The European Union’s VAT E-Commerce Package has been delayed until 1 July 2021. Consequently, in the New Year businesses will have to contend with both Brexit related VAT changes and the impact of the One Stop Shop – amounting to two new set of rules for VAT reporting in 2021.
From 1 July 2021, the EU introduces new rules extending the Mini One Stop Shop (MOSS) to B2C supplies. The rules apply where VAT is due in a Member State other than that in which the supplier is established and intra-EU B2C supplies of goods. These rules are currently available for VAT accounting on B2C sales of Telecommunications, Broadcasting and Electronic Services (TBES). The new system, known as the One Stop Shop (OSS), had an original launch date of 1 January 2021.
OSS will abolish current distance selling thresholds. In addition, all intra-EU supplies of B2C TBES services plus intra-EU distance sales of goods will operate under the same €10,000 limit. When this limit is exceeded, VAT will be due in the Member State of delivery. This is regardless of the level of sales in that country. Important to note is that this threshold applies to EU established companies and will not apply to UK businesses.
A single VAT return accounts for Any VAT due can be accounted for via a single VAT return, submitted in the Member State of Identification – the country in which the business is registered for OSS. Any company established in the EU will use the country in which they operate as the Member State of Identification. If there is no business establishment in the EU, then a Member State can be chosen. Provisions also apply to non-EU businesses supplying services in the form of the non-union OSS scheme. OSS is not compulsory – businesses can choose to have a registration in all Member States where VAT is due.
The dispatch of goods from physical locations, such as warehouses in the EU, will continue to be treated as distance selling. If any thresholds are exceeded, VAT will be due in the Member State of delivery.
Consequently, OSS will be available to all sales of goods, regardless of their value. OSS accounts for VAT in the Member State of Identification at the rate in place in the country where VAT is due. That is the Member State of Consumption. Any VAT owed will be paid to the Member State of Identification, and OSS returns must be submitted.
If the UK is not treated as a Member State at the time in which goods are dispatched from its territory, the sale will not fall under the Distance Selling regime. The goods will be treated in line with their intrinsic value, with differences above and below €150.
Goods imported from third countries or territories to customers in the EU up to an intrinsic value of €150 will be covered by an import scheme. Like the system being implemented in the UK from 1 January 2021. This import scheme accompanies the abolition of the current VAT exemption for goods in small consignments of a value of up to €22. However, if goods have a value above €150, VAT cannot be accounted for under IOSS and a full customs declaration will be needed.
Goods imported from third territories or third countries in consignments with an intrinsic value of less than €150 using an electronic interface such as a marketplace, platform, portal or similar means, will also be treated differently. This applies to sales via platforms such as Amazon. Under the changes, the platform will be deemed to have received and supplied goods in their own right. Interestingly, it’s irrelevant whether the goods are supplied by EU or non-EU suppliers. The marketplace rules also apply to non-EU sellers supplying goods via a marketplace where the goods are already located in the EU at the time of sale.
Until the application of the new rules, Member States must transpose the new rules of the VAT Directive. The Directive is already in place into their national legislation. Some Member States already are doing this. Though as yet unconfirmed, many believe OSS could be further delayed. Both the Netherlands and Germany have concerns about preparedness for the July 2021 start date.
For UK businesses, Brexit makes things particularly complex. After the implementation of OSS, UK businesses can make use of the e-commerce package changes. However, during the 6-month delay in 2021, registrations and fiscal representatives could be necessary for a short time. It’s essential businesses plan their supply chain with all the upcoming changes in mind.
Get in touch to find out how we can help your business with the new rules.
Keen to know more the EU E-Commerce VAT package and One Stop Shop and impact on your business? Download our recent webinar A Practical Deep Dive into the New EU E-Commerce VAT Rules.
To help businesses understand the impact of Brexit, we’ve cover the essential considerations for supply chain planning in this blog.
The treatment of goods moving between Great Britain and the EU will change significantly from 1 January 2021. Exports and imports will apply to GB-EU trade, replacing the concept of dispatches and acquisitions which applies at present. Though zero rating for exports exist if relevant conditions are met, crucially, import VAT and potentially customs duty liability applies to imports. Some Member States allow for accounting import VAT on VAT returns to mitigate this. For postponed accounting applied to B2B transactions, its essential to determine who will act as the importer of record.
