes in customized transaction flows. User-assigned country codes are ISO codes that are freely assigned by users and used at their discretion, for example flows between supported and non-supported countries within an ERP system. So far, “XI” has been a user-assigned country code. Consequently, the proposal may force many IT departments to change internal policies regulating the use of user-assigned country codes.
Tax departments must also be aware of the tax treatment of “XI” invoices, given that EU VAT law won’t apply to supplies of services performed to/from Northern Ireland, but only to supplies of goods. Consequently, companies must create internal flows to deter the use or validation of the “XI” country code in supplies of services if unaccompanied by a valid “GB” country code.
The Council of the European Union is expected to deliberate about the proposal next on 9 September.
As anticipated, further information has been published by the Portuguese tax authorities about the regulation of invoices. Last weeks’ news about the postponement of requirements established during the country’s mini e-invoice reform, and the withdrawal of a company’s obligation to communicate a set of information to the tax authority, culminated in the long-waited regulation about the unique identification number and QR codes.
Back in 2019, the Law-Decree 28/2019 introduced the unique identification number and QR code as mandatory invoice content. Previously expected to be enforced on 1 January 2020, the details about what constitutes such a unique identification number and the content of the QR codes were missing. However, the Portuguese government has now published an Ordinance further regulating both requirements.
A new validation code
According to the Ordinance 195/2020, as of 1 January 2021, companies issuing invoices under Portuguese law must communicate the series used in invoices to the Portuguese tax authorities, prior to it being applied. Once the series has been communicated, the tax authority issues a validation code for each reported number series.
This validation code is later used as part of the unique identification number that has been named ATCUD. The ATCUD comprises the validation code of the series and a sequential number within the series in the format “ATCUD:Validation Code-Sequential number”. The ATCUD must be included in all invoices immediately before the QR code and be readable on every page of the invoice.
To obtain a validation code, taxpayers must communicate the following data to the Portuguese tax authority:
The identification of the document series;
The type of document, following the document types established in the SAF-T (PT) data structure;
The starting number of the sequential number used within the series;
The date when the taxpayer is expected to start using the series to which a validation code is required;
Once approved, the tax authority creates a validation code with a minimum size of eight characters.
According to the Ordinance, the sequential number that is also part of the ATCUD is a reference obtained from a specific field of the Portuguese version of the SAF-T file.
Although the Ordinance meant to introduce QR code details, it states that technical specifications will be published on the tax authority’s website. The Ordinance nevertheless says that a QR code should be included in all invoices and documents issued by certified software. It also states that the QR code should be included in the body of the invoice (on the first or last page) and be readable. Technical specifications for the QR code are available from the tax authority’s website.
Last week’s Ordinance doesn’t change the scope of companies that need to use certified software to issue invoices, nor does it change the certification requirements. However, Portuguese taxpayers must, once again, adapt their current business and compliance processes and are under pressure to change their systems before the 1 January 2021 deadline.
The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period.
Cross-Border Sales under £135
New rules will apply when a business sells goods for £135 or less to a UK customer and the goods are located outside the UK at the time of the sale. For business to consumer supplies, the seller must collect supply (output) VAT. This means that overseas vendors will be required to register for VAT and will also be required to issue VAT invoices on such supplies. No import VAT will be owed on the sale, but customs declarations will still be required. Please note that for sales from the EU, the HMRC has indicated that it plans to continue to require submission of Intrastat declarations.
The £135 threshold is determined per consignment, and not on individual goods within a consignment. A consignment’s value is based on the VAT exclusive price of the goods in the consignment and does not include separately stated freight charges. The threshold is intended to align with the threshold for customs duty liability.
The £135 threshold rules also apply to business to business supplies. In the case of a supply to a UK business, however, the UK business is liable for the output VAT under the reverse charge mechanism. Import VAT will still be avoided by both parties. For the reverse charge to apply the purchasing business must provide the seller with a UK VAT registration number.
Online Marketplaces
Online marketplaces will also have additional VAT obligations come January 1. For sales of goods, under the £135 threshold, from outside the UK to UK customers, the online marketplace will be required to collect supply (output) VAT in place of the seller, regardless of whether the seller is registered or established in the UK. This means that marketplace sellers are relieved of many of the new obligations described above. Please note that for business to business supplies the reverse charge measure still applies so long as the purchaser provides the marketplace with its VAT registration number.
