In Poland, KSeF from 2024. And in other countries?

The VAT gap is the difference between expected revenue and the amount actually collected - here we wrote about how Poland compares to other countries in this aspect. The idea to reduce the VAT receivables gap is to tighten the tax system by introducing a unified digital invoice registration system across the European Union.

The first step in this direction was the Directive (2014/55/EU), which aims to unify the requirements for electronic invoicing in public procurement (business-to-government) in the European Union from 2020. B2G transactions are recorded within the Peppol platform, which is the current standard for electronic document exchange in European government institutions.

The next step is defined by the VAT in the Digital Age (ViDA) Directive of December 2022. It obliges EU countries to receive and issue electronic invoices under a unified system, which will be in effect from 2028.

An e-invoice refers to a document generated, sent and received in digital form. It is a so-called structured invoice, issued and recorded in the form of an XML file, for further automatic processing. Information about its issuance will be stored in the system for 10 years. This means that there is no need to issue a duplicate in case it is lost. For clarification, let us add that these definitions are not met by an invoice issued in the form of a PDF file.

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Italians the leader, followed closely by Hungarians

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While e-invoicing is widely used by the public sector in the EU, individual countries are introducing electronic invoicing at their own pace. Looking ahead to 2023, only a handful of countries have made such an obligation for B2B transactions.

The undisputed leader is Italy, which made e-invoicing mandatory for B2G settlements in 2014. Starting in 2019, e-invoices will be issued by companies with a turnover of more than 65,000 euros, from mid-2022 by all of them. Italy's Sistema di Interscambio (SDI) platform processes 2 billion B2B e-invoices annually. Italians have reduced the decline in VAT revenues by 10.7 percentage points in 2021, according to European Commission data.

The same data shows that Poland has reduced its VAT gap loss by 7.8pc. In Poland, a transition period has been in place since January 1, 2022, and businesses can use the National e-Invoice System (KSeF) to issue and share structured invoices. The obligation to issue structured invoices will go into effect on July 1, 2024, and will apply to entrepreneurs who are active VAT payers. From the beginning of 2025, e-invoices will also be issued by companies that are exempt from paying VAT by subject and object.

Hungary is another country, after Italy, that has smoothly introduced real-time invoice reporting (RTIR) since mid-2018. As of January 1, 2021, not only B2B but also B2C transactions must be reported to the Hungarian tax authorities, regardless of the amount of the transaction.

Still an EU candidate, Albania has made B2G, B2B, as well as B2C transactions subject to e-invoicing starting in 2021. In that country, invoices include a QR code. In neighboring Serbia, which also has candidate status, mandatory e-invoicing for B2B was introduced on January 1, 2023. The Slovaks launched an e-invoicing platform in 2023, but only for testing purposes.

The rest of Europe is in no hurry

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With plenty of time left until 2028, many countries are approaching e-invoicing in stages, testing IT solutions or making it mandatory for the largest companies first.

Phased implementations starting in 2024 are planned by Belgium, France, Spain and Romania. Belgium plans to make e-invoicing mandatory for taxpayers with an annual turnover of more than €9 million as of July 1, 2024, six months later for medium-sized companies, and by mid-2025 all companies will be issuing e-invoices. 

Croatia, Germany, Slovakia and Slovenia plan to introduce e-invoicing from 2025. The European Commission has granted Germany permission to start using voluntary B2B e-invoicing from January 2025. The obligation, which applies to companies with a turnover of more than 800,000 euros, will take effect from 2027.

In France, e-invoicing is currently voluntary, but will become mandatory between 2024 and 2026. First, in mid-2024, they will be mandatory for B2B and B2C in companies with more than 5,000 employees with annual revenues of more than €1.5 billion. Six months later, companies with fewer than 5,000 employees will be subject to the obligation. From January 1, 2026, all SMEs with fewer than 250 employees with annual sales of less than €50 million.

In Denmark, B2B e-invoicing is voluntary for now; businesses can exchange electronic invoices if both parties agree. In 2022, the Swedish tax authority has launched a project to evaluate potential solutions, but with no binding dates. In Norway, only government administrations and their suppliers are required to use electronic invoices, despite the voluntary nature they are often used in the private sector. 

In Finland, where tax fraud is at a very low level, the government supports the use of digital solutions to combat tax fraud, but also intends to simplify the VAT system and reduce administrative costs for businesses. The proposed solutions will be introduced in stages between 2024 and 2028. Similarly, the Netherlands boasts a low level of fraud of around 3 percent of VAT revenue. The country is in the pilot stage, only making e-invoicing mandatory for the B2G sector in 2023. The use of e-invoices between companies is voluntary, although actually quite common with the mutual consent of the parties.

In the UK, there is no central platform for e-invoicing, companies send tax returns to the tax office (HTMC) from 2019. Small businesses with annual revenues of more than £50,000 will be required to e-invoice from 2026. In Switzerland, which is not part of the European Economic Area, the e-invoicing obligation applies only to B2G contracts worth more than 5,000 francs. 

In the table, we present information on the electronic invoicing obligation for the public sector (B2G) and business (B2B) for 27 EU countries and 4 European Economic Area countries (Norway, Iceland, Liechtenstein, UK).

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Data based on European Commission compilation and Navigating GlobalTax and E-invoicingCompliance in 2023 report from Unifiedpost Group.

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VAT gap narrowing, but still huge

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Why is VAT important? VAT revenue is used by governments to fund public services, such as medical care, public transportation or schools. It is in everyone's interest to curb VAT fraud or tax evasion. Governments cannot effectively plan spending on public services if the expected VAT is not equal to actual receipts into the coffers. In 2021, the VAT share accounted for about 27 percent of annual tax receipts in EU government.

Member countries lost €61 billion in 2021 from VAT, compared to €99 billion in 2020, according to October 2023 data from the European Commission. While this is still a gigantic loss, a downward trend is evident, especially compared to the 2019 gap of €134 billion and 2017's. 137.5 billion euros. Between 2019 and 2021, the economies of France, Spain, the Netherlands, Germany, Poland and Italy together accounted for more than 80 percent of the VAT gap reduction in the Union. The smallest loss of about one percentage point was recorded in the Netherlands, Finland, Spain and Estonia.