What Is e-Invoicing? A Comprehensive Guide

e-Invoicing

Tax administration in the digital era is a critical topic for companies worldwide. Globally there has been a trend towards real-time tax compliance including e-invoicing. There is a focus on digital records, transactional-level data, and real time reporting to tighten tax controls and increase the effectiveness of tax collection.

But what exactly is tax-digitisation and how does it affect you?

Digital taxation, is the automation of tax processes to an electronic and secure environment, including processes such as e-filing, e-invoicing, and e-reporting. They provide a more secure means of document transfer, increase accountability, and simplify interactions with tax authorities using online portals. But what does that mean for you?

Table of contents:

1.  What is e-Invoicing?

2. How Does e-Reporting Help?

3. Why Are Things Changing?

4. How Does e-Invoicing Work?

• Outgoing e-Invoices
• Incoming e-Invoices

5. Understanding B2B, B2C and B2G

6. Is e-Invoicing Mandatory?

7. Challenges Faced By e-Invoicing

8. How Can We Help?

1. What is e-Invoicing?

Governments worldwide are striving towards Continuous Transaction Controls (CTC). One method for achieving CTC is e-invoicing, or electronic invoicing. e-Invoicing is a mechanism designed to eradicate VAT fraud and promote a drive towards tax digitization. e-Invoicing aims to take the data that a standard invoice would contain and transmit it digitally to the end recipient. In most countries, the tax office would also request e-invoicing data to allow for full visibility. This will ensure that the tax office is in possession of the data and can make the correct key decisions.

But what is the purpose of this? Tax offices aim to ensure that VAT refunds are never more than what they should be. Additionally, it would validate that refunds are only made from legitimate invoices for business expenditure. The data is digitized and sent into the tax office in a structured technical language that is only machine readable. There is no physical paper or PDF in the process. This data is sent to one or more parties via a secure exchange that is oftentimes government regulated. The access to these exchanges is obtained via an API integration. API integration access and user rights are obtained when prior accreditation and tech development have been completed.

2. How Does e-Reporting Help?

The second method for achieving CTC is e-reporting or Digital Reporting Requirements (DRR). Accordingly, transactional detail is shared with the tax offices in near real-time, often 2-5 days after an electronic invoice is raised. Governments across the world are striving to fully digitize their tax administration, as CTC will reduce VAT gaps existing in their economy.

3. Why Are Things Changing?

So why did we pivot away from the former invoicing processes? Invoicing is an integral process of any business operations, but paper-based invoicing leaves room for error. It is a manual and oftentimes tedious process. With the advancing of digital technology and many governments mandating the concept, electronic invoicing has gained much prominence in recent years.

The adoption of e-invoicing presents numerous benefits, such as:

• Time saving: There is mitigated need for manual invoice processing.
• Accuracy: Using a standard and digital method of invoice processing is likely to significantly reduce the risk of errors.
• Secure: The data is shared via secure networks, hence there is no risk of invoices being lost.
• Environmentally friendly: E-invoicing reduces the need for paper.
• Cost saving: In the longer term, this automated process will reduce operational costs and improve efficiencies.

4. How Does e-Invoicing Work?

e-Invoicing is a multi-directional process, whereby both Accounts Receivable (AR) or outgoing invoices are sent, as well as Accounts Payable (AP) or incoming invoices are received. Oftentimes, a service provider operating a Software as a Service (SaaS) product will assist with performing these services. Our e-invoicing solution, eezi- Powered by VAT IT, has approved integrations into the various exchange platforms, as we have obtained the required certifications and accreditations with the respective tax offices to act as a third-party exchanger of this data.

Why would you need a service provider? A client may opt to use a service provider as they might not have the technical expertise or architectural set-up to exchange this data themselves. Another possible reason is that they may not have or want to devote resources to understanding the ever-changing e-invoicing regulations. It can be time consuming to keep up to date with all the territories in which they are active. A service provider acts as a third-party who will send and receive the data on behalf of their clients. They do not own the data, but merely function as a conduit to achieve compliance.

         a. Outgoing e-Invoices

1. Invoices are created by the seller using their in-house ERP system. This is shared via a secure electronic channel with the service provider.
2. The invoice is converted into the stipulated technical language and transmitted via the secure network to the end user, and government authority where required.
3. In most cases, the e-invoice is subject to prior validation checks to ensure adherence to mandated standards.
4. This validated e-invoice (often containing a token of sorts, indicating compliance and authenticity) is shared with the supplier.

         b. Incoming e-Invoices

1. The invoice is shared to the recipient once it is created by a supplier in the same manner as above.
2. Data in the correct technical language and structured format is exchanged via the    secure network.
3. The e-invoice will pass the validation checks and become eligible for retrieval.
4. After validation, the invoice will be pushed to the service provider, for eventual availability for the end user (buyer) to make use of in their everyday business processes.

5. Understanding B2B, B2C and B2G

• Business-to-Business (B2B) e-invoicing streamlines invoice exchange between businesses, enhancing accuracy and accelerating payment cycles.
• Business-to-Consumer (B2C) e-invoicing involves businesses sending electronic invoices to individual consumers, promoting convenience, and reducing paper usage.
• Business-to-Government (B2G) e-invoicing pertains to electronic invoicing between businesses and government entities, ensuring compliance with specific government standards. B2G enhances transaction efficiency and transparency. This is often accompanied by an e-procurement cycle as well, keeping good record of all data involved during the tender processes and reducing the risk of errors or fraud.

6. Is e-Invoicing Mandatory?

Many governments globally are either planning or have already implemented mandatory e-invoicing mandates with a goal of modernising invoicing practices and curbing tax fraud. Where required, compliance involves adapting invoicing processes to meet government regulations.

7. Challenges Faced By E-invoicing

e-Invoicing is an already technical concept, requiring an adaption of business processes. The complexity is increased with cross-border transactions, creating a need to seek a service provider who can assist. The VAT in the Digital Age (ViDA) proposal was published on 8 December 2022 by the European Commission. This proposal aims to establish a more digitally driven tax environment in the EU.

The proposal calls for changes to:

1. The VAT Directive,
2. The Regulation on VAT administrative cooperation
3. The VAT Implementing Regulation in the context of the ViDA proposal.

The proposal contains many detailed changes to the current VAT legislation. This includes the need to comply with e-invoicing mandates for cross-border invoices. Whilst the outcome of the ViDA proposal is still outstanding, it has created confusion, controversy and complexity. We do not yet know the details, as a unified decision needs to be taken around cross-border e-invoicing. These complexities are easier to navigate with an accredited service provider.

8. How Can We Help?

eezi – Powered by VAT IT (eezi), is an e-invoicing and e-reporting service provider. eezi provides seamless and quick onboarding through a simple Electronic Data Interchange (EDI). eezi was born from the heart of the VAT IT Group, allowing us to offer bundled VAT compliance, advisory and reclaim services. These services are driven by enhanced data supplied from both e-invoices and e-reports. Our robust technical knowledge and global tax office relations have allowed us to create a user-friendly cloud solution for both e-invoicing and e-reporting.

eezi makes e-invoicing and e-reporting simpler. We have developed our solution in-house from the ground up and remain ERP agnostic, enabling us to work with any client. We are here to make EDI ‘eezi’. Our solutions are tested and certified by authorised control registers, enabling maximum security and authenticity of your data.

eezi has a user-friendly dashboard for clients to engage with and find useful information about the status of invoices per country. The dashboard highlights important updates, key graphics including invoice-related data and stats. Email digests containing summarised information will be sent to relevant users to avoid unnecessary logins.