Online marketplaces will also be liable to collect VAT on a second class of supplies: specifically, the sale of goods, which are located in the UK at the time of sale but which are owned by a seller based outside the UK, through an online marketplace to UK customers.
Other Changes
In addition to the above changes, HMRC has also announced that:
– Importers will be able to utilize postponed VAT accounting for imports over the threshold, to account for import VAT on their VAT returns instead of paying import VAT to Customs at the time of import.
– Low Value Consignment Relief, which exempted imports of £15 or less from import VAT, has been eliminated.
With less than six months until the new rules come into effect it’s important for businesses to continue to prepare for a post-Transition world.
As managing director of Europe, James Buckley provides oversight for all Sovos customer operations in the region. A believer in the power of creating a vision and sticking to it, James ensures Sovos executes across its primary business functions and provides the best customer experience possible.
James has held a number of senior positions during his career. Among the highlights are his work helping to guide multiple acquisitions in Europe for Sovos and the opportunity to be involved in the launch and transformation of Pitney Bowes. Experiences he describes as highly rewarding and educational.
A self-described practical and determined strategist and tactician, James believes that you can never be over prepared for important interactions with customers and partners. A habit and skill that he continuously impresses upon his team to adopt.
Outside of the office James enjoys spending time with family and, when possible, pursuing his passion for running. James recently completed the London Marathon to raise money for UNICEF, a challenge he looks forward to completing again.
A native of New Zealand but also a UK citizen, James has done a lot travelling and has lived in several countries.
A touch of CLASS: simplifying access to customs tariff data
CLASS – short for Classification Information System – is the new single point access search facility from the European Commission. It provides access to tariff classification data of goods entering or leaving the EU and is the latest step in developing an integrated approach to managing customs information and procedures. When goods are declared at an EU entry point, they must be classified and declared on customs transit documents either according to the Combined Nomenclature (“CN”), or a Member State’s domestic classification. CLASS provides easy access to the correct rate of customs duty and details of any non-tariff measures that apply. It also provides:
Conclusions of the Customs Code Committees
Classification regulations
Rulings of the European Court of Justice
The CN and accompanying explanatory notes
TARIC information (TARif Intégré Communautaire” – Integrated Tariff of the European Communities)
Using CLASS should save businesses significant time in obtaining the required customs information without having to rely on multiple resources across different locations, formats, and languages. Time saving means reduced administration and cost as well as swifter supply chain decision making and ultimately a more efficient goods shipping process.
A new UK global tariff
By coincidence, the UK government almost simultaneously to the launch of CLASS announced the blueprint for the UK Global Tariff (“UKGT”). UKGT is the UK’s replacement for the EU’s Common External Tariff once the Brexit transition period has ended (currently expected to be 31 December 2020). UKGT, which applies duty values in UK pounds instead of Euros, should make it simpler and cheaper for businesses to import goods into the UK from overseas. It features a reduction and simplification of over 6,000 tariff categories and rates (e.g. rounding rates to whole percentages), and a lower tariff regime than the EU’s Common External Tariff, including total elimination of tariffs on a wide range of goods. The goal is to ease customs administration for business, expand consumer choice, and enhance competitiveness for UK businesses trading globally. A controversial measure is the abandonment of the EU Measuring table, which removes over 13,000 tariff variations on food products that the government views as unnecessary. Remaining tariffs will be targeted to support specific strategic industries such as agriculture, automotive and fishing, where the UK is considered competitive, and are also intended to enhance competitiveness and the uptake of “green” energies and associated products.
The simplifications heralded by UKGT may offset the anticipated increase in customs administration costs to UK businesses post-Brexit. What is less clear is whether the strategic amendments undertaken to import tariffs will harm UK businesses as their products may not be subject to commensurate low rates on entry to EU countries, especially if there is a “No Deal” outcome to ongoing UK-EU trade negotiations. What is clear, however, is that all these changes should prompt any businesses seeking to import/export goods to/from the UK from next year to review their supply chains and re-examine the impact on their sales prices and profit margins. Since import VAT is calculated on duty-inclusive prices, there may also be consequences in import VAT accounting and cash flow.
