The future of electronic invoicing: relevant changes ahead

The main information and advantages of the electronic invoicing have been described in our previous newsletters. In this part, we summarize the main future changes.

The package of proposals (called "VAT rules in the digital age") has been published by the European Commission in December 2022 aims to adapt the EU VAT system to the digital age and new market realities. As a result, new rules and requirements for e-invoicing have been introduced. Some of the rules may enter into force in 2024.

According to the current regulation, an electronic invoice (hereinafter: "e-invoice") is any invoice that contains the form and content characteristic of an invoice and was issued and received in an electronic form. Accordingly, if an invoice has been sent exclusively via e-mail (e.g. in PDF format) should be considered as an e-invoice.

However, from 2024, the concept of e-invoice will also change. From 1 January 2024, only certain invoices which meets with the statutory conditions (e.g. have been issued in structured electronic form, the invoice can be processed by machine technology) may be considered as an electronic invoices. Accordingly, an invoice in PDF format which does not contain structured data may not be considered as an e-invoice.

Also from 2024, the agreement of the recipient of the invoice related to the application of the electronic invoicing may not be a requirement. Invoice recipients may need to be prepared to receive and process electronic invoices. In addition, e-invoices are only authentic in electronic form, so their retention can only be met by electronic archiving in compliance with the legislation (hereafter "e-archiving"). The Company under a retention obligation may ensure that the e-invoices are retained in a manner that protects them against deletion, destruction, accidental destruction, subsequent modification and damage and unauthorised access.

The following methods can be chosen for e-archiving:

1. e-invoices are at least provided with an enhanced security electronic signature, for example by using an external e-signature provider;
2. the storage is carried out in a closed IT system and a declaration of compliance is issued by the system developer: e.g. the customer can use the so-called "Authentication by Document Authentication", or "AVDH", which is a free service provided by the Hungarian state and only requires a Client Portal. With this method, the protection can be ensured by the recipient;
3. the hash code generated during real-time data transmission is stored together with the e-invoice;
4. storage of e-invoices in the EDI system (by an own-improved system or by the application of light-EDI systems).

The archiving of received electronic invoices does not necessarily require the introduction of new technologies, as long as the current internal archiving and invoice receipt system is able to fulfil the legal obligations. (We kindly note that e-archiving can be also performed by using an external e-archiving service provider.)

If the company would like to e-archive the e-invoices by itself, it may be appropriate to store the invoices on its own server. This requires that its IT system is adequately equipped, as e-archiving is more than just an electronic backup of e-invoices (backups, redundancy, etc.).

The expected timing of future changes:

• 1 January 2024: Conceptual change of e-invoice and mandatory acceptance of e-invoices.
• 1 January 2028: Electronic invoicing becomes the main rule for issuing invoices concerning cross-border transactions within the European Community, as well as the abolition of the ESPL report and the introduction of digital reporting at the transaction (invoice) level. Also from this date, the mandatory invoicing deadline will be reduced to 2 working days from the date of fulfillment. For domestic transactions, the e-invoicing will remain optional and the Member State can decide whether it would require to apply additional reporting for domestic transactions in accordance with the parameters set out by the EU.

It is important to note that Member States have the opportunity to make the use of electronic invoices compulsory before 1 January 2028. In this case they should adopt an electronic invoicing method that complies with the standards set by Directive 2014/55/EU.

In light of the above, it is essential for all businesses to be prepared for the new rules and compliance requirements for e-invoicing. A review of the e-invoicing processes of the companies is recommended at the earliest convenience, as the transition to e-invoicing and e-archiving can require in-house process re-engineering too.

Our e-invoicing services

If your business is planning to migrate to NAV XML-based or other e-invoicing formats in the near future, VGD's team of experts is ready to assist you with the following services:

• Pre-implementation advising;
• Advice on setting up a new system;
• Audit of the existing system to assess compliance with the legal requirements in force;
• Advice on the detailed rules of the NAV XML-based e-invoicing, design of such system;
• Reviewing the NAV XML file, checking its completeness, interpreting the error messages received and suggesting improvements;
• Review existing XML file to determine legal compliance;
• Implementation of e-invoicing and related automation and IT services.

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Should you have any questions regarding this newsletter,

the accounting and tax experts of VGD Hungary will be pleased to assist you.

21st of September 2023