EY: Romania is on track to adopt widespread e-invoicing

On July 27, 2023, the Council of the European Union authorized Romania to implement mandatory electronic invoicing for all types of B2B transactions between companies established in Romania. Almost 2 years after Romania requested this derogation from the EU Council, the country is now on track to adopt widespread e-invoicing starting January 1, 2024.

By Georgiana Iancu, Partner, leader of the Indirect Taxes department, EY Romania and Georgiana Constantin, Senior Manager, Indirect Taxes, EY Romania

This derogation was necessary within the legal framework of invoicing provided by the VAT Directive, which allows companies to issue invoices in both paper and electronic formats. Currently, the use of electronic invoices can only be done with the recipient’s acceptance.

Thus, the obtained derogation allows Romania to adopt mandatory electronic invoicing. What does this mean for the business environment? Based on this derogation, tax authorities could require that invoices be issued exclusively in electronic format, following a predefined XML standard, and subsequently communicated through the RO e-invoicing system, administered by the Ministry of Public Finance. In this regard, the issuer will no longer need the recipient’s agreement to issue an electronic invoice.

The derogation is applicable from January 1, 2024, until December 31, 2026, or until the date when EU member states implement the provisions of the European ViDA (VAT in the Digital Age) package, depending on which comes first. Romania has the possibility to request an extension of the derogation’s application after December 31, 2026.

Within the next 30 days, by order of the ANAF president, the categories of targeted taxpayers and the date of commencement of this obligation should be established. Therefore, by August 25, 2023, the deadline for implementing electronic invoicing should be decided.

A term like the beginning of 2024 for the transition to widespread e-invoicing poses real challenges in terms of the very short time in which companies will have to manage the aspects associated with meeting all the requirements for generating e-invoices from a fiscal, operational, and commercial perspective, as well as implementing suitable technical solutions.

The implementation of e-invoicing proves to be a very complex process, starting from the moment a company determines which elements should be included in the e-invoice (over 200 elements to be analyzed) to the moment of implementing appropriate solutions. Companies should ensure that the chosen technical solution allows them to manage both issued and received invoices, handle a sufficient volume of data, and include functionalities such as receiving or transmitting messages through the private virtual space – SPV to partners for received and issued invoices or verifying the technical validation conditions of the XML file.

There are also two directions regarding the implementation of mandatory electronic invoicing in Romania. One scenario involves treating e-invoicing, at least initially, as merely reporting data from invoices in quasi-real-time while maintaining the obligation to transmit invoices in the classic format agreed upon with business partners. This situation would be a temporary simplification granted to companies since Romania’s obtained derogation clearly aims at making e-invoicing the original invoice, even without the recipient’s acceptance.

If Romania’s implementation of widespread e-invoicing leads to it being the sole original exemplar, the consequences of late or inadequate implementation could be multiple. Alongside the tax implications related to VAT deduction, commercial consequences resulting from billing delays and impacts on cash flows or supply chains should also be considered.

Considering that Romania is on the verge of implementing widespread e-invoicing and the recent experience with digitalization processes such as SAF-T or Ro-transport, here’s what companies in Romania say about how prepared they are to step into e-invoicing, according to the latest survey conducted by EY in July 2023.

The majority of participating companies (78%) are aware of the fiscal authorities’ intention to make e-invoicing universally applicable. To what extent do Romanian companies consider themselves ready for implementing e-invoicing from January 1, 2024? 39% responded that they are not prepared, 23% stated they are prepared to some extent, and 9% said they are fully prepared. Surprisingly or not, almost a third of respondents said they have not analyzed the impact of this requirement.

Regarding the understanding of the reporting requirements for e-invoicing, in cases where the analysis process has been initiated, the level of understanding of the requirements is relatively low. Summing up, in the remaining 5 months until January 1, 2024, the date when Romania could impose the obligation of electronic invoicing, Romanian companies will not be able to be fully prepared for this new obligation under the fiscal digitalization program.

In conclusion, with the Council of the European Union granting this derogation, electronic invoicing becomes an imminent obligation for Romanian companies. Practical experience shows that meeting all the steps for an operational and correctly implemented e-invoicing process, from a fiscal standpoint, can take at least six months, disregarding any limitations related to human, technical, or financial resources necessary for such an implementation.

To whatever extent Romania will implement e-invoicing as the sole method of transmitting invoices to clients (in line with the EU authorization) and not just as a quasi-real-time data reporting to tax authorities (as currently done for goods with high fiscal risk), the pressure on companies will undoubtedly be higher. This is because commercial and operational requirements will need to be equally prioritized, along with the processes of posting issued and received invoices in financial accounting systems, the impact on cash flows, all of which will, of course, require additional resources and an extended implementation timeline.

In any scenario, e-invoicing should become a priority on Romanian companies’ agenda in the immediate future to prevent possible violations, tax consequences, or commercial hindrances.

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