On 22 June, the joint Ministerial Decision that sets forth the myDATA framework was published. The decision specifies, among other things, the scope of application and applicable exemptions, the data to be transmitted, transmission methods and procedures, applicable deadlines and how transactions should be characterized.
Starting from January 2021, the required data must be reported to the myDATA platform in real-time. For information relevant to the year 2020, taxpayers have been awarded more breathing room: until the end of this year, the required data can be reported within 5 days after the issuance of an invoice, but not later than the 20th of the following month.
The implementation of myDATA will be performed in a phased manner, with ERP-based reporting of outbound and inbound data with their respective classifications starting from 1 October 2020. If a myDATA accredited e-invoicing service provider (according to the rules of the new framework) is used for e-invoicing, the reporting to myDATA through a service provider is possible from 20 July 2020.
A closer look at e-invoicing developments
To encourage businesses to adopt e-invoicing, the Ministry of Finance, through a draft bill published on 19 June, provided a number of incentives for businesses to use e-invoicing facilitated through service providers until the end of 2022.
The incentives provided are:
The statute of limitation for fiscal matters (the period during which a tax audit can take place) is reduced from 5 years to: a) 3 years for the issuer and b) 4 years for the receiver.
The deadline for processing tax refund claims is reduced to 45 days (from 90 days currently).
Twice the amount of the cost incurred for acquiring the technical equipment and software required for the implementation of e-invoicing is depreciated.
Twice the amount of the cost incurred for the issuance, exchange and archiving of e-invoices for the first year is recognized as a tax-deductible item.
Based on these recent developments, it is clear that the Greek government wishes to promote the adoption of e-invoicing in Greece but does not yet go so far as to make it mandatory. A decision specifying the details of the e-invoicing scheme is expected to be published by the IAPR in the very near future.
Update: 20 November 2023 by Dilara İnal
E-invoicing systems in the Middle East and North Africa are undergoing significant transformations, aiming to modernise the financial landscape and improve fiscal transparency. Recent updates have seen numerous countries implementing electronic invoicing solutions designed to streamline tax collection and reduce VAT fraud.
E-invoicing Trends in the Middle East
Saudi Arabia has made significant strides in e-invoicing, leading the way in the Middle East. The country has advanced to the second phase of its e-invoicing mandate where B2B invoices require clearance from the tax authority. As of November 2023, the Zakat, Tax and Customs Authority has announced eight waves of its Phase 2 integration – targeting taxpayers with varying annual turnover thresholds.
While Israel is not adopting a mandatory e-invoicing regime, the country is moving towards requiring taxpayers to submit their invoice data electronically. This move aims to tackle the issue of fictitious invoices. The Israeli invoicing model, a continuous transaction control (CTC) clearance system, is slated for a phased implementation starting in 2024.
The United Arab Emirates has also joined the movement, announcing its ‘e-billing system’ to implement mandatory e-invoicing for B2B transactions in phases.
In other jurisdictions in the region, Oman is poised to implement mandatory e-invoicing in 2024 and Bahrain has invited technology vendors to construct its central platform for an upcoming e-invoicing system. Lastly, Jordan is reported to be exploring the adoption of a mandatory e-invoicing regime.
E-invoicing Trends in North Africa
Egypt introduced a mandatory e-invoicing system for B2B transactions in 2020 with a phased roll-out schedule but, as of April 2023, all companies in Egypt are covered by this mandate. In addition to e-invoicing, there is an e-receipt system in Egypt for B2C transactions.
Tunisia’s mandatory e-invoicing system, which rolled out in 2016, covers B2G and some B2B transactions. Also, Morocco is expected to join the ranks of countries where mandatory e-invoicing applies.
With the VAT landscape in the Middle East and North Africa rapidly evolving, tax digitization regulations necessitate close and continuous monitoring.
Read our E-invoicing Guide for more in-depth information about electronic invoicing’s development and adoption, globally.
Update: 24 June 2020 by Selin Adler Ring
The concept of e-invoicing as a vehicle for increased tax control and cost reduction, continues to spread into new areas of the world. The number of countries adopting e-invoicing regimes are rising in the Middle East and North Africa as both governments and businesses by now are well-aware of the benefits. While some countries in these regions have already embraced e-invoicing, others are on their way to adopt Continuous Transaction Controls (CTC) systems. Even though the countries in these regions follow different approaches, the initial goal is the same: digital transformation of tax controls.
