E-invoices and their rollout in Latvia
Since April 18, direct public administration institutions have been required to accept electronic invoices for public procurement. This is mandated by European Union (EU) Directive 2014/55/EU. While no such requirements currently exist for business-to-business transactions, the public sector's push toward innovative solutions presents an excellent opportunity for the private sector to digitize invoice workflows, thereby improving operational efficiency and freeing up time for more productive tasks.
A more active adoption of e-invoicing could revitalize the stagnant e-governance agenda. A UN study shows that over the past two years, Latvia has fallen from 45th to 57th place globally in e-governance development, now trailing all EU member states except Romania. We are even behind Bulgaria and Greece, countries not typically considered technological powerhouses.
A computer-readable invoice
Much has been said about e-invoices, yet various myths persist. E-invoices are structured electronic documents created and processed in a machine-readable format. One of the most common e-invoice formats is XML. In this format, the content of the e-invoice is described in a way that allows IT systems to process it automatically. A digital image of a scanned paper invoice cannot be considered an e-invoice. Even if created in Microsoft Word, Excel, or PDF format and technically digital, it is not machine-readable and therefore does not qualify as an e-invoice.
There are various standards and syntaxes for describing e-invoices in XML format. The European Standard on electronic invoicing defines the core elements of an e-invoice (the information to be included) and a list of common syntaxes. Furthermore, Cabinet Regulation No. 154 of April 9, 2019, "Applicable Electronic Invoice Standard and Specification and Procedure for the Use of Its Core Elements," stipulates that "a contracting authority, a public service provider, as well as a public partner or its representative shall accept an invoice prepared and issued in electronic form that complies with the applicable electronic invoice standard." The list of e-invoice syntaxes is defined as follows: "For the purposes of these regulations, the applicable electronic invoice standard is a set of documents referenced in the Official Journal of the European Union, consisting of the European Union standard LVS EN 16931-1:2017 'Electronic invoicing – Part 1: Semantic data model of the core elements of an electronic invoice,' adapted as a Latvian national standard, and its associated technical specification LVS CEN/TS 16931-2:2017 'Electronic invoicing – Part 2: List of syntaxes that comply with EN 16931-1'."
A unified standard by next year
Changes to the Accounting Law are expected in 2020, which will define the official e-invoice standard in Latvia, its usage, and the procedures for its circulation. The plan is to establish the internationally recognized ISO/IEC 19845 (UBL 2.1) standard as the official standard in Latvia. A unified standard across the country will allow all involved parties—invoice issuers, recipients, processors, and supervisory authorities—to speak the same language and build systems capable of processing e-invoices. Electronically prepared documents are already valid as supporting documents in accounting, and e-invoices will also serve as such, significantly reducing the circulation and archiving of paper documents.
E-invoices not only reduce the need for paper documents but can also significantly improve the speed of transactions and cash flow in the economy as a whole. The financial aspect is undoubtedly one of the most important. Calculations show that sending e-invoices reduces costs by 59%, while receiving and processing them reduces costs by 64%. Consequently, for large companies and public administration, the financial savings would amount to thousands of euros. Equally important is that these invoices can be delivered faster, processed automatically, and are free from the risk of manual transcription errors. The e-invoicing system eliminates the risk of fraud. In traditionally operating companies, responsible employees must verify that they are indeed dealing with the invoice issuer and that the amount is correct; in contrast, an electronic system automatically reads data from business management software to confirm that the transaction took place. Employees do not need to spend time verifying whether an invoice has reached the recipient, and at the time of payment, the system automatically records the data received from the bank. As a result, non-payers and late payers are immediately visible.
Latvia at the level of Western countries
While the adoption of e-invoices in Latvia is not yet progressing rapidly, we are in a good starting position. According to 2017 data, Latvia, along with Lithuania, is among the few Eastern European countries where more than 15% of companies use e-invoices. In this regard, we are roughly on par with most of Western Europe, trailing only the Nordic countries and Estonia, where more than 40% of companies exchange e-invoices.
It is significant that the private sector holds great potential. Before April 18, we surveyed nearly 350 companies and found that only 21.3% of respondents had already implemented an electronic invoicing system, and 7.2% were confident they would meet the deadline. Another 15% of respondents stated they were ready to send and receive e-invoices themselves but could not completely abandon paper due to less progressive business partners or clients.
The speed at which e-invoices become the primary format for transmitting payment data will largely depend on the remaining 57% who still operate using traditional methods. It is possible that many non-tech-oriented companies are unaware of all the advantages of e-invoices and are therefore in no hurry to implement them. However, the benefits are numerous and significantly aid in maintaining competitiveness.
E-invoices will be mandatory in the future
The transition to e-invoices in the EU Digital Single Market is inevitable and will eventually be enforced by law. In 2015, Spain became the first EU member state where all invoice exchanges between the state and product or service suppliers take place electronically. Now, 900,000 e-invoices are processed there every month, and the Spanish are working to extend this practice to the private sector. In Italy, e-invoicing has been mandatory for all VAT payers since this year, and Greece plans to join its Mediterranean neighbor next year. It is no secret that this is being done to reduce opportunities for tax evasion and to curb the VAT "carousels" that are so prevalent in Europe. Italian authorities do not hide the fact that they expect e-invoices to reduce the gray economy. Both the practice of "under-the-table" deals by small retailers and the tax avoidance schemes of larger companies have long prevented this Apennine peninsula nation from developing at its full potential. I believe that the Latvian state and society would also benefit from a more transparent invoicing system.
Jumis already supports e-invoices
The Connecting Europe Facility funds projects proposed by European Union member states for the implementation of various infrastructure projects, including the adoption of e-invoices. Latvia has also secured funding in one of the program's calls, and the "European Electronic Invoice" project is currently being implemented, aiming to promote and drive the adoption and use of e-invoices in Latvia across both the public and private sectors. The project's tasks include creating a secure option for sending and receiving e-invoices via the e-address, the portal Latvija.lv developing a convenient e-invoice receiving and sending solution for businesses, and establishing a PEPPOL access point to support e-invoice exchange with other EU member states. The project also plans to develop the integration of the e-address and e-invoices into one of the most popular accounting and business management systems in Latvia – Jumis.
By the end of this year, we plan to provide all our clients with the ability to send and receive e-invoices using the e-address and other channels. It is worth noting that already Jumis offers the ability to exchange e-invoices through several e-invoice exchange systems – Telema, Fitek and Omniva.
Now is the right time for entrepreneurs to start exploring available e-invoicing solutions. This will not only allow you to choose invoicing software, learn its features, and train accountants and other involved staff without haste, but also save money and time, thereby gaining a competitive advantage for your business.
