Upcoming Global E-Invoicing Mandates: How US & Canadian Companies Should Prepare
E-invoices are being mandated in an ever-increasing number of countries around the globe. Businesses in the U.S. and Canada that have branches overseas must implement e-invoicing solutions or face non-compliance.
Both businesses and government entities can benefit from transactional transparency. It’s no secret that the exodus away from paper documents to online has been well underway for some time. However, we’re at a crossroads – where benefits were once the only motivator, and now legal obligations are on the horizon.
If there were a competition for the most significant digitalization trends, e-invoicing would definitely win it. Announcements made in 2023 will bring about great changes to many countries in the European Union and Asia, primarily focusing on sealing tax systems, addressing VAT discrepancies, and increasing government control over enterprise transactions.
The impact of these changes on North American countries has been a topic of discussion, and similar trends can be observed in the Philippines.
So, how can international North American companies prepare for e-invoicing and e-reporting changes taking place around the world to avoid falling behind? Before we take a look at the future, let’s look at how we arrived.
The Expressway to E-Invoicing – How We Got Here
1965: E-Invoicing Arrives
This historic year marked the pioneering year for e-invoicing when the first electronic invoices were sent using electronic data interchange (EDI) by the Holland- America Line using telex. This breakthrough paved the way for future advancements in digital invoicing and file transfer.
1975: The File Transfer Protocol (FTP)
The FTP was another keystone of the e-invoicing transformation, allowing easy file transfer over the internet. This led large retail and car manufacturing companies in the 1980s to encourage their suppliers to adopt EDI.
2001: Chile Introduces Voluntary E-Invoicing
Chile was the first to take the lead by introducing voluntary e-invoicing, serving as a catalyst for other Latin American countries to develop their own e-invoicing systems. Today, Chile, Colombia, Costa Rica, Dominican Republic, Argentina, Brazil, Ecuador, Mexico, Peru, and Uruguay boast mature e-invoicing systems. Following the success of e-invoicing in Latin America, European countries began to follow suit.
2008: Portugal Adopts SAF-T + PEPPOL Initiation
This was a massive year for e-invoicing and e-reporting, as Portugal became the first country to mandate SAF-T (Standard Audit File for Tax) requirements, ensuring efficient information exchange between tax authorities and businesses. Several other European nations, including Luxembourg, France, Austria, Poland, Lithuania, and Norway, have since adopted SAF-T legislation.
That same year, in 2008, the Pan-European Public Procurement Online (PEPPOL) model was introduced to streamline electronic procurement across borders for use across different jurisdictions. This initiative aimed to facilitate communication between businesses and European government institutions during the procurement process and e-invoicing exchange, leading to significant improvements in efficiency and cost reduction.
2014: Europe Gets Its First Taste of Mandated B2G E-Invoicing
Italy played a pivotal role in the history of e-invoicing in Europe by becoming the first European country to enforce mandatory e-invoicing for B2G transactions in 2014. This decision spurred a wave of e-invoicing mandates across Europe, encompassing both B2G and B2B transactions.
The European Parliament’s 2014/55/EU directive on electronic invoicing in public procurement played a pivotal role in the history of e-invoicing in Europe. It was designed to foster the standardization of business processes in B2G relations. The directive entered into force in April 2019 when union members were required to introduce obligatory e-invoicing throughout their public sector. This decision spurred a wave of e-invoicing mandates across Europe, encompassing both B2G and B2B transactions.
2022: New E-Invoicing Changes Proposed
On December 8th, 2022 the European Commission published a proposal for a broad reform of the Union’s Value Added Tax system called VAT in the Digital Age (ViDA). It is aimed particularly at dealing with challenges and opportunities linked with digitalization. At the core of the planned reforms lie systematic changes to e-invoicing and e-reporting mandates across the EU initially scheduled to start in 2024 with final solutions entering into force by 2028.
