As discussed in our last blog on international billing and monetization, expanding internationally is an exciting step—but one that can be fraught with endless confusion and hassle. Businesses might open their doors to a new consumer base, but by doing so, they need to play by another country’s rules and regulations. E-invoicing is a critical part of that, now that digitization is here to stay.
Our last blog outlined key billing and monetization considerations for businesses looking to expand overseas. This blog, however, will delve into international e-invoicing compliance. You probably already know, but invoicing compliance is kind of a big deal. If you can’t send compliant invoices to your customers, at scale, you’re going to waste precious time, energy, and money. Worse still, you might incur costly fines that could threaten your business’s survival.
But let’s not get ahead of ourselves, and start by taking a look at the e-invoicing compliance challenges businesses face and how leading monetization software enables you to automate your e-invoicing process at scale to prevent errors, reduce manual effort, and ensure compliance.
Which invoicing problems do international businesses (or businesses planning to expand internationally) face?
Taxes can be quite taxing—especially if you’re trying to get to grips with a host of new regulations. Unprepared international businesses (or those expanding internationally) generally struggle to deal with different tax rates, international tax schemes, achieving durations for legal documents, and e-invoicing requirements. Indeed, there are a host of potential invoicing problems that companies face when expanding internationally. Let’s dive into just two of the most common hurdles below.
Different tax rates
Obviously, each country has different tax rates and regulations (i.e., what to tax and how much). The VAT rate of Germany is 19%, 20% in France, and 22% in Italy. There’s no VAT or sales tax in Bermuda, Kuwait, or Qatar. Australia has a 10% goods and services tax (GST), China’s VAT rate is 13%, while Russia, the UK, and Armenia have a 20% VAT rate. In fact, despite the eurozone sharing a common currency, there’s no one-size-fits-all tax rate.
It gets even more complex; tax rates sometimes vary across states or provinces. each U.S. state has its own tax rules, making some an eminently more attractive prospect for businesses looking to expand internationally. Delaware is a particularly noteworthy example—there’s a mere 8.7% corporate income tax rate for businesses that operate in Delaware, while businesses registered in Delaware that don’t do business in the state pay no corporate income tax. Plus, there are no state or local sales taxes whatsoever.
But wait—there’s more.
Most countries also have reduced rates that apply to specific goods and services. For example, Germany’s 7% reduced tax rate applies to books, cultural services, and some foodstuffs, while Puerto Rico applies a 4% sales tax specifically for business-to-business services.
Taxation regimes are incredibly complex—that much is clear. Therefore, businesses must take the necessary time to comply with international tax regulations before expanding. Better still, they should implement an automated invoicing software for accounting and taxes that makes configuring the latest tax rules for each market and jurisdiction hassle-free.
International tax schemes
Some countries have set up international tax schemes to ‘ease’ taxation across borders. Ironically, however, this arguably complicates matters even further.
Consider the European Union’s One Stop Shop (OSS), which was introduced to simplify tax returns for EU member states operating throughout the eurozone. The OSS requires businesses to pay VAT according to the rate of the Member State where their goods/services were delivered/provided.
Furthermore, the Import One Stop Shop (IOSS) means that overseas companies selling goods to EU-based consumers can collect VAT from buyers upon payment before declaring this VAT to the relevant authority when submitting their monthly IOSS returns.
Companies might also have to account for the reverse charge system—this requires the recipient (i.e., the customer) to declare both their purchase (input VAT) as well as the supplier’s sale (output VAT) on their returns. This means that the two entries will essentially cancel each other out.
International tax schemes are endlessly complex and ever-changing. Businesses must keep up or pay the price (namely, fines arising from non-compliance).
Different achieving durations for legal documents
Each country has its own rules regarding how long businesses need to keep their invoices. In Germany, companies must maintain their invoice records for ten years, but the UK only asks businesses to store invoices for six years.
The ideal solution is for businesses to implement an all-in-one billing automation system where they can legally store their documents for all countries, a compliant document archive. For example, Nitrobox lets users store legally compliant documents for 80+ countries in a certified digital archive. It provides certified immutability and web-based access for auditors, making it ideal for long-term invoice storage.
Reporting e-invoices to the government
Issuing invoices to your customers is just one piece of the puzzle—you also have to send e-invoices to the relevant tax authority. Let’s briefly outline how various countries ask businesses to report their invoices.
Traditionally, businesses only needed to comply with Italian taxation laws if they had a permanent establishment (PE) in Italy, like a physical shop. However, recent regulatory changes mean that “a PE is deemed to exist in the case of a significant and continuous economic presence in the territory of the state, even if it does not have a physical presence in the country.”
VAT-registered businesses with a PE must now submit cross-border invoices via the Sistema di Interscambio (SdI) at the point of issuance. This ensures that the Italian tax authorities verify taxable transactions in real-time. If companies fail to submit invoices via the SdI system, they are liable to pay fines of 90 – 180% of the VAT due.
In Portugal, all large companies that deal with Portuguese public entities (e.g., governmental organizations) currently have to issue e-invoices to eSPap, the agency in charge of accepting e-invoices. However, from December 31st 2022, companies of all sizes will have to also do the same. Invoices must include the relevant QR code, and from December 31st 2022, must also include digital signatures to make them valid.
Regarding B2B e-invoices, companies must first notify the Portuguese tax office before sending an invoice. They should stipulate the invoice number, classification of the document type (as per Portugal’s SAF-T coding), and the start date of the issuance of the first invoice in the series. Then, they will be granted an 8-digit validation code for the series. They should include this unique document code (ATCUD) on all invoices, which companies must then submit via eSPap.
Germany already mandates B2G (business to government) e-invoicing, but the new coalition has recently announced that it plans to introduce mandatory B2B e-invoicing in the near future. By doing so, the government hopes to reduce VAT fraud and improve administrative efficiency.
The United Kingdom
Similarly, the UK only requires businesses dealing with public entities to use an e-invoicing system. That said, the Making Tax Digital (MTD) scheme stipulates that companies must keep their VAT records in digital archives and submit them online via the government gateway.
As with Portugal, Germany, and the United Kingdom, France mandates B2G e-invoicing via the Chorus Pro platform. In fact, it was one of the first to do so, implementing the system back in 2017. The French government announced mandatory e-invoicing for all businesses starting from July 1st, 2024.
The simple, sustainable approach to e-invoicing compliance
E-invoicing compliance is a headache at the best of times, let alone when you’re dealing with interconnected global markets. Sole traders and freelancers might just be able to get away with using manual processes. However, if your business sends out hundreds (or thousands) of monthly invoices, this approach is simply unsustainable.
Fortunately, this is where monetization software solutions like Nitrobox can help. Users can log into the Nitrobox platform, and in a few clicks, configure different tax rates, implement scalable invoicing processes for international tax schemes, and handle all e-invoicing from a single source of truth.
Do more with less, preventing costly errors while automating time-consuming processes. Always stay compliant and expand internationally with ease. To find out more about our leading e-invoicing software solution, get in touch today.
disclaimer: this article is not legal advice. This article is meant for informational purposes only.