Compliance is a minefield and is only going to get more complex to navigate – especially when non-compliance is often regarded as tax evasion. Exact requirements vary hugely from country to country, which means ticking all the right boxes can be a challenge, particularly when the goalposts keep moving.
Nineteen per cent of businesses surveyed for the Institute of Finance and Management’s 2015 AP Automation Study said compliance, control and security concerns were among their top accounts payable challenges, while 11 per cent cited compliance and recordkeeping as their department’s “greatest pain”.
If a company fails to meet legal requirements, it can lead to hefty fines. Take VAT, for example.
Depending on which country you’re paying it in, the VAT owed could be as much as 25 per cent of the price of a product or service. This amount is often deducted or reclaimed by businesses, but if invoices are found to be non-compliant they will not be able to rely on these invoices to reclaim tax. This can radically affect a company’s profit margin.
At the start of the year, there are always changes to individual jurisdictions and our compliance team is tasked with keeping abreast of these changes and updating our systems accordingly. As a result, invoices going through Tungsten Network’s e-invoicing platform are tax compliant in 48 countries.
Recent global compliance changes to be aware of:
· Middle East: The Gulf Cooperation Council (GCC) has been working towards a synchronised introduction of VAT in the previously tax-free region. It wanted to introduce the changes simultaneously so that there would 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 UAE have published VAT laws, successfully implementing a standard rate of five per cent on January 1, 2018. Oman, Qatar, Bahrain and Kuwait will follow suit, possibly later in 2018 or 2019
· Hungary: The Hungarian Government published the latest draft decree detailing changes in regard to VAT reporting that will come into effect on 1 July 2018. The draft proposal sets out an obligation for taxpayers to electronically report invoice data to the tax authority regarding supplies of domestic B2B sales when the VAT reaches or exceeds €320
· Romania: The implementation of a mandatory VAT Split Payment law came into force on 1 January 2018. The system has been voluntary since 1 October 2017. The new, anti-VAT fraud measure requires tax payers 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% per day of incorrectly paid VAT. Currently Romania has the largest EU ‘VAT Gap’ to GDP ratio e.g. the gap between actual VAT collected and what is truly owed
· Poland: Fundamental changes to the VAT Act were due to come into force on 1 January 2018. However this has been postponed until July 2018. 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 which can be deposited directly with the tax authority. As a result of these changes, the Government aims to reduce VAT fraud and consequently increase tax revenues
· EU countries – Spain, Italy, Portugal and France have already published national B2G legislation as a result of the EU Directive 2014/55/EU (which puts an obligation on all EU governments to receive electronic invoices by 27 November 2018.) This Directive has come about because the situation was very confusing with countries having slightly different models and requirements, in some cases even varying regionally within a country. The EU Directive 2014/55/EU also seeks to establish a CEN – Central European Standard – that can work across the continent and therefore boost the uptake of e-invoicing in procurement. European Union member states must transpose the European directive to their national legislation and adopt e-invoicing in business relations with the public sector by 27 November 2018
· Over the coming years, we expect some countries who 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 from 1 January 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 and opting for this system allows companies to have certain benefits in relation to their VAT compliance obligations. From January 2019, this will become mandatory, with certain industries (such as petroleum) facing an earlier deadline of 1 July 2018
· Vietnam: Currently under draft decree in Vietnam, companies using self-printed invoices will be obliged to convert to e-invoicing from 1 July 2018
· Thailand: Thailand has announced electronic invoicing regulations for small enterprises with an income equal to or less than £700,000 (30 million Baht)
To avoid falling foul of the tax gap and losing out on revenue, a growing number of countries are now moving to a clearance model when it comes to control over invoices. This is prevalent in Latin American countries. This most often involves a supplier having to create every single invoice they send via a government-sponsored online portal in order to meet the tax authorities’ requirements, before then sending them over to their buyer to get paid. The person purchasing the goods is legally required to make sure this is done at the point of sourcing to avoid a serious fine, so while it is the supplier who must ensure they stay in line with the law, it also affects the buyer.
While organisations themselves are ultimately responsible for complying with local tax regulations, the outsourcing of administrative processes to specialised third party service providers such as Tungsten Network is increasingly popular. After all, we have the expertise and resources in place to deal with ever-evolving tax legislation therefore ensuring invoices meet legal requirements. We also run additional validations to smooth the invoicing process.
Most countries in the world have a problem with tax collection and are therefore investing hugely in tightening tax controls. Against this backdrop, it is no wonder that thousands of companies are enlisting the help of Tungsten Network. E-invoicing eliminates paper from the process, increases the efficiency and accuracy of your accounts payable team and provides peace of mind and a hassle-free approach to compliance.