For B2C sales, the distance selling regime will no longer apply to UK businesses shipping goods from GB. There is still a requirement for VAT registrations wif the business remains the importer of record. It will become necessary in any Member State without threshold. If the customer acts as importer of record in their own country then VAT registration won’t be necessary, but there could be additional commercial implications to consider in this scenario, as well as an impact on sales.
When it comes to the treatment of services, changes are unlikely. It appears that the UK will continue to apply VAT place of supply rules in line with the VAT Directive, in part to avoid instances of double or no taxation. However, businesses should consider the liability for registration in the EU and the UK on an ongoing basis, and the UK Mini One Stop Shop (MOSS) for supplies of Telecommunications, Broadcasting and Electronic Services (TBES) will no longer be available. Consequently, businesses require a MOSS registration for another Member State.
If new EU registrations are required, fiscal representation will be necessary in many countries. Fiscal Representatives are often jointly liable for the VAT. In addition, this set-up requires further compliance measures, including guarantees.
Businesses engaging in GB-EU trade of goods must review their supply chain and be fully aware of the implications of Brexit related changes in the New Year. Many businesses may find that it’s possible to make changes to their supply chains to mitigate any negative impacts by changing contractual relationships and reconsidering the flow of goods. It is essential to do these reviews, but must be done now for full effectiveness.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
It is time to get ready for the digital transformation of tax with Sovos VAT solutions.
New VAT reporting requirements are sweeping across the world with increasing intensity and diversity. Tax authorities are on a digital transformation journey, profoundly impacting how companies operate and comply with VAT law. As a result, the challenges that a company trading cross-border faces today may well be among the most onerous in history.
We are here to help.
The Rise of Continuous Transaction Controls
The end of this tax revolution, caused by varying forms of digitalization, is not yet in sight. Many countries around the world, particularly in Europe, have just started their individual journeys toward continuous transaction controls (CTCs). Then there are other countries such as Chile and Brazil in Latin America that have had them for many years. They continue to add new features to further close VAT gaps and to add interoperability. As a result, these additions increase economic benefits to the foundations they built.
Multinational companies need a global VAT solution that grows with them. Many companies feel lost among the rapid succession of CTC mandates around the world. They don’t know how to avoid placing themselves in a costly and perilous corner by using a multitude of diverse local solutions. In working with such companies and their solution providers, we know how crucial it is for responsible executives to help all affected corporate functions cooperate toward forming and adopting a coherent approach that turns CTCs into an advantage rather than a risk.
Tax peace of mind
Sovos is a global leader in tax compliance with global coverage and local expertise. We process more than five and a half billion tax compliance transactions every year in more than 100 countries. Our global coverage is supported by over 2,500 employees in more than 15 countries.
We provide our customers with complete tax peace of mind by providing the first complete global cloud solution for modern tax. Our team of 100 regulatory experts constantly monitor the VAT landscape for regulatory changes across thousands of jurisdictions.
As more tax authorities introduce tax reforms to increase efficiency and close VAT gaps, we make sure our customers are prepared. We ensure they’re able to meet the challenges that increased compliance requirements bring. We help businesses stay ahead of fast-changing government regulations allowing them the breathing space to innovate and grow.
Get ready for the digital transformation of tax
Our solutions are built into the business process platforms used today, including SAP, Oracle, and Magento. Sovos provides seamless integration with one global provider and a centralized global VAT solution.
Recently, we outlined the need for speed in understanding fiscal representation obligations. Post-Brexit, there are many ramifications for businesses operating cross-border. Among them the requirement to appoint a fiscal representative to register for VAT purposes .
As outlined in our previous piece, there is a limit on tax authorities’ capacity to authorise new fiscal representation applications.
Whether your fiscal representation for VAT post-Brexit planning is in full swing or just beginning; there are considerations with regards VAT registrations, reporting and recovery to be aware of.
In most EU nations, the act of securing fiscal representation doesn’t affect changes to a company’s VAT number. However, tax authorities will require up to date and comprehensive information for the fiscal representation process and may require resubmission of information already provided for the original VAT registration application.
