Governments around the world are expanding their use of e-invoicing mandates to increase tax compliance, which is driving demand for e-invoicing solutions and services. To understand the extent of e-invoicing mandates as well as the implications for small- and medium-sized businesses (SMBs), KoreFusion conducted a global assessment evaluating the rollout of e-invoicing across 24 representative countries worldwide. Mandates are evolving and expanding in 17 of those countries across business-to-government (B2G), business-to-business (B2B), and business-to-consumer (B2C) segments:
LATAM spearheaded e-invoicing mandates in the early 2000s, with the EU launching mandates in the 2010s and the APAC region following thereafter. While the US, UK, Canada, and Singapore are the only developed nations with no official mandates in place, they either have plans or are currently developing initiatives.
KoreFusion’s high-level findings illustrate that e-invoicing mandates are relatively consistent in approach and content. Most mandates target B2G transactions to begin, aiming to boost government transparency and curb corruption. B2B and B2C implementations follow soon after, usually aligning with adjacent VAT, GST, and tax-reporting initiatives.
While trajectories for e-invoicing mandates are similar, thresholds for SMB inclusion vary. Some encompass all SMBs regardless of size, while others apply to organizations that meet a minimum business size or annual sales volume.
The SMB market faces unique challenges in navigating these mandates. Coupled with the fact that current SMB e-invoicing solutions are sparse and inconsistent, these organizations face a complex, inefficient path to achieving and maintaining compliance. Larger enterprises benefit from existing tools, compliance capabilities, and infrastructure. SMBs, on the other hand, must often cobble together solutions to meet their unique needs.
This paper presents a global overview of current and evolving e-invoicing mandates across the B2G, B2B, and B2C spheres. It delves into details of mandates across major regions and explores the implications for SMBs in these regions. Finally, it explores the opportunities for emerging and prospective solution providers who aim to bridge the gap and help SMBs better navigate these mandates both now and in the future.
Reducing the tax gap is the biggest motivator for governments to launch e-invoicing mandates, though curbing government corruption and promoting greater transparency present potent reasons as well. Tax compliance is a compelling priority considering the importance of GDP-to-tax revenue ratio — and how many countries fall below the critical threshold. According to the World Bank, tax revenues above 15% of a country’s GDP are vital for economic growth and, ultimately, poverty reduction.
When tax revenues account for at least 15% of GDP, countries can typically support sufficient domestic resources for basic health, education, and infrastructure. Domestic tax revenues play a critical role in sustaining development funding and freeing official development assistance (ODA) resources for other priority investments. However, in many cases, a glaring discrepancy exists between the tax-revenue gap and ODA. Considering the countries in the chart above, the total tax-revenue gap (US$ 180B) dwarfs the total ODA (US$ 46B).
The European Commission VAT Tax Gap trend highlights the substantial impacts of e-invoicing. The European Commission’s top goal with e-invoice reforms is to counter tax fraud, evasion, and avoidance. The EU experienced massive improvements in these areas in 2020 during the pandemic, which significantly reduced cash transactions just as e-invoicing mandates came into full effect. In 2020, estimated VAT gaps ranged from 1.3% in Finland to 35.7% in Romania, with other European countries falling somewhere in-between.
While the full impact remains to be seen, e-invoicing mandates affect SMBs in many regions — a trend that is sure to continue as more countries plan to implement mandates in the near term.
Our analysis highlights a complex problem for SMBs as e-invoicing mandates come into effect globally. Compliance with mandates originally designed for large enterprises has complicated the digital ecosystems of SMBs. These businesses must address a tangled web of compliance requirements through a patchwork of tools and subsequent implementation challenges. The following sections explore the current state of mandates across major global regions.
Global SMB e-invoicing is a growing and complex opportunity that is highly dependent on the local market’s labor and digitization context and the current patchwork of standalone and platform solution providers. It requires a deep understanding of SMB concerns and challenges in meeting e-invoicing needs, preferences around e-invoicing solution providers, and contextual considerations around software adoption.
As mandates have expanded into the B2B sector, all registered SMBs are already required to comply with e-invoicing mandates as thresholds continue to be lowered. The limited focus of top banks on SMB invoicing solutions — despite a strong presence of e-invoicing solutions for large enterprises — presents additional hurdles.
As government e-invoicing platforms modernize and become more “open” via APIs and e-signature capabilities, the potential for additional solutions that can easily integrate becomes possible. Data show that more than 70% of the countries have government e-invoicing systems that include API libraries, which could make integration much easier with future solutions.
Specialized providers tailor solutions for SMBs, while platform providers of adjacent solutions often bundle e-invoicing with core offerings like accounting services. For example, accounting solution providers may offer e-invoicing to support reconciliation and cash flow management.
However, despite growing SMB digitization, manual interventions are still required in numerous common business situations as electronic systems are either not interoperable or do not exchange all the required data to simplify e-invoice compliance and reconciliation processes for SMBs. For example, collecting counterparty data, showing proof of payment or transfer of funds, receipt of goods, import/export declarations, etc. are illustrative examples of the types of information that may be required to stay in compliance with local e-invoicing mandates that SMBs must manage manually, outside of their digital systems.
SMBs respond to e-invoicing demands, governmental or commercial, based on contexts like labor costs and governmental digitization, which strongly influence their choice of solution. Solution providers should consider current trends in e-invoicing, including country-agnostic challenges and opportunities that exist:
The list above is not exhaustive; however, it does highlight the benefits of e-invoicing far beyond tax compliance. Tax authorities, taxpayers, and businesses all stand to benefit from digital, interoperable e-invoicing – and providers should consider how benefits can be baked-in to e-invoicing solutions.
Innovative solution providers that address these gaps stand to do well in this rapidly changing environment. It’s critical to understand the nuanced pain points that SMBs are facing in countries with e-invoicing mandates — and to build tailored solutions that can alleviate the most pressing challenges.