E-invoicing Trends in the Middle East
In the Middle East there are many moving pieces. The United Arab Emirates, Saudi Arabia, Oman and Qatar have already permitted e-invoicing. Following the introduction of VAT in January 2018, Saudi Arabia also started promoting a national electronic invoicing platform called ESAL. Oman and Qatar have yet to implement VAT but once they have, e-invoicing will be even more significant for these countries and they’ll take inspiration from other countries in the region that are moving towards CTC regimes.
In Jordan, the tax authority is conducting research to analyze CTC regimes in different countries, which is a strong signal that they too may very soon announce their intention to introduce a new CTC e-invoicing system.
Israel has recently revealed its new CTC regime plans and advised accounting software vendors to prepare for the upcoming CTC regime. After Israel’s adoption of a CTC regime, developments in the region will accelerate in a domino effect.
E-invoicing Trends in North Africa
Tunisia is a pioneer for e-invoicing. Since 2016, electronic issuing of invoices has been regulated in the Finance Law and e-invoicing is mandatory for larger taxpayers. The Tunisian e-invoicing regime requires e-invoices to be registered by a government appointed authority and therefore falls within the CTC framework.
Another country quickly moving towards a CTC framework is Egypt. The Egyptian Government has for some time been assessing best practices for CTC regimes. Finally, in April 2020, a decree mandating e-invoicing for all registered businesses was published in the country. However, the details of the e-invoicing system are yet to be disclosed. The technical controls and conditions to be adhered to and the stages of implementing the e-invoice system will be defined by the Egyptian Tax Authority.
Morocco has also been watching different e-invoicing systems. After Egypt’s e-invoicing initiatives, the Moroccan Government is a likely candidate to make a similar move towards mandating e-invoicing for taxpayers registered in the country.
It’s clear that e-invoicing, in all its shapes and versions, is a trend that is becoming increasingly popular across the Middle East and North Africa where the introduction of CTC regimes is expected in the coming years. Although there are likely to be similarities in the measures taken, each country has its own unique characteristics when it comes to taxation, tax control challenges and legal culture, and as a result diversity in each regime should be expected.
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Navigating Location of Risk can be quite daunting. This ebook is your compass, helping you sail smoothly to IPT compliance. With use cases and examples to follow, this ebook will help you successfully navigate one of the more complex elements of insurance premium tax.
This ebook will help you navigate Location of Risk and the rules that apply in the 27 member countries of the European Union (EU), the European Economic Area (EEA) and the UK.
It guides you through the countries where the rules apply, the legal framework that prompted the rules, examples of the criteria used to determine Location of Risk, local implementations that differ from the norm and how premium allocation works in practice.
Geopolitical background
Legal framework
Solvency II Directive 2009/138/EC, Article 13(13) including examples of the four criteria to determine Location of Risk
Solvency II Directive 2009/138/EC, Article 157(1)
Local implementation of Location of Risk rules – Switzerland, Liechtenstein, United Kingdom and Germany
Following the Solvency II Directive 2009/138/EC, Article 13(13) enables insurers to identify the correct Location of Risk. This directive, amongst other things, defines the four criteria to determine which territory the risk is deemed to be located in and where it should be taxed.
After identifying Location of Risk, Solvency II Directive 2009/138/EC, Article 157(1) outlines that the Member State can tax that premium.
Consider these three points when determining Location of Risk:
1
IPT is not harmonised
Consider local IPT law when determining Location of Risk
2
Risk determines the criterion
Assess the risk to know what criterion to use: e.g. property, vehicle, holiday or travel, other
3
Non-EU / EEA region
Local rules typically differ from EU/EEA Location of Risk rules
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For companies operating in Turkey, 2019 was an eventful year for tax regulatory change and in particular, e-invoicing reform. Since it was first introduced in 2012, the e-invoicing mandate has grown, and companies are having to adapt in order to comply with requirements in 2020 and beyond. Turkey’s digital transformation and e-invoicing landscape continues to evolve.
