E-invoicing isn’t new. It has existed for over three decades. Globally, e-invoicing adoption is growing with new mandates appearing each year and many tax authorities continuing to announce intentions to introduce measures.
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Every country has its own approach to e-invoicing, making the current rules and state of play hard to follow. Add in the software requirements needed to comply with each mandate and things can quickly get complicated.
This e-invoicing guide is a vital part of your tax compliance toolkit.
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From e-invoicing basics to understanding the latest developments with the EU’s VAT in the Digital Age proposal, this guide collates and explains essential information on electronic invoicing.
There are lots of resources out there, but this is your essential one-stop shop for all your e-invoicing questions.
E-invoicing, or electronic invoicing, is the exchange of a digital invoice document between a buyer and a supplier. The digitization of paper invoicing and the associated billing processes between suppliers and buyers electronically provides time and resource savings by automating business processes in finance and accounting.
While today many digital invoices are in PDF format, there is a trend towards invoices being in a machine-readable format so that businesses can automate processes and controls for issuance and approval.
A business landscape that fully embraces tax digitization reaps the following benefits:
E-invoicing in the European Union
In the EU, many countries accepted e-invoicing for VAT purposes before it was formally regulated. All Member States were formally obligated to accept this practice due to changes to the VAT Directive in 2001. Subsequent changes to the VAT Directive in 2010 aimed to create equal treatment between paper and electronic invoices, particularly in relation to integrity and authenticity requirements.
Outside the domain of VAT, Directive 2014/55/EU made the adoption of e-invoicing in public procurement mandatory for public authorities in the Member States and outlined a European e-invoicing standard.
Several Member States took the opportunity to also introduce mandatory e-invoicing on the supplier side of the public procurement transaction. However, as EU Directives must be transposed into national legislation to be legally enforced, there still isn’t full harmonisation of e-invoicing in the EU.
The scope of these Directives leaves out important aspects such as reporting invoice data to the tax authority, leaving it up to each Member State to regulate as they see fit. Accordingly, it’s still important to check e-invoicing requirements for each country to ensure compliance.
The upcoming VAT in the Digital Age (ViDA) proposal aims to achieve a more harmonised approach to e-reporting and e-invoicing in the EU. With the aim of making e-invoicing the default system for the issuance of invoices, the ViDA proposal aims to introduce electronic invoicing and reporting requirements for intra-Community B2B transactions, using the EU Standard for Electronic Invoicing (EN16931).
Under ViDA, if a Member State introduces digital reporting requirements for domestic transactions, e-invoicing will be mandatory for the transactions in scope. This change will affect European businesses as well as non-EU companies trading in the EU.
An e-invoice is an electronic document that has been issued, exchanged and stored electronically. Under current regulation in the EU, this might be done in a structured format (such as an XML) or non-structured (such as a PDF). When paper invoices exchanged between trading partners are subsequently scanned and digitized by the buyer, these are not considered e-invoices even if the buyer only stores the digital file.
Country-specific regulations dictate the issuance format and manner of exchange of an e-invoice. More countries are moving towards systems that impose more frequent and granular controls, known as continuous transaction controls (CTCs).
In the European Union, the e-invoicing standard (EN 16931) established by Directive 2014/55, harmonises the meaning of fields used in electronic invoice documents for public procurement. This so-called semantic standard is translated into a number of technical invoice formats, also referred to as syntactic standards.
The European Commission’s VAT in the Digital Age proposals published in December 2022 aims to bring in several changes to e-invoicing requirements across Europe. One example of such changes is the amendment of the definition of e-invoicing, requiring e-invoices to always be in a structured format, aligning with Directive 2014/55 on electronic invoicing in public procurement.
Another change ViDA proposes, if approved, is that the VAT Directive will only consider structured electronic files as e-invoices, whereas non-structured formats like PDF will no longer represent electronic invoices from a VAT perspective.
