1 in 4
Business leaders in 1 in 4 companies, according to one source, see expansion into an international market as the number one growth priority. Whether by selling digitally overseas, setting up local sales offices or expanding through acquisition or merger, the net result is the same for the Finance department: compliance challenges. With this in mind, I’d like to offer you a checklist of potential impacts on Accounts Receivable. Selling is one thing, but getting paid for a sale business leaders need to consider the implications as they may cause costs to escalate and stress levels to rise.
Tax Regimes
Countries like India and many areas of South America have adopted eInvoicing standards with a passion. They have also mandated certain extra steps such as having invoices pre-approved by the state to facilitate better tax administration and reduce tax fraud. We do not know of any companies, anywhere in the world that have set up their own custom-built solution to accommodate this – not at least without the use of a clunky somewhat extensive and time-consuming investment in an SAP or Oracle platform and an army of people to manage the system and train users.
Several countries have declared an intent to move along similar lines over the next few years in line with the EU directive that applies to all 22 member stats. It is safe to say you can expect mandated changes to invoicing standards on a country by country basis fairly regularly from now on.
EU VAT Directive
In line with the EU VAT directive, Italy is one of the countries to have set out its requirements for B2B eInvoices. It is the first EU member to adopt a “clearance” eInvoicing model for VAT transactions. The first country to adopt this model was Brazil, in 2008. In this model the government must clear or approve an invoice before it is sent on, adding another step in the order to cash process.
In Italy invoicing and VAT are now bound together, and we expect more to follow suit. The EU Directive gives countries a small margin of flexibility, but on top of whatever local changes countries make when they implement the EU VAT directive, there are a number of short term initiatives in place to cover the Pandemic, so this area warrants regular attention. The KPMG site is an excellent source of up to date information on these changes. Find it here
https://home.kpmg/xx/en/home/insights/2020/04/italy-tax-developments-in-response-to-covid-19.html
PEPPOL is taking off
Another EU initiative, the PEPPOL Project, mandated the use of the PEPPOL EDI format for invoices to any public sector body in the EU. Outside of those directly affected, many large businesses are adopting it and are urging their suppliers to submit invoices by this method. The EU put Euros 15.3 million into this initiative and it has left a legacy that is prompting far wider adoption of eInvoicing.
Needless to say, there are far more changes coming on stream across the EU and globally, which means CFOs need to consider the Opex implications of selling internationally and any upfront Capex costs to onboard to a new technology platform.
The Italian Example
We’ve put together an infographic setting out the requirements for eInvoices… and this is just the beginning. You’ll need comprehensive notes on all the countries you intend to reach as part of your due diligence before you plan your market entry.