But what is likely to undergo significant change is the nature of transactions taking place post-Brexit. While in principle, businesses report transactions in the same way as before, the transactions carried out could change because of Brexit. So, any fiscal representatives appointed will need an in depth understanding of a business’ accounting processes and procedures.
There is no change to the requirement to file additional declarations by the appointment of a fiscal representative. However, as noted above, transactions may change post-Brexit, and these changes will impact on the requirement for additional declarations. Businesses will need to fully review and contingency plan for this potential impact, considering their supply chains and any UK – EU transactions, in addition to potential reporting requirements.
A question on the top of the agenda for many is how VAT registrations will be affected by Brexit. Much depends on the business in question – not all UK businesses will have a VAT registration requirement in the EU Member States post-Brexit. Those who are not required to register may find that VAT in the EU is incurred, and thus must be recovered to reduce costs.
This is where things get more complex. To recover VAT in some countries where there is not requirement to be VAT registered, fiscal representation is required. The process for appointing fiscal reps and the documentation needed varies nation to nation. But broadly speaking, recovery will be under the 13th Directive. Aside from the 13th Directive’s lengthy paper based systems, the issue here is likely to be reciprocity. The principle of reciprocity means that a Member State can deny recovery of VAT if the country of the claimant doesn’t allow recovery by businesses from the Member State where the VAT is incurred. Each Member State applies reciprocity in different ways which adds to the complexity. We’re in uncharted territory here, as so far 13th Directive claims haven’t been made by UK companies. It’s essential that companies operating in EU nations review local VAT positions before incurring significant amounts of VAT.
In conclusion, fiscal representatives are likely to be an ongoing feature of cross border EU-UK trade. Though fiscal representatives themselves are unlikely to mean that VAT registration and reporting change, Brexit itself may alter transactions and their reporting requirements. Where businesses should invest time and effort is in considering recovery in the nations that they operate in. Significant changes to how VAT recovery occurs may take place.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
Update: 28 March 2023 by Russell Hughes
The UK government has agreed with the EU on major changes to the Northern Ireland protocol, referred to as the ‘Windsor Framework’.
The protocol is the part of the Brexit deal which sets Northern Ireland’s trade rules and keeps it inside the EU’s single market for goods. While it keeps the Irish land border open, the protocol means products arriving in Northern Ireland from the rest of the UK are subject to VAT and customs procedures.
From a VAT and customs point of view, the significant change will be the introduction of green and red lanes for goods coming into Northern Ireland from Great Britain.
British goods staying in Northern Ireland will use the green lane at Northern Ireland ports, facing minimal paperwork and no routine physical checks. Whereas goods due to travel into Ireland will use the red lane, facing customs processes and other checksat Northern Ireland ports.
A business must be registered as a trusted trader under the new United Kingdom Internal Market Scheme (UKIMS) to use the green lane.
Some large businesses that are members of existing schemes, such as supermarkets, will automatically be transferred to the UKIMS. Businesses with no premises in Northern Ireland will also qualify and be able to register for the scheme.
EU Member States approved critical parts of the Windsor Framework at a meeting on 22 March 2023, whilst this received parliamentary backing in the UK House of Commons on 23 March 2023. However, no date has yet been given on when this would come into effect – should both sides vote it in.
With VAT changes seemingly on the horizon, it’s important for businesses to be prepared. Speak to our expert team for assistance.
Update: 25 November 2020 by Russell Hughes
HMRC has published a policy paper that outlines the VAT accounting process for goods moving between Great Britain (GB) and Northern Ireland (NI) from 1 January 2021.
As from 1 January 2021, the Northern Ireland protocol will come into force. This means that NI will remain in the part of the single market and customs union. Post-Brexit, Northern Ireland maintains alignment with the VAT accounting rules for goods coming from the EU. At the same time, NI will also remain part of the UK’s VAT system, which means there will be no requirement for businesses in GB to have to register for VAT separately in NI.
VAT will continue to be accounted as it is currently on goods sold between GB and NI. This means that the seller of the goods will continue to charge its customers UK VAT and account for this in the relevant boxes on its UK VAT return.