Continuous transaction controls is an approach to tax enforcement based on the electronic submission of transactional data, normally in the form of an e-invoice (or a subset thereof). A taxpayer’s system submits the data to a tax administration’s designated platform before, during or just after the actual exchange of data from the transaction.
CTCs are typically used by tax authorities to improve VAT controls and can lower the administrative burden of compliance. Examples include the use of data to prefill VAT returns or replace existing declarations, automated and faster VAT refunds, reduction of errors due to validation controls, and other composite fiscal benefits.
However, the continuous data transmission requirements can be challenging for organisations. The initial system and process adjustments can be cumbersome. Mandate requirements evolve and expand frequently and, as no two countries have the same approach to CTCs, a company trading in multiple countries has to pay close attention to each jurisdiction’s specific rules and changes.
In Europe, many tax authorities started their mandatory e-invoicing programs with business-to-government (B2G), gradually expanding requirements to business-to-business (B2B) and business-to-consumer (B2C).
Roll-out usually starts with large companies with a specific annual turnover, before staggering requirements to additional groups and eventually becoming mandatory for all businesses.
In public procurement, it is mandatory for the public sector to receive e-invoices that follow one of the technical formats under the EU Standard for Electronic Invoicing (EN16931). More countries are expanding the obligation to suppliers, who must issue electronic invoices in their operations with public entities.
Mandatory B2G e-invoicing for suppliers in the EU
Croatia (HR)
Denmark (DK)
Estonia (EE)
Finland (FI)
France (FR)
Italy (IT)
Lithuania (LT)
Netherlands (NL)
Spain (ES)
Sweden (SE)
Luxembourg (LU)
Romania (RO)
Slovenia (SI)
Austria (AT)
Belgium (BE)
Germany (DE)
Portugal (PT)
Bulgaria (BG)
Republic of Cyprus (CY)
Ireland (IE)
Greece (EL)
Latvia (LV)
Malta (MT)
Poland (PL)
Slovakia (SK)
Czech Republic (CZ)
Hungary (HU)
In most European Union countries, B2B trading parties are free to exchange e-invoices in any form and format agreed upon. B2B e-invoicing is mandatory in Italy, while countries like Poland and France have published a timeline for the roll-out of a B2B e-invoicing mandate. More countries are seeking a derogation from certain provisions of the VAT Directive with the EU Commission to implement mandatory e-invoicing.
This allows the countries to introduce continuous transaction controls requirements in some form, alongside mandatory e-invoicing. In Italy, for example, taxpayers must issue invoices electronically in a structured format and submit them to the tax authority for clearance before sending to the recipient. As of 2023, countries following in the footsteps of Italy by announcing the introduction of mandatory B2B e-invoicing in the upcoming years are Belgium, Germany, Romania, Poland, France and Spain.
The ViDA proposal aims to make e-invoicing the default method for invoice issuance. The European Commission wants to remove the need for derogation to introduce mandatory B2B e-invoicing in a Member State, as well as the need for buyer acceptance of supplier e-invoicing.
Mandatory B2B e-invoicing in the EU
There are a host of potential benefits to using e-invoicing software solutions. The real advantages go beyond eliminating printing, envelope stuffing and the dependency on physical mail delivery.
First of all, electronic invoicing allows you to send invoices to a buyer quickly and securely directly from your source information system.
Exchanging invoices in a standardised structure format, allowing for automated end-to-end processing, provides the biggest process benefits and financial savings. Handling processes related to invoice sending, approvals and payment is more effective without manual intervention – which can be error-prone, slower and costlier.
E-invoicing also allows businesses to validate data, ensuring compliance with tax authority requirements. Automation ensures consistency between invoice exchange and reporting processes and accounting records. Automating tax determination and reporting codes can provide significant compliance benefits at a much lower cost than paper-based invoicing.