According to the General Communique on the Tax Procedure Law (General Communique), more taxpayers now need to comply with the mandatory e-invoicing framework. The General Communique published on 19 October 2019 covers other e-documents such as e-arşiv, e-delivery note, e-self-employment receipts, e-producer receipts, e-tickets, e-note of expenses, e-Insurance Commission Expense Documents, e-Insurance Policies, eDocument of Currency Exchange, and e-Bank Receipts.
The scope of e-invoicing
From 1 July 2020, taxpayers with a gross sales revenue of TL 5 million or above in fiscal years 2018 or 2019 must switch to the e-invoice system. Taxpayers who meet these requirements in 2020 or later, should switch to the e-invoice system at the beginning of the seventh month of the following accounting year.
Mandatory e-invoicing is not only based on the threshold
Turkey’s tax authority has set some sector-based parameters for businesses operating in Turkey. Companies licensed by the Turkish Energy Market Regulatory Authority, middlemen or fruits or vegetable traders, online service providers facilitating online trade, importers and dealers are some of the taxpayers also required to switch to e-invoices, irrespective of their turnover.
The scope of E-Arşiv invoice
E-arsiv fatura documents B2C transactions. But also in case the transacting counterparty is not registered with the TRA for e-invoicing. Similar to e-invoice, the e-arşiv invoice, became mandatory for intermediary service providers; online advertisers; and intermediary online advertisers who switched to the system from 1 January 2020.
Taxpayers not in scope for e-invoice and e-arşiv must issue e-arşiv invoices through the Turkish Revenue Administration´s portal. That is if the total amount of an invoice issued, including taxes, exceeds:
TL 5.000 for B2B
TL 30.000 for B2C transactions.
Turkey’s Government continues to tackle its VAT gap through digital transformation. By taking greater control of reporting and requiring more granular tax detail. So, businesses operating in Turkey need powerful e-invoicing strategies to comply with the growing demands for digital tax transformation.
With two weeks to go until the first mandatory phase of the Indian e-invoicing reform go live, the GST Council slammed the breaks. Or at least, bring it to a significant temporary standstill of 6 months. As a result, the India e-invoicing reform is now postponed until 1 October 2020
Following a long list of complaints — both from the private sector toward the GST Council, as well as from the GST Council vis-á-vis the IT infrastructure provider that powers the GST Network, Infosys — the council decided to revisit the 1 April go-live in a recent meeting held today, Saturday 14 March.
Delaying the first mandatory go-live of the e-invoicing reform with six months, from 1 April 2020 until 1 October 2020
Delaying the obligation for B2C invoices. Those issued by the largest taxpayers in India, with a threshold above Rs.500 Crore. This is to include a QR code, from 1 April 2020 until 1 October 2020
Excluding certain types of taxable persons from the scope of the e-invoicing reform
The obligation to generate QR codes. For example, insurance companies, banks, and other financial institutions. Also non-banking financial institutions, and passenger transportation services
Postponing the entry into force of the new GST returns until 1 October 2020
Calling the chairman of Infosys to attend the next three GST Council meetings. This is for the purpose of reporting status updates of technical and infrastructure improvements to the underlying IT platforms that are the foundation of the on-going GST control reforms
The decisions made in the 39th meeting of the GST Council will require either that the legislative framework (Notifications) published in early December be amended or entirely replaced with new ones to reflect the new reality. However, it wouldn’t be unreasonable to expect even further delays to the roll out of this reform. This given to the recent economic volatility triggered by the ongoing pandemic. Only once both global markets as well as the underlying technical platforms of the GST control reform seem to stabilize will the post-October timeline of the roll out be fully certain.
Anyone predicting Italy’s clearance model e-invoicing system, FatturaPA, would undergo further reform would be right. Agenzia delle Entrate – AdE, the Italian tax authority, has issued new technical specifications and schemas for Italian B2B and B2G e-invoices. But – what do these changes really mean? And what impact do they have on business processes?
Technical and content updates
Over recent weeks, three updates have been introduced:
A new version 1.6 of the FatturaPA B2B XML format
A new version 1.3 of the FatturaPA B2G XML format; and
A new version 1.8 of the technical specifications for the SDI platform.
The inclusion of withholding taxes (especially social contributions) is one of the new content requirements for the B2B and B2G XML formats. There are also 12 new document types (including self-billed invoices and integration documents) and a further 17 new nature of transactions options (such as reasons for exemptions and reverse charges).