The buyer of UK goods may continue to recover the input VAT charged in accordance with normal rules and report this in the relevant boxes of the UK VAT return.
However, there are a small number of exceptions to this where goods are:
Where the movement of goods falls within one of these exceptions, the customer or importer will account for the VAT on their UK VAT return.
When a UK VAT registered business transfers its own goods from GB into NI, VAT will be due. This is because there is an import of the goods into NI. The business will need to account for output VAT on the movement of goods on its UK VAT return. Whilst at the same time, and providing they are used for making taxable sales, also reclaim the input VAT. This will be subject to the normal rules on VAT recovery.
If the business uses the goods for exempt activities, partial exemption considerations will have to be taken into account. This could create double taxation as there is a possibility that there will be irrecoverable input VAT incurred again on the same goods. To avoid affected businesses can reattribute the originally incurred VAT to allow full recovery as part of the annual adjustment. HMRC will introduce new rules to avoid this being used for avoidance purposes.
For goods moving from NI to GB, the business will not be required to account for VAT on this movement.
VAT groups will need to deal with the movement of goods from GB to NI in the same way. They will also have to account for VAT on the transfer of goods that are physically in NI between VAT group members where neither group member has a fixed establishment in NI, or only one of them does.
Whilst it may not be possible for business established in GB to use EU simplifications such as triangulation, it may be possible for NI businesses to still use such simplifications or where the intermediary is identified as moving goods in, from, or to, NI in the course of its business.
Goods that are moved from GB to NI will not be eligible to be sold within a margin scheme. This is due to VAT having to be accounted for on the movement of goods to NI. However, goods moved from NI to GB will still be eligible to be sold under the margin scheme rules in GB.
Taxpayers continue to apply UK VAT on goods sold on board ferries between GB and NI. The seller accounts for this on their UK VAT return.
Where goods are sold on journeys that visit GB and NI as part of a voyage to third countries, the supply tax treatment is taking place outside the UK. So they are outside the scope of UK VAT.
Where goods are sold on journeys between NI and an EU member state, the current rules will apply. The tax applies at the place of departure.
For businesses that have supply chains involving NI, we would recommend these are urgently reviewed in light of the above changes. Our VAT experts are on hand to help should you wish to discuss this further. Contact us now.
Find out why it makes sense to invest in tech and automation to streamline tax processes and alleviate the burdens finance teams face.
The shift towards digitisation necessitates a radical adaption and shift in existing tech for industries across the board. As this occurs, tensions and anxieties rise around automation and job losses. With Oxford Economics predicting that 12.5 million manufacturing jobs will be automated in China by 2030, a partially automated workforce is indeed on the horizon.
But human expertise and technology can go hand in hand, with tech supporting teams and boosting productivity tenfold. As a result, for businesses, the only way to thrive in an increasingly digital world is to invest in the right technology.
For organisations operating globally, this is of particular importance as an extensive knowledge of governmental financial legislation in many countries is needed. Financial frameworks are complex to navigate and are constantly changing. Real-time VAT reporting is increasingly prevalent worldwide, with continuous transaction controls (CTCs) tightly constricting many different jurisdictions. Without automation, the hours required to manually keep pace with new rules would far exceed realistic human capacity.
For global companies, manually submitting the paperwork for audits and reports is neither sustainable nor sensible. But an additional problem for those operating in multiple jurisdictions is how to keep pace with ever changing rules and government regulations required for business transactions.
Global governments are reviewing how they measure and collect tax returns. The aim is to improve economic standards in their countries. Digitising return processes gives way for a much more forensic and accurate view of a nation’s economic health. So it’s unsurprising that automated invoicing and reporting has pushed its way to the top of the agenda in recent years.
How the approach is taken to upgrading many transactions and interactions is contingent on specific country viewpoints – certain jurisdictions enforce varying levels of CTCs, real-time invoicing, archiving and reporting of trade documentation. Therefore those operating internationally will feel the additional pressure to accurately track and comply with multiple and complex laws with threatening hefty non-compliance fines. Trading and operating within the law now requires intelligent technology and infrastructure.
