You’ve probably heard the phrase “compliant invoices” or “e-invoicing” before. And you may have wondered — are they referencing the same thing? Are they even relevant to my business?
While invoicing requirements are becoming more prevalent, it's important to note upfront that they are largely irrelevant for US businesses selling abroad, with a few exceptions. Usually, non-resident sellers aren’t required to do both tax compliant and e-invoicing.
In this post, we'll dive into the key differences between tax compliant invoicing and e-invoicing, and shed light on who needs to worry about these requirements in 2024.
What is tax compliant invoicing?
Tax compliant invoices are those that include specific details mandated by local tax authorities. These requirements often include business registration numbers, use of local language and currency, and adherence to reverse charge rules. Any enterprise billing system should provide the ability to configure your invoice to meet your local requirements.
It's crucial to understand that tax compliant invoicing generally applies to resident sellers in countries with these rules. And for the few countries looking to extend tax compliant invoicing to non-resident sellers, your billing system should be able to support compliance with templates and custom fields. So, if you're a US business selling internationally, you likely don't need to lose sleep over this.
What is e-invoicing?
E-invoicing takes things a step further by mandating the electronic transmission of invoices to the buyer or tax authority. This transmission typically happens either through a government portal or networks like PEPPOL. While e-invoicing might sound fancy, it's actually a rather old-school technology. It involves extracting specific fields from billing system data and generating country-specific structured file formats, often in XML.
E-invoicing mandates vary by country. Some, like Italy, follow the clearance method, where invoices must be submitted to a government portal for validation before being sent to the buyer. Others, such as Portugal, use the post-audit method, allowing invoices to be sent directly to the buyer in a specified electronic format. Typically, local governments will notify you when you are required to comply.
Who needs to worry about these requirements?
Here's the good news: these requirements mainly apply to resident sellers, not non-resident businesses like those based in the US. There are a few exceptions, though. For example, Japan and India have enacted tax compliant invoicing requirements that may extend to non-resident sellers depending on your customer base. Taking it further, Taiwan and Malaysia require e-invoicing even for non-resident remote sellers.. Remember that legislation is evolving constantly, and your best bet is to consult a tax advisor to understand your specific requirements.
Currently, e-invoicing is primarily mandatory for B2G (business to government) sales in certain countries. While B2B e-invoicing mandates are expanding, they're still limited. The sellers most impacted are those with a local presence in countries that have e-invoicing rules.
How do I know if I'm considered a local seller?
You might be wondering what exactly constitutes being a "local” or “resident” seller. This will be determined by your selling entity.
A selling entity is the entity from which you are invoicing your customers. It could be a subsidiary or branch office for example. The key is that this entity is handling the billing and invoicing for your sales in a particular country.
If you simply have a G&A entity that handles operations, or an R&D entity that handles engineering, and are invoicing out of the US entity, you would not be considered a local seller in Europe.
At Anrok, we support both US sellers worldwide, as well as VAT and GST for local sellers. If you're navigating the complexities of tax compliant invoicing or e-invoicing, we're here to help. Reach out to learn more about how we can simplify your global tax compliance.