These content updates now require Italian companies to have a deeper understanding of the Italian tax system. The changes impact the moment taxpayers classify their supplies: under the current model, Italian companies don’t have to worry about this until the submission of their VAT returns but under the new schema this classification will be performed in real-time. These updates are likely to impact business processes. They are a necessary next step in paving the way ahead of the upcoming introduction of pre-completed VAT returns, an initiative largely considered to eliminate administrative burden and make life easier for most Italian businesses.
In parallel, further changes resulting from the new versions of the FatturaPA formats have a technical impact on businesses, demanding IT implementation readiness. Among the technical updates are the inclusion of additional fields, length of content, permitted characters, shifting from optional to mandatory field fulfillment and vice-versa, and how often a field can be repeated.
The new technical specifications also introduced new validations that will be performed by the Sistema di Interscambio – SDI, the Italian government-platform responsible for clearance of e-invoices. Most of the new validations check the content of the e-invoice against document types and the indicated nature of the transactions and require taxpayers to eventually be able to understand, process and react accordingly to new errors.
Implementation deadlines
The SDI platform will start processing B2B invoices in the new FatturaPA format from 4 May 2020, but the AdE will enforce use of the new schema on 1 October 2020, triggering new validations and errors only after this date as per the Provvedimento from 28 February 2020. Different deadlines apply to B2G invoices, unless of course the AdE publishes new transition rules for these invoices before that date. The enforcement of the new schema for B2G invoices is set to begin on 1 May 2020.
In practice, the effect of these deadlines mean that while the schemas for B2B and B2G invoices are indeed the same from a technical perspective, taxpayers will must be ready for different deadlines and be prepared to work with two different invoice schemas from 1 May until 4 May.
Important update
On 12 March (after this blog was posted), AdE has republished version 1.3 of the FatturaPA B2G technical specifications. Although the version number remains the same, the republished version states a new effective date for the new B2G schema: 4 May. With enforcement of the B2G schema on 4 May, the SDI platform will be able to process both B2G and B2B schemas simultaneously, and not on different dates, as informed previously.
In Turkey, the Revenue Administration (TRA) published the long-awaited e-Delivery Note Application Manual. The manual clarifies how the electronic delivery process will work in addition to answering frequently asked questions. It addresses the application as well as its scope and structure, outlines important scenarios and provides clarity for companies who are unclear about the adoption of e-delivery notes.
What is the e-delivery note application?
The e-delivery note is the electronic version of the “delivery note,” currently printed on paper. As a result, it allows the TRA to regularly monitor the movements of delivered merchandise in the electronic environment.
Electronic delivery has the same legal qualifications as the delivery note but is issued, forwarded, retained, and submitted digitally.
Who does the e-delivery note mandate affect?
According to the circular published by the TRA at the end of February, taxpayers in scope of the e-delivery note application are;
E-invoice taxpayers with a gross sales turnover of 25 million TL and above
Companies with an Energy Market Regulatory Authority (EPDK) license (including dealers) -PCT I
Motor vehicles (production, import, dealers) – PCT III
Mining license owners in addition to producers of mine based on their contracts with these people
Sugar manufacturers
Iron and steel manufacturers / HS Code72 / HS Code73
Users registered in the fertilizer tracking system
Taxpayers engaged in fruit and vegetable trade as brokers or merchants
Also, those who are found to be risky or at low levels of tax compliance as a result of the Administrative analysis
Taxpayers engaged in fruit and vegetable trade as brokers or merchants completed their transitions of January 1, 2020. Other taxpayers covered by the mandate must be ready by July 1, 2020.
Taxpayers deemed to be risky or at low levels of tax compliance by the TRA must complete their transition to the e-delivery note application within three months after being notified.
Other topics included in the e-delivery note application manual
Besides explaining the basic concepts, the manual also details the previously announced scenarios providing answers to many areas that were confusing for taxpayers.
The main scenarios are:
Delivery notes to be issued for the buyers not registered in the e-delivery note application
Export and logistic scenarios
Successive delivery
Issuing a printed delivery note
Various customers
In addition, other topics covered include:
Market registry system
Fuel oil sector
Transportation by pipelines
Sample and contract manufacturing processes
Full details on the Turkey E-Delivery Application Manual are available in Turkish from the TRA e-Document website.
