Unlike paper invoices or an invoices sent as attachments to an email, electronic invoices (e-invoices) are, simply put, an electronic and automated communication between machines. They are automatically imported into a special accounting system without the need for manual entry and are machine-readable.

Four years ago, a law came into force in Estonia, according to which only e-invoices can be sent to public sector organizations. Now the government plans to go one step further and oblige all businesses to send only e-invoices to each other. One of the arguments in favor of e-invoicing is that it makes avoiding taxes much more difficult.

"A large proportion of those who are operating on the black market are not at all interested in e-invoicing because it requires them to use accounting software. The information is stored there, is easily verifiable later on, and is much more difficult to manipulate than by just changing the numbers in Excel to suit one's needs later on," said Evelyn Liivamägi, undersecretary for finance and tax policy at the Estonian Ministry of Finance.

According to Raili Roosimaa, deputy director general of the Estonian Tax and Customs Board, the board is currently concerned about the incorrect VAT returns submitted by traders.

"Buyers and sellers often provide different information on their tax returns. For example, a buyer declares an acquisition and asks for the VAT to be refunded, while the seller does not declare the sale at all. At the moment, we have to approach quite a lot of traders to find out whose data is incorrect," Roosimaa said.

The board estimates that last year alone, such discrepancies between transactions declared by buyers and those reported by sellers caused the state losses in the region of €16 million in undeclared transactions related to approximately 1,300 individuals. For the first eight months of this year, the estimated loss is €5.7 million.

According to Roosimaa, with e-invoicing, this kind of issue cannot occur. The invoices of both buyers and sellers are automatically imported into the accounting system and are the same for both parties. Therefore, there can be no such discrepancies, intentional or not.

Small businesses want the move to e-invoicing to be voluntary.

However, businesses are not on the same page as the government on the issue. Ille Nakurt-Murumaa, head of the Estonian Association of Small and Medium-sized Enterprises (EVEA), said that if e-invoicing becomes compulsory, businesses will have to invest significantly more in paid accounting services.

"Many small businesses today still keep their accounts in a fairly basic way. Probably not with a pen and paper anymore, but still in such a simple way, which means that they pay the minimum for an accountant's services, because it's an extra cost for them. They might just pay for their VAT returns to be filed or for annual accounts preparation," she explained.

However, Evelyn Liivamägi said the new measure would not harm businesses as many accounting software providers already offer a very cheap service for small companies.

"For example, the e-Financials system at the Center of Registers and Information Systems (RIK). There, if you make less than ten transactions a month, you can use the service for free and it costs nothing at all to send and receive e-invoices. In fact, these small businesses are already catered for and the costs for them are not high at all," Liivamägi added.

However, Nakurt-Murumaa said that businesses should adopt e-invoicing voluntarily.

"Life has shown that this will inevitably happen anyway. However, if this form of coercion is applied, it means that many of the older entrepreneurs, who are operating today, will simply not be able to cope. It is not sensible, it is not fair, and it is not good for the country to simply drive them out of the market," said Nakurt-Murumaa.

Liivamägi said older accountants would simply have to get used to the new system.

"We are not going to get away from this transition to e-invoicing, because the European Union is also moving in that direction, and so, at some point there will simply be no other way of doing things," she explained.

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