E-invoicing: How it Works and Benefits

What is an Electronic Invoice?

An electronic invoice is defined as an invoice that has been issued, transmitted, and received in a structured electronic format allowing for its automatic and electronic processing. Therefore, not all invoices in electronic format are e-invoices. For example, a PDF or a scanned document are not e-invoices as they do not have a structured, standard format. 

Separately, e-invoicing should not be confused with certain digital reporting requirements, such as real-time reportings or e-reporting (ES, HU, RO), or a certified billing obligation (PT). Similarly, when Governments mandate the use of e-invoices, they often introduce a digital reporting obligation so the invoice data, already in digital format, is submitted to the tax authority. 

Finally, e-invoices may be used voluntarily in B2B transactions, upon agreement between supplier and customer, or there may be a Government mandate to use e-invoices.

E-invoicing Benefits and Advantages

Governments across the European Union and the world are introducing the mandate of e-invoicing on both B2G and B2B transactions with the aim of reducing the VAT gap and combating fraud. But, not only authorities can benefit from the use of e-invoices, businesses are also implementing them voluntarily because of the many advantages they offer. Find below some of the benefits of having invoices automatically generated and transmitted by the supplier and automatically processed by the customer:

• Increasing competitiveness between businesses by accelerating digital transitions.
• Reducing costs to businesses related to paper invoices. The electronic format allows simpler and faster management and archiving of invoices.
• Simplifying, in the long term, VAT reporting obligations for businesses by pre-filling returns.
• Anti-fraud measure. Speed up the fraud detection process, thus making the VAT reporting process more transparent.
• Reduced risk of human error and strategic management. Creates a more precise and more complex picture of economic activity to enable the organization and improvement of economic policy for businesses.

To summarize, using structured and machine-readable formats allows invoice data to be handled and archived more efficiently, significantly reduces errors in data entry, and is time and cost-saving.

The Main Elements of an E-invoice 

When deadling with e-invoicing, we will often hear about technical words like the schema, the semantic, the syntax, the CIUS, etc. To make things easier, we have added in this section a small e-invoicing dictionary to help you navigate this world and assess the right e-invoicing format.

The schema is the description of a specific structure for an e-invoice, often defined by the tax authority. The schema defines the semantic and the syntax models of the e-invoice, which are the main elements of an electronic invoice:

• Semantic: this refers to the list of transaction data that needs to be included on the e-invoice.
• Syntax: is the electronic XML structure or language automatically readable.

For example, the EN 16931 corresponds to the European e-Invoicing standard format. This standard structure represents a defined semantic data model, i.e., it specifies the fields that the e-invoice must or may have, and the possible values for those fields. Basically, it focuses on seting a regulatory framework for EU e-invoices. Nevertheless, the European e-invoicing standard also sets the two standard syntaxes that it allows: the UBL and CII. These are pre-existing syntaxes, or machine-readable languages adopted under the EU standard. 

Finally, we should mention the CIUS, standing for Core Invoice Usage Specification. The CIUS determines the actual implementation of an invoice standard, maybe adapting it to a specific sector (energy), or to specific country rules (e.g., there is a Spanish CIUS, a Romanian CIUS, etc.).

Types of E-invoices

When we are in the scenario of an e-invoicing mandate, you will have to accomodate to the regulations in place. Governments will normally set the specific format required to use, or at least, the options available. In the European Union, for example, e-invoicing mandates often require that the e-invoicing format is compliant with the broad EN 16931 standard. Member States may specify further this standard by implementing a country CIUS, or by adopting as mandatory the PEPPOL BIS Billing 3.0 e-invoicing format. In some other cases, Government allow the use of different e-invoicing formats available in the market.

 In case of voluntary use of e-invoices, then you will be able to choose the format in agreement with your customer or supplier. Some common e-invoicing formats are PEPPOL, EDIFACT, CII, UBL, etc.

The PEPPOL Model

PEPPOL (Pan-European Public Procurement on-line) is a network and data exchange system facilitating this task to businesses and public administrations.

• This organization sets standard specifications for e-invoicing, which are according to the EU standard format EN 16931. Namely, the Peppol BIS Billing 3.0 format is the schema or format established for B2G e-invoicing within the EU.
• PEPPOL also works as a delivery network for the exchange of e-invoices accross the world. This delivery network defines how invoices are issued and received, and it can be accessed through Access Points and Certified Providers. This promotes interoperability between service providers.