2022-Today: The Mass Migration To E-Invoicing Continues
E-invoicing and related technologies are experiencing global proliferation. Tax authorities from around the globe have implemented innovative methods of tax digitalization, simplifying payments for taxpayers and increasing transparency for tax authorities. This included the use of QR codes for swift data extraction, real-time reporting to improve tax collection, and pre-populated e-returns based on transactional data to phase out traditional VAT returns.
E-Invoicing in the U.S. & Canada: What’s Next?
While the U.S. lacks a federal VAT or GST system, the Business Payments Coalition (BPC), organized by the Federal Reserve Bank of Minneapolis, has been advocating for greater adoption of electronic B2B payments, remittance data, and invoicing. Recently BPC was transformed into a new organization digital Business Network Alliance (DBNA) that is actively developing standards and requirements for widespread e-invoice exchange in the U.S., piloting an E-invoice Exchange Market to demonstrate the feasibility and viability of a federal network model for e-invoicing.
So, while e-invoicing in the U.S. and Canada isn’t quite there yet in terms of their own governmental regulations, those that have branches in Europe need to take notice.
US and Canadian Company’s Guide to Preparing for Global Changes
When a new e-invoicing mandate is introduced, US companies that have subsidiaries or branches in that country need to be prepared. In other words, it’s better to be proactive than reactive. Here are some steps you can take.
1. Stay updated on e-invoicing regulations and mandates
It’s crucial that your business stays up-to-date on relevant guidelines and mandates to the geographical markets in which your business operates. Monitor government websites, industry publications, and consult with legal or tax professionals to understand the specific requirements, deadlines, and potential impacts.
2. Evaluate your current e-invoicing systems
What does your current e-invoicing ecosystem look like? Take a deep dive into your invoicing systems, processes, and infrastructure to determine their compatibility with e-invoicing requirements. Identify any gaps or areas that need improvement.
Consider factors such as:
- Data format
- Integration capabilities
- Security measures
- Storage requirements
3. Choose a trusted e-invoicing provider
If you have local branches located in countries with e-invoicing or e-reporting mandates, select an e-invoicing solution provider that aligns with the specific mandate and your business needs.
Look for software or service providers that offer compliance with the required e-invoicing standards, provide data validation and formatting tools, and offer integration options with your existing systems.
Partner with an e-invoicing provider that has experience in managing changes in global legal compliance to ensure continued adherence to potential changes in years to come. A trusted provider has a few major benefits:
- Unified global agreements allow you to extend project scope, freeing up your legal team from processing various agreements.
- Compliance responsibility falls on your provider, so whenever there are changes to mandates or certain laws, they will take care of it for you.
- Speed is on your side as you don’t have to waste your time looking for a partner in each company. A global provider saves on both time, money, and internal resources.
4. Prepare for implementation and testing
Once you have chosen a suitable e-invoicing solution provider, they will gather the requirements from you in order to implement the necessary changes in your invoicing systems and processes. The services provider is responsible for training your employees on the new procedures, ensuring smooth integration with your existing systems, and conducting the testing to identify and resolve any technical issues or errors before full-scale implementation. Successful implementation relies on continuous assessment and adaptation of your ERP systems and processes to ensure a cohesive relationship with new legal requirements.
5. Revamp security and privacy measures
E-invoicing mandates often come with data security and privacy requirements. Implement appropriate measures to protect sensitive information, such as encryption, access controls, and regular audits. Ensure compliance with data protection regulations such as the General Data Protection Regulation (GDPR) in the European Union if applicable.
Need a Reliable E-Invoicing Partner?
Global compliance will continue to be a major concern for US and Canadian companies that operate internationally. Preparing for global e-invoicing changes can be a challenge, especially because your plan of action will depend entirely on the particular e-invoicing mandate that you are preparing for.
This is why so many organizations put their trust in an experienced e-invoicing partner who can ensure full compliance with legal obligations, help you maintain strong relationships with business partners, reduce overall operating costs, and optimize the payment process. If you have any questions or need assistance, feel free to contact us using our contact form.
