Governments worldwide, including across Europe, are increasingly mandating the use of e-invoices. But what exactly is e-invoicing, and how can it benefit your business? Discover everything you need to know!
What is an Electronic Invoice?
An electronic invoice (e-invoice) is an invoice that is issued, transmitted, and received in a structured electronic format, allowing for automatic and electronic processing. It’s important to note that not all invoices in electronic form qualify as e-invoices. For instance, a PDF or a scanned document does not meet the criteria of an e-invoice because they lack a structured, standardized format. It’s also essential to distinguish e-invoicing from other digital reporting requirements, such as real-time reporting or e-reporting (as seen in countries like Spain, Hungary, and Romania), or certified billing obligations (as in Portugal).
E-invoicing Benefits and Advantages
Governments across the European Union and around the world are increasingly mandating e-invoicing for both Business-to-Government (B2G) and Business-to-Business (B2B) transactions to reduce the VAT gap and combat fraud. However, the benefits of e-invoicing extend beyond regulatory compliance—many businesses are voluntarily adopting e-invoices due to the significant advantages they offer.
The Main Elements of an E-invoice
When working with e-invoicing, you’ll encounter terms like schema, semantic, syntax, and CIUS. Understanding these elements is crucial for selecting the right e-invoicing format. The schema defines the specific structure of an e-invoice, typically established by the tax authority. It outlines the framework within which an e-invoice must operate, including the semantic and syntax models. Semantic refers to the list of transaction data required on the e-invoice. It details the meaning and context of the information, ensuring that all necessary data points are included. Syntax represents the electronic structure or language used, such as XML, which is machine-readable. It dictates how the semantic data is formatted and transmitted.
Types of E-invoices
In scenarios where e-invoicing is mandated, businesses must adhere to the regulations set by the government, which usually specify the required e-invoicing format or provide a range of acceptable options. For example, in the European Union, e-invoicing mandates often require compliance with the EN 16931 standard. Member States may further refine this standard by implementing a country-specific CIUS (Core Invoice Usage Specification) or by mandating the PEPPOL BIS Billing 3.0 e-invoicing format. In some cases, governments may also allow the use of various e-invoicing formats available in the market.
The PEPPOL Model
PEPPOL (Pan-European Public Procurement On-line) is a network and data exchange system that streamlines electronic invoicing for businesses and public administrations. It sets standard specifications for e-invoicing in line with the EU standard format EN 16931. Specifically, the PEPPOL BIS Billing 3.0 format is the designated schema for B2G (Business-to-Government) e-invoicing within the EU. In addition to setting standards, PEPPOL operates as a delivery network for exchanging e-invoices globally. This network defines how invoices are issued and received, enabling access through Access Points and Certified Providers, which promotes interoperability between different service providers. The PEPPOL standards are gaining traction not only in the EU but also in non-EU countries that are adopting both the PEPPOL e-invoice format and the delivery network.
What Are the CTC Models for E-invoicing?
“CTC” stands for continuous transaction control, a term used to describe the ongoing checks and controls that tax authorities may conduct at the transaction level. These controls can include the obligation to send invoice data to tax authorities, typically in real-time, or reporting requirements linked to an e-invoicing mandate. CTCs are mechanisms designed to enhance the management of VAT and enable tax authorities to collect transaction data on a real or near real-time basis.
Post-Audit Model
In the post-audit model, invoices are exchanged directly between the seller and the buyer, with tax authorities reviewing the invoices only after they have been issued. In some cases, the e-invoice may be sent and received via service providers, but the key characteristic of this model is that tax authorities have access to a limited amount of information. They can request to view the invoice details after the fact, rather than being involved in the real-time exchange or approval process. This approach allows businesses to handle their invoicing independently, with the tax authority’s role being more of a subsequent oversight function.
Clearance Model
In the clearance model, an invoice must receive approval or validation from the tax authority before it can be issued. This process involves the tax authority performing various checks on the invoice details to ensure compliance with regulations. In some cases, after the checks are completed, the tax authority may add a unique invoice number or a digital signature to the invoice to certify its validity. For example, in Romania, this additional step confirms that the invoice has been reviewed and authorized by the tax authorities before it is finalized and sent to the buyer. This model ensures that all invoices meet regulatory standards and helps prevent errors or fraudulent activity before the transaction is completed.
Centralized Model
In the centralized model, the tax authority plays an active role in the issuance of each e-invoice. All invoices are processed through a central platform or infrastructure established and operated by the tax authorities. This central system manages the exchange of invoices between sellers and buyers, ensuring that all transactions are monitored and controlled from a single point of oversight. This approach allows for direct supervision and management of invoicing activities, facilitating real-time validation and compliance checks while streamlining the invoicing process for businesses.
E-invoicing Mandates Overview
In the European Union, e-invoicing is generally required for transactions between businesses and public administrations, known as B2G transactions. Recently, Luxembourg and Belgium have implemented mandatory B2G e-invoicing requirements. For more details, you can refer to the EU Directives issued on this matter. Additionally, there is a growing trend of governments mandating the use of e-invoices for Business-to-Business (B2B) transactions. This shift aims to streamline invoicing processes, enhance transparency, and improve tax compliance across various sectors.
Is E-invoicing Only for B2B?
No, e-invoicing is not limited to B2B transactions. It can be implemented across B2G, B2B, and B2C transactions. Currently, B2G e-invoicing is the most widely adopted, but the adoption of B2B e-invoicing is rapidly increasing. In some countries, such as Romania, B2B e-invoicing mandates are applied only to specific types of transactions. For B2C transactions, requirements can vary. For example, some countries mandate that B2C invoices include a QR code or are subject to specific reporting obligations, such as the e-reporting in France. Italy and Slovakia have also introduced B2C e-invoicing requirements starting in 2024.
What Do I Have to Take Into Account for E-invoicing?
To begin using e-invoicing solutions, start by investigating the specific e-invoicing format and requirements in your country. Regulations vary widely, with some countries mandating e-invoicing for both B2G and B2B transactions, while others only require it for B2G transactions. Understanding these requirements is crucial for ensuring compliance. Next, thoroughly review your finance processes, especially if your country implements a clearance model for e-invoicing. This review is essential to ensure that your real-time reporting of e-invoices aligns with regulatory standards and avoids potential issues or penalties from tax authorities.
