An invoice is, and will remain, an essential document within the economy. This applies for legal, accounting and tax purposes. As a general rule, a VAT taxable trader must issue an invoice for every non VAT exempt supply of a service or good to a customer that is not a private person (taking into account that some exceptions may exist).
Invoicing is highly regulated under the VAT legislation and there is harmonization at EU level concerning the invoice requirements. While an invoice serves as proof of a transaction, the European Court of Justice has already confirmed the "substance over form" principle several times. Based on this principle, it is not the formal information on the invoice but the authenticity of the underlying transactions that are important to determine whether the invoice is accepted for VAT purposes.
An invoice can be issued on paper or in an electronic format. An electronic invoice is format free and can, for example, be a PDF file, EDI file, XML file or QR code. Due to the rapid rise of digitalization in our society and business environment, the use of electronic invoices is growing in practice. The objective is to encourage as many companies as possible to switch to electronic invoices and, by that, to reduce the administrative costs and time needed to prepare and process invoices. In 2014, European legislation regulating the use of electronic invoices (e-invoices) in public procurement was adopted and in 2016, the Flemish government introduced e-invoicing for its suppliers. The Flemish government's e-invoicing project is considered a success story within the framework of the 'CEF Digital Connecting Europe' program.
In order to improve the integrity of the accounting processing of invoices and to combat fraud, there is also a clear tendency to regulate more strictly the issuing and sending of invoices. In some countries, it is therefore mandatory to generate invoices via hardware or software approved by the government and no longer via a company's Enterprise Resource Planning (ERP) system. While this obligation exists in countries such as China, Brazil and Korea, also in Portugal you’re required to issue invoices using certified software. In Belgium, entrepreneurs providing restaurant and catering services with a turnover in excess of € 25,000 are obliged to issue cash tickets using a certified cash register system (so called “GKS”'). The GKS was introduced to promote correct reporting of the services provided. An interesting recent development in this respect is that an order app can be regarded as a cash register and must be a certified GKS when it is also used in paying for the services. As a result of the COVID-19 crisis, various order apps have been developed to replace menus in restaurants and these allow ordering, for example, by scanning a QR code on the table.
Within the EU, we notice that several countries are switching to a system of "real-time reporting" (also known as “RTR” in Hungary and “SDI” in Italy). Under this system, the government receives the transactional data at the moment the invoice is issued by the entrepreneur, unlike in the past when only posteriori invoices could be checked. In this way, the authorities have a much better insight into the transactional data of the companies. The question is whether this system will eventually evolve towards the use of certified hardware or software for issuing invoices? Which, in turn, raises another question - how much additional cost for a mandatory billing system is acceptable for businesses and justifiable by governments? Would you, as a business owner, be in favor of a mandatory billing system?
E-invoicing by 2025
E-invoicing and certified solutions can increase efficiency and help in the fight against VAT evasion, but they also entail additional costs for businesses. While there can be no objections to combating fraud or arguments against requiring a certain transparency in transactional data, a proliferation of national regulations leads to additional burdens on businesses. These include, for example, building the necessary interfaces with a regulated data transmission system, reconciling the accounts with the invoices generated by the government's invoicing system, and declining the right to deduct VAT if invoices are not issued in accordance with the regulated invoicing system. As an entrepreneur, it is therefore important to check in each country where you have a business whether there are specific regulations for the issuing and storage of invoices. This evolution, to a certain extent, goes against the trend of standardization and harmonization of invoicing within the EU and creates additional challenges for international companies with regard to the centralization and outsourcing of their invoicing, accounting and reporting. It is however to be expected that with the accelerated digitization of our society and business environment, e-invoicing will become more important and more transparency in economic transactions will be required. By 2025, e-invoicing will therefore be the norm in Belgium.
KPMG’s Indirect Tax Team
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Author: Séverine Kerkhove, Director
The VAT system in Belgium was introduced in 1971, which will be 50 years ago in January 2021. On this memorable anniversary, KPMG Tax & Legal Belgium and Wolters Kluwer jointly publish a series of articles that reflect on the current VAT system in the context of our changing business and social environments. In each article, KPMG tax experts address a specific aspect of VAT and related challenges of the system and offer predictions on future evolutions by 2025.