Navigating the minefield of international invoicing and VAT compliance
For multinationals and companies with international vendors and customers, maintaining compliance can be a slippery slope fraught with curveballs and unforeseen regulatory changes.
Just before the New Year, the IRS announced a series of campaigns designed to help large businesses and international taxpayers pinpoint potential domestic non-compliance issues.
But this already murky road becomes even more complex when businesses are tasked with examining the state of their compliance abroad. As companies are becoming more global and connected, this issue is becoming top of mind for finance teams and U.S. accounting firms alike. If you’re buying from and selling to businesses in other countries, or providing accounting services for companies that do, then there are some recent changes you might not be aware of. U.S. and global companies operating in these territories in particular will have to make changes to the way they operate. Here are some key points to be aware of:
Spain, Italy, Belgium, Germany, Portugal and France are just a handful of the countries that have published national Business to Government (B2G) legislation as a result of the EU Directive 2014/55/EU, which puts an obligation on all EU governments to have the capability to receive electronic invoices by Nov. 27, 2018.
Historically, EU member countries have relied on slightly different models and requirements, creating confusion for businesses, and prompting the introduction of a CEN, or Central European Standard, which works across the continent and standardizes invoicing practices.
European Union member states must transpose the European directive to their national legislation and accept e-invoicing in business relations with the public sector by Nov. 27, 2018. However, each member state has the discretion to decide how to incorporate the directive into national law. For example, France has mandated companies to send e-invoices in a phased approach, whereas Germany has mandated only the capability to receive invoices electronically.
Over the coming years, we expect some countries that already mandate B2G e-invoicing to extend this to B2B. Italy is an example of this. The Italian government is now aiming to implement the mandatory use of electronic invoicing between taxpayers starting Jan. 1, 2019.
The mandatory e-invoicing system for the public sector has been in place since March 2015, requiring all B2G invoices issued to be registered and stored electronically. Since January 2017, all Italian VAT registered taxpayers have been able to voluntarily adopt e-invoicing. Opting for this system allows companies to have certain benefits in relation to their VAT compliance obligations.
Beginning in January 2019, this will become mandatory, with certain industries (such as petroleum) facing an earlier deadline of July 1, 2018.
The Gulf Cooperation Council has been working towards a synchronized introduction of VAT in the previously tax-free region. It is seeking to introduce all changes simultaneously so there will be no disparity between the economic competitiveness of the states.
However despite this ambition, the nations are moving at different rates of implementation.
So far only Saudi Arabia and the United Arab Emirates have published VAT laws, successfully implementing a standard rate of 5 percent on Jan. 1, 2018. Oman, Qatar, Bahrain and Kuwait will follow suit, possibly later in 2018 or 2019.
The Hungarian government published the latest draft decree detailing changes regarding VAT reporting that will come into effect on July 1, 2018. The draft proposal sets out an obligation for taxpayers to electronically report invoice data to their tax authority regarding supplies of domestic B2B sales when the VAT reaches or exceeds €320 (or approximately $394 USD)
The implementation of a mandatory VAT Split Payment law came into force on January 1st, 2018. The system has been voluntary since Oct. 1, 2017. The new, anti-VAT fraud measure requires taxpayers to open a secure VAT Bank Account to separately collect the VAT component of their sales invoices.
Failure to abide by the requirements will result in a fine of 0.06 percent per day of incorrectly paid VAT. Currently Romania has the largest EU “VAT gap” to GDP ratio, i.e., the gap between actual VAT collected and what is truly owed.
Fundamental changes to the VAT Act were due to come into force on Jan. 1, 2018. However, this has been postponed until July of 2018. As in Romania, it will introduce a mechanism of split payment for B2B transactions. With the split payment, the tax authorities have a greater level of transparency as purchasers are forced to separate VAT payments from the net value of invoices.
Suppliers will have dedicated VAT accounts that can be deposited directly with the tax authority. Because of these changes, the government aims to reduce VAT fraud and consequently increase tax revenues.
Currently under draft decree in Vietnam, companies using self-printed invoices will be obliged to convert to e-invoicing from July 1, 2018.
Thailand has announced electronic invoicing regulations for small enterprises with an income equal to or less than 30 million baht ($954,600 USD).
With the IRS last reporting a voluntary compliance rate of 81.7 percent, it should come as no surprise that other countries around the world would struggle with tax collection — and are consequently pouring investment into addressing this problem.
Likewise, as the world of business grows smaller and more connected, U.S. accounting firms must evolve and adapt to the needs of their clients, which means taking a vested interest in international compliance in order to remain competitive and provide value. With every new piece of regulation that’s passed at home or abroad comes an extra bit of pressure for accounting teams to adhere to increasingly strict measures, and guard against the potential consequences that come with failure to do so.