Guest contributor |
Businesses transacting across the globe in the digital age have a whole host of rules and compliance regulations they must adhere to in the course of their normal operations. One of these compliance obligations revolves around value-added tax, also known as VAT. This is a consumption tax levied on the sale of goods and services in many countries, including the UK and in the European Union (EU). VAT is applied to transactions at every stage of the supply chain, from procurement of raw materials to manufacturing, distribution and sales to both businesses and consumers.
VAT rules and rates for goods, products and services vary from country to country. While rates are important, finding out what’s taxable and what’s exempt from VAT is critical for businesses across the globe. In the EU, most goods and services are subject to VAT. However, businesses are generally able to take a credit for the VAT paid on purchases, as long as the costs are for business purposes and linked to an onward taxable supply of goods or services.
For businesses, managing the VAT compliance lifecycle is paramount in complying with regulations, managing cashflow, avoiding penalties and building trust with trading partners and consumers. Keeping up to date with changes in the VAT ecosystem is crucial to ensuring a business is compliant. In addition to staying on top of changing rates and new VAT rules for products and services, it’s important for a business to look at how it’s preparing and submitting its VAT returns and how invoices are issued and received too.
Companies looking to increase their compliance accuracy and significantly reduce their dependency on manual processes can implement automation solutions. These solutions are also important to help businesses sidestep substantial fines for noncompliance and interest charges in the compliance process.
These types of tax automation solutions allow companies to prepare and file VAT returns and other indirect tax compliance digital reports in the countries where they transact, and automatically populate sales and purchase transaction data directly from accounting or enterprise resource planning systems. Solutions that focus on data verification and validation can identify possible errors and anomalies that can usually be fixed within the taxation period rather than requiring adjustments to the returns.
Both the Avalara Calculations and the Avalara Returns & Reporting solutions, integrated with Microsoft Dynamics 365, offer a scalable way to calculate VAT more quickly and accurately and stay compliant and up to date on filings in over 60 countries across the world.
Electronic invoicing, or e-invoicing, is also becoming an increasingly important compliance component for companies transacting around the world, especially in EU countries.
E-invoicing involves exchanging invoices in a structured digital format. An electronic invoice not only contains the same information as a paper or PDF invoice or credit note, including line item detail, tax and payment terms, but also provides more granular detail to support automated validation and processing. In the digital age, e-invoices are issued, transmitted and received in a structured electronic format, such as XML, which is designed to be read by machines.
A growing number of countries require e-invoices for business-to-government or business-to-business transactions. This process automation can lead to great cost savings and, in many cases, give tax authorities detailed insight into business transactions. As such, while e-invoicing mandates are implemented in nations across the globe, it’s critical that businesses adopt an e-invoicing solution to keep up with changing rules and requirements.
When it comes to e-invoicing, nothing is ever simple, and the status quo changes constantly. Businesses of all sizes must anticipate and respond to legislative changes to ensure their invoicing processes are fully compliant.
Avalara E-Invoicing and Live Reporting (ELR) is a cloud-based, scalable solution that helps businesses comply with current, ongoing and future e-invoicing mandates and live reporting requirements. Avalara ELR includes a single global API integration that can enhance existing systems with e-invoicing and live reporting functionalities for the countries that a business trades in.
As more countries and governmental bodies impose additional VAT obligations and e-invoicing mandates across the globe, it’s imperative for businesses to adopt solutions that automate manual processes and accelerate digital transformation. By implementing these solutions, businesses can both avoid the risks and penalties of noncompliance and bolster their ability to transact across borders with ease.
Alex Baulf is vice president of e-invoicing and live reporting at Avalara
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