Compliance Services

The introduction of new VAT rates can pose problems for businesses, who will need to adapt systems and categorisations to accommodate such rates. However, they are often viewed as an effective fiscal strategy for governments to manage their tax agendas.  

The European Union has recently provided EU Member States with greater flexibility to dictate their own VAT rates. These concessions extend to the introduction of super-reduced VAT rates, which previously could not be set below 5%. This restriction has now been abolished, and it is likely that several Member States will take advantage of this to introduce new categories of goods / services subject to the super-reduced rates in line with specific wider fiscal and social initiatives.  

Cyprus is the one of the first countries to take advantage of this increased latitude, via the introduction of a super-reduced rate of 3% VAT for specific goods and services. This will co-exist alongside the 19% standard VAT rate and 5% reduced VAT rate and will be effective from 21 July 2023. 

The new 3% rate will impact the following goods and services: 

• Goods, including specific books, certain lifting devices, vehicles specific to people impacted by disability, orthopaedic items and appliances, and other specific items which can assist people living with a disability.  
• Services, including specific cleaning services performed by private entities, waste treatment and debut performances for specific cultural activities. 

In addition to the new 3% super-reduced VAT rate, the Cypriot government has re-categorised several of its goods and services under the zero VAT rate. This re-classification is also currently active and will last until 31 October 2023, in contrast to the new 3% super-reduced rate, which is expected to be a permanent feature. 

The law relating to both the new super-reduced rate and the re-classification of goods can be found here. 

Cyprus is a compliant territory for Kofax, and the Tungsten Web Form Portal supports the new rate. Kofax is communicating with impacted Cypriot suppliers and buyers to facilitate the new super-reduced VAT rate. 

VAT registration threshold increases are typically the result of careful strategic fiscal consideration by governments. They can be instigated because of external wider pressures, such as inflation, but can also offer benefits for smaller business, who will find themselves relieved from miscellaneous VAT administrative-related tasks. 

To manage their own fiscal agenda, the Slovak Ministry of Finance has proposed a change to the country’s VAT registration threshold, from 49,750 Euros to 50,000 Euros.  This proposed increase is currently subject to public consultation.  

You can read more about e-invoicing in Slovakia on our country-specific dedicated page here.  

Dissimilar to many of its counterparts across the continent, Germany operates a Feudal System, where, for the most part, Feudal States maintain a distinct sense of autonomy in the conducting of their tax affairs. This looks set to change with the introduction of Germany’s B2B e-invoicing mandate. 

However, VAT rates are still currently determined on a Federal, rather than nationwide, level. Bavaria is a good example of this, proposing a zero VAT on all basic food products. Its proposal follows the path of nearing countries Poland and Spain, who have proposed and implemented similar initiatives this year.  

The proposal precedes elections in Bavaria, indicating how fiscal policies are linked to wider political agendas, and how fiscal policies can play a pivotal role in influencing resident votes. 

Germany is a critical market for Kofax. We are closely following tax rate changes in the country, alongside the upcoming B2B mandate. You can read more about Germany’s e-invoicing mandate here. 

Germany’s April 2023 discussion paper had proposed a 1 January 2025 start date for the inception of the country’s B2B e-invoicing mandate.  

As is the case with other e-invoicing mandates however, mandate inception dates will always be subject to revision and influenced by externals factors- such as public readiness for the mandate, amongst others.  

Germany’s ‘Growth Opportunity Act’ has responded to the concerns raised in the public consultation regarding the inception date and has, for now, re-instated the mandate inception date to 1 January 2026. 

 In other important timeframes communicated:   

• E-invoicing will still be possible from 1 January 2025, although, in line with current regulations, recipient consent for e-invoicing will be required. However, paper, PDF and other invoice forms will still be permissible in 2025. 
• All structured e-invoice formats, including EDI, will be permitted up to 31 December 2027.  
• From 1 January 2028, structured formats must adhere to the EU common standard. 
• Presently, simplified invoices are expected to be precluded from Germany’s mandate. 

EDI has a robust following in Germany, particularly in the automotive and manufacturing industries. Adherence to the EU standard may accomplish harmonisation- but will be at odds with Germany’s powerful EDI following. It is inevitable that the question of the EU standard will come under scrutiny, especially given the proposed limitations post January 2028. 

It is important to note that the ‘Growth Opportunity Act’ is a draft bill only. Kofax is still waiting for the BMF to provide final technical specifications which will provide a definitive reflection of Germany’s mandate. 

The German Ministry of Finance (BMF) April 2023 discussion paper provided a good indication of Germany’s projected e-invoicing model. However, Germany’s legislative divisions have also been working to accommodate the mandate and cement e-invoicing into the country’s legislative framework.  