Approaches across the globe differ; Latin America pioneered mandatory B2B clearance of e-invoices, and Brazil requires full clearance through a government platform. In Europe, the EU-VAT directive prohibits countries from introducing full e-invoicing – though Italy bucked this trend in 2019, following a lengthy derogation process. As economies shift to a data-driven business model, the move towards a digital tax regime is inevitable.
The VAT gap continues to confound governments across the globe. Therefore to combat it, many nations have created their own systems. In turn, this makes a patchwork of mechanisms unable to communicate with each other. To add to this, the slow adoption of e-invoices in many countries has caused a completely fractured picture – VAT information is still being reported periodically in many countries, with each jurisdiction setting its own standard. We’re a long way from consistency in global digitisation.
As more countries develop their own specific take on digitising invoicing, things look increasingly complex. New regulatory legislation continues to surface and keeping track can cause headaches and accidental noncompliance. Global firms must maintain a keen eye on developments as they happen in all the countries where they operate and its essential they apply systems which can track and update new legislation as it happens.
But tech also needs to give an accurate reflection of an entire business’ finances. It needs to link together all the different systems to accurately report tax. This is why flexible APIs are the first order of priority. Programmes with sophisticated APIs enable tax systems to ‘plug in’ to a business and gather vital information. In turn allowing firms to showcase the necessary data, display accurate results and avoid government penalties. It’s essential that technology can integrate with a number of billing systems, ERPs, and procure-to-pay platforms when approaching sensitive government interactions. The volumes of data created and handled are enormous, and increasingly out of the realms of human possibility.
Likewise, tech can assist in formatting information as per the requests of each country, which is essential for digital reporting. Technology exists to monitor and adjust invoice formats. For example, to suit the country a business is operating in and avoid non-compliance penalties. With time usually of the essence and in short supply, tools that automate admin and free up time for strategic elements of business finance pay for themselves in dividends. Effectively, as machines are increasingly ingrained in operations, manual analytics become more challenging. Both governments and businesses are leaning on automation and advanced technology to ease the resulting administrative burdens.
A truly digital future is in the grasp of many economies, but it comes at a price. To capitalise on the rapid wave of digital transformation, businesses must arm themselves with technology. It’s time to manage the increasing realm of complex and data-driven regulations. It makes sense to invest in tech and automation to handle labour-intensive analysis and research, streamline processes, and alleviate the burdens faced by finance teams. That is without the need for costly expert staff or outsourced support. On the verge of a fully digital way of working, manually submitting the paperwork for audits and reports is no longer practical.
It is important to carefully select technology to synchronise and communicate vital information across a business’ IT infrastructure. In the current recession driven context, the pressure on finance teams is intense. The pressure to perform at their best, safeguard against any financial leaks and strictly monitor expenses and outgoings. In the face of adversity, tech can guide and support us – and could become business critical.
Investing in automation and tech doesn’t have to cost finance jobs. It can instead go hand in hand with human expertise. It can manage arduous and complex tasks. While also freeing up time and energy so businesses can concentrate on what they do best.
Find out how Sovos can help you central, standardize and automate your VAT and fiscal reporting obligations.
Our Brexit and VAT series aims to offer the vital information and planning tips businesses operating cross border need. This week, we’re addressing fiscal representation in the EU. As the UK is now a third country from a VAT perspective, there are various urgent steps businesses must take.
Fiscal representatives are effectively an insurance policy for tax authorities, for whom they protect the ability to collect VAT. Member States in the EU have different positions on fiscal representation. Some require non-EU businesses to make a local appointment if the business requires a VAT registration.
Fiscal representatives are local businesses acting on behalf of non-EU companies. They often assume joint and several liability for VAT. Businesses who perform this role must meet a series of measures set out by the Member State in question. They often must be authorized to act by the relevant tax authority.
There are two common situations in which fiscal representatives are needed. The first is where a non-EU business registers in a Member State where fiscal representation is required. Fiscal representation is imposed in different ways, and at the Member State’s discretion – so in some countries it’s mandatory for all non-resident businesses liable to register, whilst in others it depends on the taxpayer’s activity. Equally, some tax authorities don’t require it, whilst others make it optional.
The second common scenario for fiscal representation is where the appointment of a fiscal representative offers a business access to a beneficial VAT regime, as is the case in the Netherlands in respect of the postponement of import VAT.
