e-Invoicing in Estonia: A Step-by-Step Guide
Since July 2019, Estonia has led the way in the electronic invoicing revolution, setting a new standard for Business-to-Government (B2G) interactions involving businesses and government entities.
This shift means that all providers conducting business with the Estonian public administration must issue electronic invoices and adhere to specific standards, whether at the European or national level.
All entities engaged in electronic invoicing are registered with the Center of Registers and Information Systems (RIK) under the authority of the Estonian Ministry of Justice.
In fact, RIK manages all the information for electronically transmitting invoices to registered businesses and institutions. Notably, electronic invoicing in Estonia does not require an electronic signature, distinguishing it from some other countries.
If you are a service provider to the Estonian government and wish to learn how to create a digital invoice and meet the requirements, read on.
Table of contents
- What is a Digital or Electronic Invoice?
- Benefits of Electronic Invoicing or e-Invoicing
- How to Create a Digital Invoice or E-Invoice?
- Requirements and Legal Considerations
- Estonia: Leading the E-Invoicing Revolution
What is a Digital or Electronic Invoice?
Invoices are crucial for entrepreneurs and businesses because they ensure payment for services rendered.
An invoice contains information about a product’s purchase or service provision. On the other hand, an online invoice or e-invoice is an invoice presented in digital format.
The benefits of electronic invoicing are numerous. It saves paper, benefits the environment, and is also simpler to create, saving time and reducing errors, among other advantages discussed below.
Unsurprisingly, electronic invoicing has gained significant importance in Estonia, known for its leadership in technological innovation and digitization.
Since July 2019, it has been mandatory in B2G relationships, which means it’s obligatory for all providers serving the public administration.
Conversely, the public administration must also accept these electronic invoices, or ‘e-invoices.’
The Accounting Act, enacted on July 1, 2019, mandates electronic invoicing for the Estonian public administration. It states that ‘upon transfer of goods or provision of services to a state accounting entity, local authority, legal person in public law, or accounting entity that is directly or indirectly under the dominant influence of said persons or which is a contracting authority or contracting entity within the meaning of § 5 of the Public Procurement Act, the accounting entity shall submit a machine-processable invoice (structured eInvoice).’
Benefits of Electronic Invoicing or e-Invoicing
As mentioned earlier, electronic invoicing, or e-invoicing, offers numerous advantages to businesses, including:
- Time Savings: Say goodbye to printing and mailing invoices. Everything happens in an instant.
- Cost Savings: Less paper means reduced expenses. You save on printing, mailing, and even personnel.
- Fewer Errors: There’s a lower risk of input errors, leading to more precise invoices and payments.
- Faster Payments: Your invoices are processed and paid more efficiently, getting money into your account sooner.
- Environmental Benefits: Not only do you save paper, but you also reduce carbon emissions associated with mailing.
- Easy Compliance: Electronic systems automatically ensure your invoices meet all regulations and requirements.
How to Create a Digital Invoice or E-Invoice?
Creating a digital invoice in Estonia is straightforward when using an online invoicing service. Here are the steps to follow:
Step 1: Choose an Online Invoicing Service
The first step in creating a digital invoice is selecting an online invoicing service, as there is no centralized platform.
In Estonia, there are various options in the private sector. Notably, RIK offers accounting software called E-arveldaja, which is free for the first year. After the initial year, the cost is 5 euros annually if you issue up to 10 invoices yearly. If you issue more, it’s 5 euros per month.
Step 2: Create Your Account
You must set up an account once you’ve chosen an online invoicing service provider. This typically involves providing necessary information such as your business details, contact information, and VAT registration number.
Step 3: Create Your Invoice
You can now start entering the specific invoice details, including the invoice number, invoice date, customer details, item or service descriptions, quantities, unit prices, and applicable discounts.
Ensure all information is accurate and complete to avoid discrepancies or payment delays.
Step 4: Calculate Totals and Taxes
Next, you need to calculate the invoice totals and taxes, which involves calculating the subtotal, applying relevant taxes (such as VAT), and determining the final amount owed.
Online invoicing services often offer automated calculations, simplifying this process and reducing the chance of errors.
Step 5: Review and Send the Invoice
Before finalizing the invoice, it’s essential to review all details to ensure accuracy.
Verify the invoice number, customer details, item descriptions, and calculated totals. Once you’ve confirmed the correct data, you can send the invoice directly to your customer through the online invoicing service.
Step 6: Follow Up
After sending the invoice, it’s crucial to monitor for timely payment.
Online invoicing services offer features that allow you to check the status of your invoices, including whether they have been viewed or paid. You can also set up reminders for overdue invoices and generate reports.
Requirements and Legal Considerations
Ensuring compliance with deadlines, formatting requirements, and legal regulations is essential when using an electronic invoicing service in Estonia. Let’s explore them:
Requirements for e-Invoicing
In Estonia, e-invoices can have two formats: the national XML format (EVS 923:2014/AC:2017) or the European UBL 2.1 and UN/CEFACT CII format.
Providers to the public administration must submit their electronic invoices within five business days following the delivery of goods or services. Similarly, public sector contracting authorities must process electronic invoices within five business days of receiving the invoice.
Information to Include
In Estonia, electronic invoices must include the following information:
- Name and address of the provider of goods or services.
- Tax identification number of the provider.
- Invoice issuance date.
- Invoice number.
- Detailed description of the goods or services provided.
- Quantity and price of the goods or services provided.
- Total invoice amount: the overall amount, both with and without Value Added Tax (VAT), along with the applicable VAT rate and the corresponding VAT amount.
- Name and address of the customer.
- Tax identification number of the customer.
- Delivery date of goods or services, if different from the invoice issuance date.
- Agreed payment terms.
- Additional information, if necessary.
Estonia follows VAT regulations as set out in the Value-Added Tax Act. According to this law, companies must issue an invoice with VAT that includes sales details, such as the goods or services provided, the price, and the applied value-added tax.
In addition, the company’s VAT identification number must also appear on all issued invoices.
The Value-Added Tax Act mandates that companies maintain accurate and complete records of all invoices issued and received, including electronic invoices.
Furthermore, the Estonian Tax and Customs Board obliges businesses to store electronic invoices in electronic format for at least seven years.
Data Protection and Security
Data protection and security in e-invoicing are essential for several reasons, including:
- Regulatory compliance: Companies handling personal and financial data must comply with data protection laws and regulations, such as the European Union’s General Data Protection Regulation (GDPR). Non-compliance can result in fines and financial penalties.
- Fraud prevention: Electronic invoicing can be vulnerable to scams such as identity theft and invoice forgery. Data security can help prevent these types of deceit.
- Maintaining confidentiality: Financial and personal information in electronic invoices must be confidential and protected against unauthorized access.
- Maintaining a good reputation: Data security is crucial for maintaining the trust of your customers and suppliers.
Estonia: Leading the E-Invoicing Revolution
Implementing electronic invoicing or e-invoicing in Estonia has been a significant step towards modernization and efficiency in business and government relationships.
Since its mandatory adoption in B2G relationships in July 2019, this country, known for its leadership in technological innovation, has demonstrated how digitization can simplify processes, save time and money, and reduce environmental impact.
The benefits of electronic invoicing are clear, but being digital also entails other potential risks.
Therefore, it is necessary to comply with legal, timing, formatting, and deadline requirements and to implement data protection and security measures.
Estonia has shown that transitioning to electronic invoicing is possible and beneficial for businesses and governments. This focus on digitization and efficiency is an example for other countries looking to modernize their business and administrative processes.