Helping small business owners get to grips with international tax compliance, Abigail Myers-Antiaye, global country compliance manager at Tungsten Network, provides an update on key changes around the world.
Compliance is a responsibility that few businesses get excited about dealing with. It can apply to everything from how your contracts are worded to how you comply to licensing, permits and industry standard practices.
One area of compliance that’s constantly evolving is in finance and the information that’s included on invoices. From paying the right levels of tax to submitting data in the right format, it’s particularly complex when trading across borders.
Compliance is only going to get more complex to navigate when the UK leaves the European Union. 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.
What’s more, non-compliance is often regarded as tax evasion, so the stakes are high for ambitious businesses as they trade globally.
If you’re buying and selling with businesses in other countries, there are some recent changes you might not be aware of. Global companies operating in these territories in particular will have to make changes to the way they operate. Below are the key points to know:
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 implementinga’standard rate of five per centon January 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 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.
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 cent 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.
Fundamental changes to the VAT Act were due to come into force on 1 January 2018. However, this has been postponed until July 2018. Like 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 which can be deposited directly with the tax authority. Because of these changes, the government aims to reduce VAT fraud and consequently increase tax revenues.
Spain, Italy, Belgium, Germany, Portugal and France are just some of the countries that have already 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 27 November 2018).
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. The introduction of a CEN 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.
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 27 November 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.
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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.
Currently under draft decree in Vietnam, companies using self-printed invoices will be obliged to convert to e-invoicing from 1 July 2018
Thailand has announced electronic invoicing regulations for small enterprises with an income equal to or less than 700, 000 (30m Baht)
While business owners are ultimately responsible for complying with local tax regulations, the outsourcing of administrative processes to specialised third party e-invoicing providers is increasingly popular.
Third party providers can offer expertise and resources to keep abreast of ever-evolving tax legislation and can guarantee that invoices going through their platforms are tax compliant.
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 looking for help to deal with this compliance headache.
E-invoicing eliminates paper from the process, increases the efficiency and accuracy of finance teams and provides peace of mind and a hassle-free approach to compliance.
Abigail Myers-Antiaye is global country compliance manager at Tungsten NetworkMeet the entrepreneurial duo who started importing and exporting from day one