Compliance Services

While the discernible trend to reverse VAT rates is appearing to be more commonplace, there is an element of predictability associated with the practice, as countries attempt to regain a sense of economic stability which was only really apparent prior to the pandemic. Tax rates have a direct correlation with wider economic and societal agendas. As a result, we can expect multiple countries to adjust their VAT rates in the coming months.

As part of its spring Memorandum, Netherlands will re-visit its 9% reduced VAT rate and its zero-rated category, with a means to simplify their application. The Memorandum makes some stark admissions, including an analysis of whether the reduced rate actively achieves its desired aim of encouraging spending and general support for specific sectors. The Memorandum also candidly concedes that wealthiest households benefit almost twice as much as other households from reduced rates. Such conclusions indicate that the application of reduced rates must be re-considered, considering a more equitable tax distribution.

Netherlands is a compliant territory for Tungsten Network. Our portal solution incorporates all valid VAT rates in the country and we will continue to monitor any tax rate changes in the country.

Romania is the latest EU member State to comment on the VAT in the Digital Age (ViDA) proposal, following in the path of Italy last month who actively engaged with the proposal and launched a public consultation in response.

In respect of the e-invoicing and e-reporting components of the proposal, the Romanian Senate is largely supportive of the proposal. Specifically, however, they have noted that domestic transactions can be aligned with local requirements, rather than those set out in the intra-community reporting obligations.

The ViDA proposal has significant ramifications for e-invoicing and e-reporting over the coming years. You can read more about the proposal here.

VAT rates associated with power and gas supplies have sharply come into focus- in an era where energy prices are rising, and especially during the winter months when reliance on these elements increases. Several countries across the content have adjusted VAT rates to accommodate rising inflation.

As inflation subsides, it is inevitable that countries will turn their attention to restoring previous VAT rates- which is unsurprising, as the summer months lead to less energy reliance. This also mirrors the discernible trend of countries effecting pre-covid tax rates.

Finland will now restore the standard rate of 24% on electricity from 1 May 2023. This will reverse the temporary 10% rate applied to electricity from 1 December 2023. This rate was temporarily introduced in December 2022.

Finland is a compliant territory for Tungsten Network and our e-invoicing solution supports all valid VAT rates in the country.

VAT rate changes are significant tax measures, and, while once rare, are now becoming more ubiquitous in an era of economic uncertainty.

Estonia is now following in the footsteps of its European counterparts Switzerland and Czechoslovakia by proposing a rise in its standard VAT rate, as well as an alteration to the VAT rate for services in the county.

The proposed changes are as follows:

• Standard VAT rise from 20% to 22% – forecast presently for 1 January 2024
• The VAT rate applied to services would rise from 9% to the standard rate of 22% from 1 January 2025.

Estonia is a compliant territory for Tungsten Network and we will support the VAT rate change if confirmed.

Poland’s fiscal trajectory in 2022 was a busy one as it frequently altered its tax rates in an era of economic uncertainty. This, along with other fiscal initiatives, were condensed into a package what is known as the ‘SLIM’ package. Poland is currently in the midst of implementing ‘SLIM 3’.

The SLIM 3 package was finally approved in March 2023- but its implementation date has now been delayed to July 2023.

Slim 3, as expected, is extensive, covering the following issues:

• The lack of need for an invoice to settle VAT
• Further VAT exemptions
• Further transparency with respect to VAT bindings
• The option to transfer funds deposited in VAT accounts of VAT group members
• Reduction of certain VAT penalties

SLIM 3 strives for the simplification of fiscal practices in the country, with the aim of creating a process that is streamlined, accessible and simple to facilitate.

The Polish government has already referred to a SLIM 4 package, where known details in relation to the same are sparse. Tungsten Network will follow developments in relation to the same, ensuring that any VAT rate changes are incorporated as part of our e-invoicing solution.

VAT registration thresholds were generally viewed as a stable and steady feature- but the economic volatility of the last few years- which saw a pandemic, inflation, and even impending recessions- have seen governments acting with considerable latitude in respect of VAT registration threshold changes. Only last month saw Italy and Lithuania either apply or in the process of amending VAT registration thresholds. Typically, an EU derogation is required to facilitate this.

Hungary is the latest country to follow the same curvature as some of its recent European counterparts, with the EU granting Hungary permission to raise its VAT registration threshold from 48,000 Euros to 71,500 Euros.

The rise holds obvious benefits for small and medium enterprise businesses, who will be relieved of multiple VAT obligations. The increase also does not appear to come at a considerable cost to Hungarian revenues, which stand to see a loss of only 0.05% of the total VAT uptake.

