The World of Electronic Invoices: Formats, Regulations, and Global Impact

TEAPPSXML 3.0, Finvoice 3.0., PEPPOL BIS 3.0, UBL 2.1, FatturaPA, FacturaE, CII, X12, UBL-TR 1.2, CIUS, and more.

What do all these words and acronyms mean?

For a layman, the answer may be very complicated or impossible to form, but for people who work with electronic data exchange on a daily basis, the answer is obvious. They are structured electronic invoice formats that exist in different countries.

Every day we observe the increasing digitization of the world around us. Digitization allows you to replace paper with an electronic document to conduct business with partners in other countries faster, at a lower cost, and without human error.

E-invoice types

The concept of electronic invoices is broad and currently includes several types, such as structured, unstructured, and hybrid invoices.

• Structured invoices are electronic invoices in structured XML format, with information recorded according to a specific standard that can be easily read and automatically processed between the sender's and receiver's systems.
• Unstructured invoices – usually PDF or even Microsoft Word documents, these are electronic invoices sent, for example, by email. They are more visually accessible to humans (easy to read), but they cannot be processed automatically. This means more employee involvement in creating and sending data (from the issuer's side) and receiving and entering data into ERP (from the buyer's side).
• Hybrid invoices – these are documents that combine both of the above models. It is a structured form of the document that facilitates efficient data processing and visualization of the document, the content of which is easy to read.

E-invoicing formats beyond borders

When we talk about a structured e-invoice, we should have in mind many formats of such a document, depending on the country according to which the electronic invoice is issued. Where did this idea come from?

Each government wants to be able to adapt e-invoicing to its own legal and fiscal needs. This makes it easier to monitor, audit, and detect taxpayers' transactions that are legally suspect, thus preventing tax fraud.

Failure to comply with legal requirements imposed by the government will result in financial penalties being imposed on the taxpayer.

Where can you find more legal information about formats of electronic invoices?

In 2014, at the level of the European Union, the Directive (2014/55/EU) was published, which defines the framework for electronic invoicing between B2G entities. On this basis, public authorities in EU countries are obliged to receive and process electronic invoices if suppliers decide to send them in this form. Many EU countries have decided to go a step further and have introduced mandatory electronic invoicing between business and public authorities.

Since then, there have also been many changes in the B2B sector. We are hearing more and more often about e-invoicing mandates that have already been introduced (Italy, Romania, Serbia and the LATAM region) or will soon be introduced by individual countries (Poland, Malaysia, Israel and France). All e-invoicing rules are determined by the local regulations of each country. As a result, there is a wide variety of legislation on the method, scope, and timing of e-invoicing. This also applies to information on e-invoice formats and requirements for their elements.

Talking about the sources of standardization of e-invoice formats, we cannot forget about the PEPPOL network, which made its first steps in the EU with its standard PEPPOL BIS 3.0 format. Having found it works quite well, there was also a decision to introduce such an e-invoicing solution in Japan, Australia, New Zealand and Singapore, and it will probably be adopted in Malaysia as well. The current format (PINT) is, or will soon be, implemented.

Decoding compliance

Customers often ask us how we ensure that our solution meets the legal and tax requirements of so many countries. How do we know what elements are required on an invoice issued in Japan and France?

The many specialists in our team carefully and thoroughly analyze and interpret the regulations of each country, as well as the technical specifications that describe exactly which fields (elements) in the XML files are necessary and very helpful, so that documents can be properly validated in the government e-invoicing system.

This allows us to differentiate:

• Mandatory field – entries are mandatory here (e.g., national insurance number). The obligatory nature of a given field results in particular from the content of the applicable legal provisions and is conditioned by the logical structure of the template.
• Optional field – entries are mandatory if the legal condition is met (e.g., value of sales exempt from VAT).
• Facultative field – it’s not necessary to fill in the field for the semantic correctness of the file, nor is it required by the provisions of the law (e.g., CN code).

Other legal elements of e-invoices: authenticity, integrity, readability, and storage

Authenticity of origin, content integrity, and readability of an electronic invoice are other legal requirements for e-invoices. Compliance with legal requirements is ensured thanks to government e-invoicing platforms (e.g., KSeF, RO e-Factura). However, in the absence of government platforms, authenticity, integrity, and readability are guaranteed by business controls, most commonly electronic data interchange (EDI) or a qualified electronic signature.

The storage of e-invoices is another legal element that needs to be taken into account in different jurisdictions. Tax authorities must have access to all accounting records (including e-invoices) to verify the accuracy of the tax settlements of traders.

Typically, tax laws require e-invoices to be stored for a period of five to 10 years (sometimes more). With a few exceptions, there is no problem with storing e-invoices outside the entrepreneur's country of residence if online access to the e-invoices is provided in the event of a tax audit (e.g., Poland). It may also be necessary to meet additional requirements to allow storage abroad, such as a relevant mutual assistance treaty between countries or prior notification and approval of the storage abroad by the government (Italy, Norway).

From creation to e-invoicing security

Now that we know different types of e-invoices, their legal basis, and the requirements for compliance, let's look at how to create an e-invoice.

In principle, it is not difficult to create an invoice with the right tools or software. Commonly used ERPs have this functionality. Free government applications for mandatory e-invoicing can also be helpful and are intended for use by smaller taxpayers or taxpayers who issue fewer invoices. For businesses that need to process large volumes of documents, commercial solutions will be more beneficial.

When it comes to the security of sending structured electronic invoices (we are not talking about PDFs sent by email), there are also a number of transfer protocols that ensure the security of the delivery of the e-invoice to the recipient (e.g., AS2, SFTP). Thanks to these channels, we can be sure that the document has reached the correct entity and will be automatically processed. This has a significant impact on reducing the time, risk of error, and loss of the e-invoice, and speeding up the receipt of payment.

An undeniable benefit of e-invoicing is also the environmental aspect. Reducing paper consumption and reducing CO2 emissions are factors that undoubtedly help to boost consumer confidence and trust in companies that use electronic invoices.

As we have seen, e-invoicing offers many significant benefits to companies that use it and do business internationally.

The strategic approach to e-invoicing implementation

Familiarizing yourself with the differences in invoice formats, delivery methods, and compliance rules is a helpful element in the process of implementing electronic e-invoicing in your business. However, it may not be necessary to delve as deeply into these aspects if you are working with a company that offers a comprehensive solution.

Knowing of the benefits of e-invoicing will certainly allow you to make the decision to implement e-invoicing in your organization, even in countries that do not yet have such an obligation or do not plan to implement it at all (although the latter is less common).

Although countries planning to introduce mandatory e-invoicing announce it well in advance, we know from experience that businesses need to thoroughly analyze their internal processes and systems for handling accounting documents. The analysis and implementation conducted by experienced e-invoicing solution providers can also be a time-consuming process. Feel free to reach out to us today for further assistance.