In today's digital economy, e-invoicing has become a cornerstone of modern tax compliance and business operations. Countries around the world are adopting various models to manage the submission, validation, and clearance of electronic invoices.

Two primary models have emerged: centralized and decentralized e-invoicing platforms.

Centralized E-invoicing: In this model, all invoice data is submitted through a single government platform. This centralized system ensures that all invoices meet compliance standards and are processed uniformly.

Decentralized E-invoicing: Here, taxpayers submit their invoices to multiple authorized service providers, which are usually private entities certified by tax authorities. This model offers flexibility but requires providers to ensure compliance with regulations.

Understanding the differences between centralized and decentralized e-invoicing platforms is essential for businesses navigating the complex landscape of tax administration and e-invoicing. Whether operating within a centralized platform or through decentralized service providers, the goal remains the same: ensuring the validity, integrity, and compliance of electronic invoices.

Centralized vs Decentralized E-invoicing: Key Differences

Centralized E-Invoicing Platforms: Streamlined Control

A centralized e-invoicing platform requires taxpayers to submit their invoice data through a single designated endpoint for clearance and e-reporting. This model is prevalent in many countries, where a central platform ensures uniformity and compliance.

For instance, Poland uses the National System of e-Invoices (KSeF), the exclusive platform for submitting e-invoices for clearance. Similarly, in the Philippines, the E-invoice/E-receipt System serves as the centralized platform for reporting transactional sales data. In Spain, businesses report document data directly to the tax authority (AEAT) through a centralized system.

Benefits of Centralized E-invoicing

• Uniformity and Compliance: Ensures that all invoices meet regulatory standards as the central platform validates invoice data submitted.
• Document delivery through the central platform: Some central platforms deliver documents to its recipient e.g. Italy and Turkey, the tax authority platform delivers invoices to buyers. These countries commonly have invoice clearance models.
• Enhanced Control: Provides tax authorities with better oversight and control over invoice data.
• Maintenance of Platform: Most central platforms are operated by government agencies. This makes it burdensome for tax authorities to maintain the platform and ensure that all data is securely processed.

Decentralized E-Invoicing Platforms: Distributed Flexibility

In contrast, decentralized e-invoicing platforms allow or require taxpayers to submit their invoice data to authorized service providers. These providers are private entities, usually local, certified by the tax authority. They handle the validation and clearance of invoices, ensuring integrity and authenticity before transmitting the data to the tax authority.

Mexico's Authorized Certification Providers (PACs) and Peru's Operators of Electronic Services (OSEs) are notable examples of decentralized platforms.

Benefits of Decentralized E-invoicing

• Flexibility: Multiple service providers offer taxpayers more options and localized support.
• Real-Time Processing by service providers: Facilitates real-time validation and clearance of invoices and invoice data by the service providers. Service providers later share the data with the tax authorities.

Enhanced Connectivity: Improves integration with ERP systems and other business processes, supporting automation and efficiency.

Choosing the Right Model: Key Considerations

Both centralized and decentralized e-invoicing models have their own sets of advantages and challenges. The choice between them depends on various factors, including regulatory requirements, business needs, and technological infrastructure. Governments are making these choices in mandatory e-invoicing or e-reporting jurisdictions in both Europe and across the globe.

The following are considerations that government agencies, the Ministry of Finance, and tax administrations take into account when implementing either a centralized or decentralized model.

1. Automation and Real-Time Processing:

• Centralized platforms can streamline workflows by providing a single point of submission and validation.
• Decentralized platforms enhance real-time processing and connectivity, integrating seamlessly with ERP systems for automated invoice processing.

1. Tax Compliance:

• Centralized models ensure uniform compliance with tax regulations, simplifying tax reporting and reducing the risk of errors.
• Decentralized models leverage accredited service providers to ensure invoice data integrity and compliance, providing flexibility and localized support.

1. Continuous Transaction Controls (CTC):

• Both models support continuous transaction controls, a key component of modern e-invoicing mandates. CTC models ensure that invoice data is validated and cleared in real-time, enhancing tax compliance and reducing the VAT gap.

1. Multinational Operations:

• For multinational companies, decentralized platforms offer greater flexibility and adaptability to local regulations as service providers tend to support multiple formats.
• Centralized platforms are also accessible by service providers who can support taxpayers for mapping, submission and delivery of invoices to their counterparties.

Global Trends and Future Directions

The adoption of e-invoicing mandates and CTC models is gaining momentum worldwide. Countries like Italy and Hungary have implemented robust centralized platforms, while others like Mexico and Chile have embraced decentralized models. The European Commission is also pushing for harmonized e-invoicing standards across member states to bridge the VAT gap and streamline tax reporting.

In France, the government is moving towards a decentralized clearance model for B2B e-invoicing, whereas the Italian system continues to utilize a centralized clearance model for B2B transactions. Multinational companies must stay abreast of these developments and adapt their procurement and tax compliance strategies accordingly.

As tax authorities worldwide continue to refine their approaches, businesses must remain agile and proactive in adapting to these changes. Transaction processes will continue to evolve. By leveraging automation, real-time validation, and integrated ERP systems, companies can streamline their invoice processing workflows, enhance compliance, and stay ahead in the ever-evolving world of e-invoicing. Regardless of the model employed, tax authorities remain focused on receiving transaction data.

In this dynamic environment, the choice between centralized and decentralized platforms will depend on various factors, including specific regulatory requirements, the complexity of business operations, and the need for flexibility and connectivity. Ultimately, the right approach will enable businesses to achieve seamless tax reporting, reduce administrative burdens, and ensure compliance with global e-invoicing mandates.

Navigating Different E-invoicing Models with Fonoa

Navigating the complexities of centralized and decentralized e-invoicing systems can be challenging for businesses. Fonoa offers a suite of products designed to simplify this process, ensuring seamless compliance and efficient operations across different jurisdictions.

• E-invoicing Solutions: Fonoa's e-invoicing platform automates invoice generation, submission, and compliance checks, tailored to both centralized and decentralized systems. This ensures that your invoices meet local regulatory requirements and are processed efficiently.
• Invoicing Solutions: Fonoa's invoicing tools allow businesses to easily manage their invoicing processes, from creation to delivery. Our solutions support a variety of formats and integrations with ERP systems, streamlining your operations.

Ready to streamline your invoicing and tax processes? Contact Fonoa's team today to learn more about how our solutions can help your business succeed in a complex regulatory landscape.