The overhaul of a country’s VAT rates is a significant fiscal measure, and the decision to enact such a measure is often influenced by economic, social, and political factors. Switzerland’s VAT rate changes, projected for 1 January 2024, were triggered by social agendas that fuelled the need for change in Switzerland’s fiscal framework. You can read about the expected VAT changes in Switzerland and the underlying motivations for the change in our recent post here.

Tax changes are, however, just one component within a much broader fiscal infrastructure, and the Swiss government will need to enact several other changes to accommodate the new VAT rates. One of these adjustments is the modification to the Swiss periodic VAT return to take account of the new rates.

The ‘old’ rates (i.e. those that apply prior to 1 January 2024, and which are currently in use) may still be required- and so the VAT return will continue to incorporate these rates, alongside the new rates which come into existence from 1 January 2024.

Tungsten Network will support the VAT rate changes in Switzerland scheduled for 1 January 2024. Cognizant of the fact that the VAT rates which are currently in use and which will be replaced by new VAT rates will still be required- for example, when raising credit notes- our solution will also contain both pre and post 1 January 2024 tax rates to accommodate our Swiss market.

Growing inflation across Europe has compelled several EU Member States to adjust their VAT rates. Often, these modifications have targeted everyday basic merchandise to create more affordable goods and services for residents.

Spain had initially introduced some temporary VAT concessions in January 2023 by zero-rating specific food products. The Spanish government has now confirmed that these measures will continue up to 30 June 2023.

Initial forecasts indicate that the fiscal measures Spain is initiating are working as inflation continues to plummet in the country. However, the inflation is still high enough for the Spanish government to continue the temporary zero-rating of specific food products, albeit for a temporary period.

Spain is a compliant territory for Tungsten Network and our e-invoicing solution supports all valid VAT rates in the country.

The e-invoicing trajectory in Germany is gaining pace, in line with its neighbouring European counterparts on the continent. Last month, we commented on Germany’s intention to produce a discussion paper which would incorporate further details in respect of the proposed B2B e-invoicing mandate in the country. The process of producing the discussion paper has now concluded and, while the discussion paper is not yet publicly available, we do now have some indications regarding its content.  

The first striking element within the paper is the proposed timeline of Germany’s e-invoicing mandate- which is touted for 1 January 2025- a year sooner than expected, indicating Germany’s intention to expedite e-invoicing in the country. Other elements are perhaps less surprising- especially those which align Germany’s proposed e-invoicing model with the VAT in the Digital Age (ViDA) proposal.  

Exact details around the e-invoicing model are as of yet unknown, but it does appear that service providers can act on behalf of buyers and suppliers, with invoices processed via a central government platform. The model also confirms to ViDA standards, by undertaking plausibility and syntax checks on the invoice data, rather than ‘conventional’ clearance, which does not appear to contravene the spirit of the proposal.  

Moreover, in line with the ViDA proposal, the structured format is expected to align with the European common standard- the EN16931. Presently, the German solution does not comment explicitly on e-reporting- and so for now we do not expect this to be implemented in tandem with the e-invoicing component of the solution.  

 By means of a reminder, the German government requested a derogation to mandate e-invoicing in the country in November 2022- one month before the European Commission published the ViDA proposal. It is important to note that derogation has not been granted to mandate e-invoicing in the country. However, the proposed e-invoicing model- which for all intents and purposes seems to have been dictated largely by the ViDA framework- seems to suggest that at least on a surface level, little resistance would be provided to this effect.

As the e-invoicing model is envisaged before all the ViDA obligations come into effect (I.e. 1 January 2028), it looks likely that Germany will continue to strive for the derogation. Given that the derogation process is projected to become redundant from 1 January 2024, the European Commission’s response to Germany’s derogation request will be an intriguing one. 

Germany has already commenced the process of public consultation with business stakeholders, specifically, select larger German enterprises requesting detailed information around the e-invoicing process, no doubt to sharpen and refine its current plans for e-invoicing implementation.  

 Germany is a critical market for Tungsten Network. We are closely monitoring further details the German government confirms in respect of the proposed B2B e-invoicing mandate with a view as to how we can best serve our German market.  

The Saudi Zakat, Tax and Customs Authority (‘ZATCA’) is proposing changes to the controls, requirements, technical specifications, and procedural rules of the E-invoicing regulation.  

Advance payments (‘prepayments’) and charges on invoices/notes have been suggested as new functionalities. Additionally, certain updates have been proposed concerning business rules and changes to obligations. The proposals were subject to a brief consultation period, which has now ended.   

For more information related to the proposal, you can visit this link.