Post-Brexit, the UK will become a third country for VAT purposes. Most EU nations require fiscal representation for non-EU businesses – with some notable exceptions like Germany – so all businesses that choose or must remain registered in EU nations after 31 December must determine the position of the countries in which they operate.
As many companies restructure supply chains to mitigate the consequences of Brexit, situations arise where they require VAT registrations for the first time. If the country which requires registrations demands fiscal representation, then businesses must look to appoint a local fiscal representative.
UK businesses are in a particular and complex situation. Tax authorities are struggling under the weight of mass applications for fiscal representatives, as significant need has been generated in a relatively short time. As a result, some Member States are issuing specific guidance to UK companies, and others may follow suit. France, for example, has recently clarified that UK companies don’t need to appoint a fiscal representative. Though full details and guidance are yet to arrive, this should be cause for a sigh of collective relief for all UK businesses registered for VAT in France. But beware differing positions – Belgium previously advised all UK businesses who hold non-resident VAT registrations that they require fiscal representation before the end of 2020. They relaxed this position, with the authorities offering an extension until June 2021. The coming weeks may see other Member States taking similar approaches.
Whatever individual Member States’ positions, there are time considerations to be aware of. The amount of risk that fiscal representatives take on for a company is significant. So the process for securing fiscal representation is often lengthy and can involve financial guarantees.
Fiscal representation is here to stay – so planning now is fundamental. Regardless of Brexit, the process for establishing EU fiscal representation for VAT is time consuming. As a result, businesses must act fast to establish the necessary support needed in the countries where there is a requirement to register.
Essential steps are an urgent and ongoing review of different tax authority positions, and careful planning for the associated administrative and financial costs.
Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?
UK Border Controls Post-Brexit – What you Need to Know About Importing Goods
UK Postponed Import Accounting for VAT
Post-Brexit: Postponed and Deferred Import VAT Accounting in the EU
Keen to know how Brexit will impact your VAT compliance obligations? Register for our upcoming webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
As discussed in three key reasons to appoint a VAT managed service provider, the VAT compliance demands from tax authorities around the world continue to increase. They are only going to become more onerous to boost economic efficiency, combat fraud and reduce VAT gaps. The demands for more granular tax reporting are increasing for this to be in real-time. This includes Spain, Hungary, Italy, Turkey and Mexico. These growing demands are adding to the many other challenges faced by multinational companies today. This is why more companies are looking to managed service providers (MSPs). MSPs can ease the pain points of today’s VAT compliance obligations. They make sure they’re covered for fast approaching mandates looming on the horizon.
But how do you choose the right VAT compliance MSP? With so many providers offering a range of different services, making the right choice can be daunting. Do you choose localised individual solutions or opt for a central approach? Here are seven key areas you’ll want to evaluate:
You’ll want to take a strategic view of your IT environment and map tech investments to business goals. Using an VAT compliance MSP allows you to leverage their investment in software and in the ongoing training of their staff. They’ll have been doing this for many years for many clients. It’s what they do. It’ll also allow you to automate and streamline many of your manual processes which may also be a core business objective. Make sure the software is compatible and accessible to suit your needs in each of the locations where you trade not only today but in the regions you’re looking to enter in the future.
The move to digitise tax reporting all over the world has now led to IT security considerations being important when choosing any provider. Security can therefore relate not only to the transmission of data to a provider, but also in making sure it’s safely and securely stored during, and after transmission to revenue authorities. Here a centralised provider can provide some key benefits. Portals can be used to accept data from clients, and also all information can be securely stored on a consolidated cloud, with data centres in different regions as needed to comply with data retention policies globally.
Building and maintaining a team of specialists can be time consuming and costly. With the right VAT compliance MSP, you’ll have access to their team and can benefit from their specialist knowledge and experience. Let them ease the burden. Know they’ve got their finger on the pulse of regulatory changes so you don’t have to. You can then focus on what your company does best knowing that your VAT compliance is in safe hands.
You’ll want to choose a provider that can adapt as your business needs change. You may want the flexibility to outsource only part of your tax compliance obligations depending on inhouse resources, budgets, expertise etc but have the freedom to assess and change this at any time. A tailored approach that can be altered over time will ensure your compliance needs are covered today as well as in the future.
