VAT: electronic invoicing is a game-changer for SMEs

Electronic invoicing is no longer just a matter of internal organisation. In France, the tax authorities are using it as a tool to combat VAT fraud: the Directorate-General for Public Finances estimates that it can recover two to three billion euros a year thanks to the scheme, according to Le Dauphiné Libéré. For Swiss SMEs, this information is worth noting, even though the Swiss regulatory framework remains different.

Why? Because VAT relies on a chain of documentation: invoice issued, invoice received, rate applied, right to deduction, proof retained. As soon as this chain goes digital, productivity gains can be substantial, but errors also become more visible. For a self-employed person, an SME or a tax adviser, the issue is therefore not about following a technological trend: it is about securing the data flows that substantiate the amounts declared to the Federal Tax Administration.

The French approach: detecting fraud before a tax audit

The French case illustrates this shift in approach. According to *Le Dauphiné Libéré*, the electronic invoicing reform coming into force on 1 September is specifically aimed at tackling VAT fraud. The DGFiP estimates this fraud at between six and twelve billion euros per year and hopes to recover two to three billion each year. The mechanism being pursued is simple: to replace some of the retrospective audits with the ability to verify transactions more quickly.

The main target is so-called ‘carousel’ fraud. In this type of scheme, invoices circulate through a chain of companies, sometimes involving intermediary firms, whilst the VAT charged is not correctly remitted. The loss occurs when input tax is reclaimed even though the input VAT has not been paid. According to comments reported by *Le Dauphiné Libéré*, Sébastien Rabineau, head of the electronic invoicing project at the DGFiP, explains that authorised platforms must enable the French tax authorities to verify more directly whether there is a genuine customer behind an invoice.

This trend extends beyond France. The same article states that Italy, following the introduction of the system in 2019, is reported to have recovered nearly nine billion euros in VAT in 2022 thanks to electronic invoicing, according to Eurostat. Spain is also said to be working on a scheme, with an expected gain of nearly four billion euros on fraud estimated at around eight billion euros per year. Belgium is cited as having rolled out electronic invoicing for both issuing and receiving invoices by businesses since 1 January this year, whilst Germany has been making gradual progress since last year.

For a Swiss company doing business with the European Union, this situation has a practical implication: business partners, whether customers or suppliers, will increasingly demand structured, consistent and transferable data. Even though Swiss SMEs are not automatically subject to foreign regulations, they may need to adapt their processes to continue invoicing efficiently or to receive documents that their customers can process.

In Switzerland, electronic invoicing remains a key driver of compliance

In Switzerland, the issue is less high-profile than the French debate on VAT recovery. The Federal Finance Administration encourages electronic invoicing, particularly for invoices addressed to the Confederation. It offers several submission channels, notably via service providers or by email. The stated aim is operational: to speed up processing, reduce paper use and lighten the administrative burden.

However, an electronic invoice does not automatically comply with the requirements simply because it is sent in digital format. For VAT purposes, the essential information must always be included. The Confederation’s SME portal specifically points out that the invoice must contain the supplier’s name and address, their VAT number, the recipient’s name and address, the date of delivery or provision of the service, a description of the goods or services, the price, and the applicable VAT rate and amount.

This is where the role of the accountancy firm becomes crucial. In a small organisation, invoicing is often managed by software, sometimes using reused templates, and sometimes using documents adapted manually. The move to digital systems should be an opportunity to check the mandatory fields, the wording, the VAT settings and the archiving rules. An invoice that is quicker to produce is only useful if it remains defensible in the event of an audit.

VAT rates must be properly configured, not cobbled together

Since 1 January 2024, the Swiss VAT rates specified in the search file have been 8.1% for the standard rate, 2.6% for the reduced rate and 3.8% for the special rate for accommodation. For an SME, these figures are not merely items on an invoice: they drive accounting entries, statements, profit margins and, in some cases, the prices displayed to the end customer.

