In today's digital age, businesses have increasingly recognized the importance of transitioning from traditional paper, PDF, and email-based processes to more streamlined methods augmented by a greater level of automation. E-invoicing or electronic invoicing has become a natural consequence of this digitization trend and at the same time a tool for the government of many countries to tighten tax systems by introducing a mandatory exchange of invoices with government entities.
The Philippines is also in the process of such a transformation, indicating that the introduced changes lead to mandatory e-invoicing in the CTC (continuous transaction control) model.
This transition was driven by the government's efforts to enhance tax administration and promote digitalization. So, how does this affect US-based companies? Well, if your business conducts operations in the Philippines, you’ll need to rethink your e-invoicing processes and potentially, your potentially your electronic invoice exchange system provider. Let’s dive in.
Breaking Down E-Invoice Models
The Bureau of Internal Revenue (BIR), the governing body in the Philippines responsible for collecting over half of the total government revenue, is steadily moving toward a more involved model – one that resembles a system used in South Korea. E-invoicing in the Philippines has undergone several changes in the last few years regarding its e-invoicing guidelines.
After the launch of a pilot program with the participation of the 100 largest taxpayers, for whom mandatory e-reporting for government invoices (B2G) was introduced from July 2022, a gradual implementation of e-invoicing for B2B transactions of large payers and exporters started in 2023. The introduction of a universal obligation of electronic invoicing, which will cover all major taxpayers in the country, will be implemented starting from 2024.
So, this gradual implementation of e-reporting changes for B2B transactions is now underway. But how will this affect US companies looking to take advantage of the Philippian marketplace?
Impact on the US Economy & Businesses
While the United States has not yet embraced significant changes in its e-invoicing regulations, the foreign regulations implementing the obligatory e-invoicing and e-reporting approach may affect US companies that also have branches operating in countries that rely on the e-invoicing mandate. As businesses increasingly expand their operations to multiple countries, engage in cross-border trade and global supply chains, they are required to comply with the invoicing regulations of different countries – such as the mandatory approach that the Philippines takes toward electronic invoice exchange.
Foreign regulations that favor mandatory e-invoicing approach can pose as a challenge for US companies conducting business internationally. Adapting to the digital mandate may require significant changes in their invoicing processes, systems, and compliance practices – and perhaps most importantly, their e-invoicing provider. This could lead to increased administrative burden and costs for US businesses operating in countries with e-invoicing mandates.
In addition, differences in e-invoicing regulations in different countries can cause complexity in the analysis of locally applicable requirements and ineffectiveness in terms of their implementation. US companies may need to navigate varying requirements and systems across different jurisdictions, which can result in delays, compliance issues, and additional costs.
Next Steps for Companies in the US
To effectively participate in global trade and mitigate the impact of foreign e-invoicing regulations, US businesses should stay informed about the evolving landscape and explore solutions that enable seamless compliance with diverse invoicing requirements. Failing to adhere to e-reporting regulations means US-based companies with business operations in the Philippines will be forced to pay fines or even cease business activities in the country.
Bringing their invoicing practices and systems in line with international standards in the countries where they do business can enable seamless transactions with partners in countries that have adopted an CTC approach.
Here's what to look for in your e-invoicing provider:
Compliance With Regulatory Framework
While many countries remain with no e-invoicing obligation, the current trend is steering ever-so-slightly toward a continuous transaction control (CTC) environment. US companies that have their subsidiaries in the Philippines will need to make sure that their current e-invoicing provider is compliant with the BIR’s electronic invoice guidelines. This includes all local requirements, the latest Philippian regulations, and modern data transfer standards.
Experience With Clearance-Based E-Invoicing
Tax authorities intervening between invoice issuers and receivers, including the approval process, presents major hurdles for billing companies. Not only is it a massive technological constraint, but also imposes additional steps on the billing services of US- related companies doing business in the Philippines. To address the challenges of the obligatory e-invoicing and e-reporting , you’ll need an e-invoicing platform provider who is not only fully compliant with the latest legal regulations, but also offers experience within the ecosystem to ensure maximum success with minimal downtime.
Managing the Shift: What’s Next for US-Based Companies?
As e-invoicing continues to evolve worldwide, the approaches of voluntary and obligatory e-invoicing play a significant role in shaping invoicing practices and regulations. While the majority of countries have traditionally followed the voluntary approach, the trend is shifting towards the mandatory approach, where the government plays a more active role in approval of invoices event in the real time.
This shift has implications for US companies operating globally, as they must navigate diverse e-invoicing regulations and adapt their processes to comply with foreign requirements. By staying abreast of international e-invoicing trends and proactively addressing compliance challenges with the help of trusted data management partners, US businesses can effectively navigate the impact of foreign regulations on their operations and maintain their competitive edge in the global economy.