As well as e-invoicing, there are other electronic documents used by tax and other authorities as part of tax digitization initiatives. The following is a non-exhaustive list:
Primarily, e-archiving removes paper documents and physical storage from the tax process by storing and preserving digital records. Tax authorities set their own requirements for the conditions and the number of years companies must archive documents. In the EU, this area of law is not harmonised.
Although e-invoicing rules vary, nearly all require archiving the ‘original’ invoice in the form and format the trading partners exchanged it in.
The pressure for e-invoicing compliance is increasing globally. Tax administrations around the world are spending billions on invoice control systems, and it’s the responsibility of businesses to meet requirements and build an audit-proof archive. Sovos delivers an e-archiving solution that keeps companies compliant across over 60 countries.
PEPPOL (Pan-European Public Procurement On-Line) is an e-delivery network that operates with a set of technical specifications called PEPPOL BIS (Business Interoperability Specifications). OpenPEPPOL is an association that has assumed full responsibility for developing and maintaining the PEPPOL network and specifications.
PEPPOL’s primary purpose is to facilitate the exchange of business documents, allowing businesses to communicate electronically with any European government institution involved in the procurement process. PEPPOL has several domains that cover pre-award procurement communications and post-award processes such as invoicing.
Initially designed for public procurement in the EU, PEPPOL’s open and interoperable network has gained popularity in the private sector. Gradually, many governments have also extended the use of this e-procurement network by making PEPPOL mandatory for the transmission of B2B e-invoices. As a result, its usage is on the rise in a growing number of countries, both within and outside the EU.
The European Commission announced a reform of the invoicing and reporting framework named VAT in the Digital Age in December 2022. As of now, there are still processes to go through before the Commission makes any legislative updates.
The proposal amends the VAT Directive and regulations related to three distinct areas, one of which is digital reporting obligations and e-invoicing. Among other measures, the proposal includes:
Very few countries in the world do not allow e-invoice issuance or have significant limitations that make adopting e-invoicing difficult. For instance, in Morocco e-invoicing without prior consultation with the tax authority is not recommended. In Venezuela, e-invoicing is only allowed for certain industries and also requires the tax authority’s approval.
E-invoicing mandates are in place in many countries including Italy, Saudi Arabia, South Korea, Brazil, Chile, Colombia, Mexico, Ecuador, Costa Rica, and Peru. In Europe, upcoming e-invoicing mandates include France, Poland, Serbia, Spain, Belgium and Germany.
SAP does support e-invoicing, subject to country requirements and integration with end-to-end processes.
Download our free eBook for more information on creating an e-invoicing strategy with SAP.
E-invoicing is also known as electronic invoicing and refers to the exchange of digital invoices between a buyer and a supplier.
E-invoicing requirements vary depending on where your business is based and where you operate. Even the individual Member States of the EU have their own rules and nuances. Examples of rules around e-invoicing include ensuring that the invoice includes certain mandatory invoice content, obtaining buyer’s acceptance of exchanging e-invoices, storing the invoice in compliance with security requirements and other local requirements, etc.
Speak to a member of our expert team if you have any specific e-invoicing questions you would like answered.
The digitization of tax has far-reaching implications for companies’ applications, processes and systems. Sovos works alongside companies who want to ensure these aspects of their business are optimised and ready to embrace the compliance challenges of the future, using the most appropriate integration methodology (API, SAP connectors or IaaS) for their business.
Our global solution for e-invoicing ensures compliance across over 60 countries. Sovos eInvoice simplifies global e-invoicing compliance to keep you updated with today’s constantly changing regulatory environment.
Businesses create e-invoices using billing software. Each solution has its own specific format and flow, though sending and receiving systems use standardised formats.
E-invoicing clearance refers to systems in which a relevant tax authority must approve and clear an e-invoice before it can be sent to the recipient. The cleared electronic invoice becomes the only acceptable fiscal document and any other version of it has no validity. CTC e-invoicing clearance is a form of continuous transaction controls.