The PEPPOL standards are expanding not only in the EU but also non-EU countries are adopting both the PEPPOL e-invoice format and the use of the delivery network.

Interoperability is one of the key concerns of PEPPOL. This organization designed the so called “4 corner model”:

• C1
  Supplier who issues the invoice via C2
• C2
  C1’s service provider – Access point. This is a software to issue and receive invoices.
• C3
  C4’s service provider – Access point. This is a software to issue and receive invoices.
• C4
  Customer who receives the invoice via C3.

When the tax authority is involved in the issuance of the invoice or performs some controls on the invoice data previous to approving it – CTC models, two more corners are added consisting of the tax authority itself and its Access Point. 

Invoice exchange within PEPPOL users is structured around the SMP (Service Metadata Publisher) and SML (Service Metadata Locator) concepts. These are services that work as address books to identify the issuers and recipients of e-invoices. SMP registers the participants’ details, including which invoices can receive.  Every SMP needs to be initially registered in the SML. The latter acts as a central address book or registry able to locate the recipients of the invoices. As a result, SMP and SML services help by automating the management of businesses master data.

Service providers can join PEPPOL as certified providers.

What Are the CTC Models for E-invoicing?

We refer to “CTC”, continuous tax control, to generally describe the checks and controls that tax authorities may perform at a transaction level. These may consist of the obligation to send a listing of your invoices to the tax authorities, typically in real time, or a reporting obligation connected with an e-invoicing mandate. In summary, CTCs are mechanisms used by the tax authorities to improve the management of VAT and collect data on a real or near real-time basis.

Focusing on e-invoicing CTC models, find below the list of CTC models available. These are not legal categories, but just help us to understand how e-invoices may be implemented from a CTC perspective.

Post‐audit model

In the post-audit model, invoices are exchanged directly between seller and buyer, and reviewed by the tax authorities after being issued. It could also be the case that the e-invoice is sent and received via the service providers, but in any case, the tax authorities only can view a limited quantity of information, upon request, and after the invoices have been issued.

Clearance model

In the clearance model, the invoice must receive approval or validation from the tax authority prior to its issuance. Sometimes, once the different checks performed by the tax authority are done, they may add a unique invoice number or digital signature to prove the validity of the invoice (Romania).

Centralized model

In the centralized mode, the tax authority is involved in the issuance of each e-invoice, and all invoices are exchanged via a central platform or infrastructure, that is established and owned by the tax authorities.

Is E-invoicing Only for B2B?

No. E-invoices may be implemented for B2G, B2B and B2C transactions. As explained in the previous paragraph, B2G e-invoicing is the most spread at the moment, however, the mandate of B2B invoices is growing fast.

Some countries, like Romania, implement mandate B2B e-invoicing only for certain specific transactions.

Also, in some other countries, B2C invoices are required to include a QR code or are subject to specific reporting obligations, like the e-reporting in France. Some countries that introduced the B2C e-invoicing are Italy and Slovakia – in 2024.

What Do I Have to Take Into Account for E-invoicing?

This is a high-level overview on the steps to follow to start using e-invoicing solutions.

• Consulting phase: you should first check the specific e-invoicing format and requirements existing in your country. Some countries have implemented mandate e-invoicing on B2G and B2B transactions, therefore, in such cases you must verify the requirements. Some other countries only mandate B2G transactions.
• Review your finance process: this is especially important in case of a mandate e-invoicing scenario with a clearance model implemented. This phase consists of a review of all your finance processes to make sure that your real-time reporting of e-invoices will not attract questions (and penalties) from the tax authorities.
• Service provider: search and contact a service provider offering an e-invoicing solution according to the particular needs of your business and the specific country requirements set by the Government.

Marosa’s Solution on E-invoicing in Europe

Marosa's software is able to issue and receive e-invoices in Italy, Portugal, Hungary and Romania. In addition, we are developing a Pan-European solution allowing businesses to issue e-invoices to any European country using a single standard file for all Europe. We will reuse this data for reporting and data analytics, hence completing the entire cycle of business-invoice-tax reporting.

Marosa is expanding the tax technology solutions available for our clients, so contact us and find out how we can help you!