Hand in hand with flexibility, you’ll want a provider that’s able to grow with you. They’ll already have experience and in-depth knowledge of the markets you need help with today, but make sure they can cover other regions you may choose to enter in the future. Choosing local point solution providers for different markets can cause headaches down the line.
Your MSP is there to support and service your account and should feel like an extension of your own team. You’ll want a collaborative approach and partnership-feel. Ensure you get the most out of this relationship. Also be updated on new changes in the regulatory landscape well before they’re finalised. Find out about who your account team will be and if they’re in single or multiple locations in addition to if there are any language barriers.
Even though you’ve outsourced all or part of your VAT compliance, you’ll still want to keep track of it. To that end, check what access you’ll have to the software and who in your company will have full or partial access. Also ask if logins are restricted. A secure customer portal and centralized dashboard helps keep track, at a glance, of each stage of your tax compliance. This includes traffic lights to flag priorities and approaching deadlines.
Choosing to appoint a MSP for your VAT compliance will allow you to focus on what you do best. Take care to ensure your chosen provider not only suits your needs today but also has reach and experience in the regions you’ll enter in the future. Taking time to choose the right MSP will pay dividends in the future. The right partner will be at your side for the long haul.
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.
Businesses that trade cross border must turn their attention to the treatment of goods post-Brexit. Recently, we discussed postponed import VAT accounting in the UK. This week, we’re turning our attention to postponed import VAT accounting in the EU.
In theory, when goods enter the EU, import VAT is immediately due to the customs authorities at the relevant border. In practice, the EU VAT Directive gives Member States the ability to determine the conditions under which goods enter their territories. This is in addition to the ability to set detailed rules for payment of VAT in respect of goods imported. This means Member States can implement mechanisms for postponed accounting via the VAT return, or deferred payment schemes, or a combination of both.
Postponed accounting via the VAT return accounts and pays for import VAT due in the taxpayer’s periodic VAT return. If import VAT is deductible, it is recoverable on the same return. This creates the benefit of neutral cashflow impact as a result. Effectively, this accounts for VAT in a similar way as acquisition tax, in that there is no physical payment of VAT to the revenue authority.
Member States are able to determine the specifics of their own deferment scheme, which may apply to every importer or be limited to certain cases.
Import VAT can create significant cashflow issues. To mitigate this it’s essential to be aware of available reliefs. Therefore post-Brexit, make the necessary application for deferred or postponed VAT accounting in the country of import.
Goods, Services, and VAT Recovery Post-Brexit – What do Businesses Need to Know?
UK Border Controls Post-Brexit – What you Need to Know About Importing Goods
UK Postponed Import Accounting for VAT
Keen to know how Brexit will impact your VAT compliance obligations? Then watch our on-demand webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
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.
To learn more about the new EU e-commerce rules, listen to our on-demand webinar A Practical Deep Dive into the New EU E-Commerce VAT Rules
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.
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.
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%.
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.
Understanding import obligations and preparing well in advance of each stage of the phased implementation for border controls post-Brexit is essential.
Keen to know how Brexit will impact your VAT compliance obligations? Watch our webinar on demand Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
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.
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.
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.
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.
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.
Keen to know how Brexit will impact your VAT compliance obligations? Download our recent webinar Brexit and VAT: Protect your valuable supply chains and minimise costly disruptions to find out more.
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.
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?
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.
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.
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.
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.
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.
Talk to our tax experts for immediate help or keep up to date with the changing VAT compliance landscape, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to stay ahead of regulatory news and other updates.
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:
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.
To keep up to date with the changing VAT compliance landscape, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to stay ahead of regulatory news and other updates.
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.
To keep up to date with the changing VAT compliance landscape, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to stay ahead of regulatory news and other updates.
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:
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.
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.
To learn more about what we believe the future holds, download Trends: Continuous Global VAT Compliance and follow us on LinkedIn and Twitter to keep up to date with regulatory news and other updates.
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.
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.
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.
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.
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.
To find out more about what we believe the future holds, contact us and follow us on LinkedIn and Twitter to keep up-to-date with regulatory news and other updates.