An error in the VAT rate within an electronic invoicing system can quickly become widespread. This is one of the paradoxes of automation: whilst it reduces the need for manual data entry, it systematically replicates incorrect settings. An accountancy firm would therefore be well advised to check items, services, client categories, exempt or non-taxable transactions and special cases before large numbers of invoices are sent out.

The VAT threshold also warrants monitoring. The research report notes that businesses with an annual turnover exceeding CHF 100,000 must register for VAT. Electronic invoicing can help track this turnover more quickly than a paper filing system or a spreadsheet that is updated late. For a growing self-employed person, this alert is invaluable: it allows them to plan their registration in advance, adapt their invoice templates and avoid having to make a last-minute correction.

The choice of accounting method also affects organisation. Depending on the circumstances, the ‘actual’ method involves paying the VAT collected on sales, less the input tax paid on purchases, which requires comprehensive VAT accounting. The net tax liability method, on the other hand, applies a sector-specific rate to turnover and simplifies the calculation for small businesses, without detailing input tax. In both cases, the quality of invoices remains crucial: it underpins either the deduction of input tax or the accuracy of the declared turnover.

Digital archiving is becoming part of the VAT record

The transition to electronic invoicing does not end with the sending of the document. Storage is a sensitive issue. The Swiss Confederation’s SME portal emphasises the need to comply with strict rules for electronic invoices and accounting documents, with particular attention to the authenticity and integrity of the data. In practice, it must be possible to demonstrate that the document retained does indeed correspond to the invoice issued or received, and that it has not been unduly altered.

For an SME, this raises some very practical questions. Where are invoices stored? Who can amend them? Are files received by email filed in a secure location or do they remain scattered across individual inboxes? Are attachments linked to the accounting entry? Does the system allow an invoice to be retrieved quickly when preparing the VAT return or in response to a request from the tax authorities?

The deduction of input tax depends on the ability to document the purchase and its link to the taxable activity. An electronic invoice that is poorly stored, cannot be found or is incomplete can therefore become a tax issue, even if the service was actually paid for. Digitalisation does not eliminate evidence: it transforms it. SMEs must shift from a filing-cabinet approach to a traceability-based approach.

Data security must not be treated as a purely IT issue. Invoices contain sensitive commercial information: prices, volumes, customers, suppliers and terms and conditions. When a company implements an invoicing solution, it should examine access rights, backups, the service provider’s responsibilities and how data can be exported in the event of a change in software. These checks do not replace a legal or tax analysis, but they do reduce operational risks.

The real transformation: aligning sales, accounts and VAT

For the management of an SME, the main benefit of electronic invoicing is not simply to replace paper. It is to align sales, purchasing, cash flow and VAT. An invoice issued more quickly can speed up the tracking of payments received. An invoice received in a usable format can minimise the need for re-entry. More regular reconciliation between documents and accounting entries enables anomalies to be detected earlier.

The Swiss invoicing software mentioned in this report incorporates the current VAT rates and can generate QR invoices that comply with Swiss standards. This makes day-to-day operations easier, but does not replace the need for governance. A company should define who creates the items, who approves the rates, who corrects credit notes, who checks suppliers’ VAT details and who prepares the exports for the accountancy firm.

The transition can be gradual. A small business can start by standardising its invoice templates, cleaning up its customer and supplier database, and then linking invoicing to the accounts. A more advanced organisation can automate the allocation of certain invoices, strengthen pre-closing controls and document its internal procedures. In all cases, it is prudent to test the system before switching over all workflows.

The European example shows that tax authorities are taking an increasing interest in transaction data, and not just in periodic returns. Switzerland does not have the same widespread system as France in terms of the features available here, but Swiss SMEs would be wrong to regard electronic invoicing as merely an administrative convenience. If set up correctly, it can reduce errors and support VAT compliance; if poorly managed, it can automate existing weaknesses. The right time to act is therefore before the requirements of customers, suppliers or the authorities dictate the timetable.