Draft amendments to the country’s Value Added Tax Law, Umsatzsteuergesetz (or UStG) are currently being drafted in Germany, which will provide the critical foundation for establishing e-invoicing in the country. 

More specifically within the legislation, the definition of an e-invoice is limited to that which is: 

• issued and received in a structured format, and 
• is compliant with the EU e-invoicing standard, the EN16931.  

The legislative draft amendments therefore align the definition of an e-invoice more robustly with the ideology expressed in the VAT in the Digital Age proposal.  

Please refer to this month’s update, ‘Growth Opportunity Act, including e-invoicing delay’ for further information concerning Germany’s e-invoicing timeline.  

Only a few weeks ago, Kofax’s recent post commented on the European’s Union’s draft proposal to authorise Germany to mandate B2B e-invoicing in the country.  

And e-invoicing advancements are developing swiftly. The Council of the European Union has now approved this request, authorising Germany to mandate B2B e-invoicing in the country. The timeframes for approval remain the same as previously outlined in the draft- i.e., from 1 January 2025 to 31 December 2027, or alternatively, when Digital Reporting Requirements for ViDA come into effect.  

The EU approval can be located via the link below: 

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32023D1551  

The derogation approval represents a significant milestone relating to Germany’s e-invoicing trajectory. Germany is a critical market for Kofax, and we are closely monitoring e-invoicing developments in the country.  

Though the Polish e-invoicing legislative process has been an extensive one, to date it has not been subject to significant resistance in the Polish Parliament, the Sejm.  

Despite this, Senators in the Lower House rejected the mandatory e-invoicing legislation in Poland. While ostensibly perceived as an obstruction, the rejection was attributed to political fractures between the higher Senate and Sejm Chambers rather than pertaining to the actual legislative content. This was not expected to impede the e-invoicing legislative progress, and the legislation will now proceed to the Upper House, which holds the prerogative to overrule the Lower Chambers.  

The law has subsequently been passed and will now proceed to the President for final signature.  

Kofax looks forward to analysing the final Polish e-invoicing legislation, which is expected in Q4 2023. Major revisions to the current legislation are not expected, alongside the final FA2 schema, which also presented minimum amendments.  

While implementing the Polish e-invoicing mandate, the Polish government will have been acutely aware of the need to construct a system that efficiently facilitates secure and efficient invoice exchange. Concurrently, the government will want to yield a solution that is accessible and user-friendly for taxpayers. To this effect, the Polish government has been advancing new practices for taxpayers to facilitate the issuing and receipt of invoices via the Polish e-invoicing national platform, the KSeF. 

The launch of a new mobile application is expected to accomplish this purpose and is expected to embark in Q1 2024. The application is presumed to serve as an efficient tool to help manage the mandate demands in an efficient and streamlined manner.  

Kofax is supporting the upcoming Polish e-invoicing mandate. You can read more about the upcoming mandate on our dedicated country-specific page here.  

It is one of the most ambitious, perhaps even courageous, but definitely one of the most intrusive, fiscal and digitsation programmes withing the EU – and it is on everyone’s agenda: the French e-invoicing and e-reporting mandate.

Over the past weeks it became increasingly apparent that the French Directorate General of Public Finance (DGFIP) might be considering delaying the implementation date of the French e-invoicing and e-reporting requirements. The delay was confirmed on July 28 PM via this press release:

The original start date of what we named ‘the French Mandate’ was July 1, 2024. No new dates have been communicated in the press release. The delay raises many questions, including, critically, how the PDP registration will now progress (Plateforme Dematerialisation Partenaire); there will be questions about the market pilot planned to start on January 3, 2024. And there is still the nagging question as to whether we will see further changes to the requirements, which is not uncommon when e-invoicing/e-reporting obligations are delayed. 

Some of the details in the press release, particularly the link to adopting the Finance Law for 2024, could suggest that the delay may be considerable. We will provide more information on the postponement as soon as we learn more.  

EU Member States take turns to host the EU presidency and oversee the smooth functioning and operations of the organisation.  

Spain, Belgium and Hungary, who will hold the EU Presidency consecutively for the next 18 months, have now published their joint programme of priorities.  

Unsurprisingly, one of the priorities will be to modernise and simplify the common VAT system by embracing digitalisation, and on work aimed at closing the VAT gap, for the benefit of both the national and EU budgets. 

The following link from the Council of the European Union outlines the main aims of these countries, and the strategies whereby the realisation of these goals can be fulfilled: 

https://data.consilium.europa.eu/doc/document/ST-10597-2023-INIT/en/pdf?mc_cid=b9c55a3f02&mc_eid=ceb0344f84