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State of e-Invoicing in Estonia
B2G e-Invoicing has been mandatory in Estonia since July 2019. The Accounting Act states that e-Invoices are mandatory upon transfer of goods or services to a public sector accounting entity. The Act also mandated the use of specific formats, either the Estonian standard (national XML-based standard) or the European standard on e-Invoicing.
B2G e-Invoicing in Estonia
The Estonian government does not mandate nor recommend any e-invoicing service providers. A statement made by the Ministry of Finance outlines that economic operators are free to choose their e-Invoicing solutions. However, both the Ministry of Finance and the have agreed that businesses can use e-Financials free of charge.
e-Financials, an automated accounting software offered by the RIK (a state agency working under the Estonian Ministry of Justice), offers to help entrepreneurs organize their accounting and generate e-Invoices. Businesses who use e-Financials can do so free from charge. Only in the case that businesses use e-Financials to send e-Invoices to the public sector. All entities invoicing electronically are registered in the RIK, which manages all information to transmit e-Invoices to registered companies and institutions.
Estonia's Approach: Platform and Management Solutions
Estonia has opted to process e-invoices in a decentralized way, this means contracting authorities within the public sector receive e-Invoices individually and not via a central platform. Consequently, there are several private service providers which offer e-Invoicing exchange services. Within the private sector, there are a few service providers that companies can choose from: Billberry, E-arveldaja, Finbite, Telema, and Unifiedpost.
All of these providers are linked by agreements, which allow for e-Invoices to be sent from an accounting software or ERP solution of one operator to the software of another. At the present time, there is no system in place to monitor B2G e-invoicing. However, it is possible to view from an eBusiness registry provided by the RIK if a private company can receive electronic invoices or not.
In order to improve the communication between the e-Invoice operators, it is necessary to connect to the Peppol network, which will create more opportunities for the cross-border exchange of electronic invoices.
B2B E-Invoicing
B2B e-invoicing is not mandatory, but companies that want to use it must follow certain rules. Companies must have accounting or ERP software to generate e-invoices, or can outsource to various software providers. The previously mentioned service providers can also provide e-invoicing management services, including the creation of e-invoices.
Economic operators are free to contact private or public software providers such as the RIK. In the case that a B2B business wishes to issue electronic invoices, the receiver or the buyer is required to give their consent.
Across both B2B and B2G e-invoicing, there is no electronic signature that is required. Aside from following the XML format, there is also a 7 year archiving period for all electronic invoices.
VAT: Digital Reporting Requirements
All taxable persons registered for VAT in Estonia, including non-residents, are required to complete the annex to the VAT return (form KMD INF) when reporting VAT transaction data, which applies to B2B and B2G sales and purchases, as well as to transactions subject to standard or reduced VAT under certain conditions.
The frequency of the reporting is expected to be on a monthly or quarterly basis. From January 2016, the information must be provided individually for each transaction.
Data can be submitted in three ways:
- Manually enter data or upload files in XML format to the tax authority portal
- Using X-Road through a machine-to-machine (M2M) interface
- In exceptional cases, on paper
What to expect in the future
There is a proposition by the Ministry of Finance of Estonia to amend the Accounting Act in the future.
The amended law would aim to improve the current state of business starting with the use of one standard. This could mean moving away from the Estonian standard and fully adopting the European standard to be consistent in business and eliminate confusion. Especially as the Estonian standard is no longer widely used or developed.
Under the proposal, companies that are registered in the business register as recipients of e-invoices will be able to request e-invoices from their suppliers.
The bill aims to simplify and harmonize the e-invoicing system in Estonia, reduce the administrative burden and costs for businesses, improve data quality and interoperability, and support the vision of a real-time economy.
The bill is expected to be submitted to the government in 2024. It is unclear when it will be implemented, but it could be as early as 2025, depending on the legislative process.
For more on the impact of the e-Invoicing Regulation on other EU countries, please see our previous blogs.