A keystone of HMRC’s Making Tax Digital for VAT (MTD) regime is that the transfer and exchange of data between what HMRC define as “functional compatible software” must be digital whenever that data remains a component of the business’s digital records. This is to maintain a wholly digitally linked audit trail between systems.
Soft landing
When the MTD legislation was introduced, HMRC offered businesses a soft landing period of up to one year to incorporate digital links from the date they became obliged to adopt MTD. During this period, businesses wouldn’t be liable for non-compliance penalties. In practice, this meant:
Businesses required to apply MTD for VAT periods from 1 April 2019 must have digital links in place for the first VAT period starting on or after 1 April 2020 (i.e. soft landing ends 31 March 2020);
Businesses required to apply MTD for VAT periods from 1 October 2019 must have digital links set up for the first VAT period starting on or after 1 October 2020 (i.e. soft landing ends 30 September 2020).
A further lifeline
Due to feedback on the difficulty in applying the new rules, HMRC recently announced it would consider written requests for an extension on a discretionary case-by-case basis where there are genuine reasons for non-compliance (for example, those operating large corporate groups with disparate legacy systems). However, it’s clear an extension will only be granted in exceptional circumstances and businesses will need to have:
Approached HMRC as soon as they realised they wouldn’t meet the digital links requirement, and requested an application before expiry of their soft landing deadline
Provided a detailed explanation why the requirement can’t be met by that deadline
Provided details of software that can’t be digitally linked, along with a blueprint/process map showing how all systems are currently linked
Offer a calculated timeframe by which the digital link requirement should be met (which must be no later than 12 months beyond expiry of their soft landing period) and
Explained what actions, processes and controls will be set up to ensure data handled manually in the meantime will be transmitted accurately.
After review, HMRC will either reject the request or grant a written Direction extending that “soft landing” period by up to 12 months.
What might constitute a genuine reason:
A component part of one piece of software can’t import/export data from other software and it can’t be updated or replaced by the soft landing deadline
The business is in the course of updating or replacing its ERP and the expected implementation date is after the deadline.
What wouldn’t be considered a genuine reason:
Business leadership hasn’t signed-off system changes (unless this is for reasons such as those given above)
The cost of replacing/updating systems or components is deemed too expensive.
Key action points
Know when the soft landing period for digital links comes to an end. It could be as early as 1 April 2020
If digital links haven’t yet been set up to HMRC’s requirements, businesses should re-evaluate program requirements and timelines. Digital links do not include programs or processes that involve ‘cutting and pasting’ of data
If you don’t think the “soft landing” deadline will be met, then gather evidence to support an extension. Contact HMRC before the deadline. (HMRC recommend they contact their Customer Contact Manager initially if one has been assigned, or the MTD Specific Directions Team).
There’s no penalty for requesting an extension. The request can be withdrawn at any time. It’s important to continue working towards the digital link requirements in the meantime
Finally, ensure any commercial solutions that might be able to resolve system gaps have been explored.
The upcoming tax reform in Greece is expected to manifest itself in three continuous transaction control (CTC) initiatives.
The myDATA e-books initiative, which entails the real-time reporting of transaction and accounting data to the myDATA platform which will in turn populate a set of online ledgers maintained on the government portal;
Invoice clearance, which is clearly beneficial for the Greek Tax Authority although no roll-out date has been published yet; and
Online cash registers which will transmit sales data to the tax authority in real-time.
Earlier this month, new technical specifications were published for the online connection of cash registers with the government portal. From June 2020, all cash registers currently used in Greece must be updated to meet the new technical specifications (available in Greek) to be able to connect and transmit their transaction data to the government portal.
The technical specifications regulate two aspects:
The frequency of data transmission. The data will be reported in real-time and up to once per day in batch.
A QR code must be included in the receipts issued. Through a URL in the QR code, whose format and content are defined in the technical documentation, the tax authority can validate the receipts issued. The actual control process hasn’t been defined yet, but it’s understood that based on this QR code the tax authority will be able to compare the retail data from the cash register to the data registered on the myDATA platform.
These specifications are complementary to those published in late 2018, which mainly regulated the security and certification requirements of the new generation cash registers. This latest development is further proof that the Greek government is committed to moving forward with the CTC plans it initially outlined two years ago.
