Denmark implements new law requiring digital bookkeeping systems, with full enforcement from 2024, and possible mandatory e-invoicing ahead
Denmark has some unique rules for Value Added Tax (VAT). They allow certain environmental and energy taxes to be treated similarly to input VAT. This helps businesses reduce their tax liability to the authorities.
Reporting VAT in Denmark is considered relatively simple. Currently, there is no specific requirement for businesses to report digitally. However, this will change soon as the government plans to introduce mandatory digital bookkeeping and e-invoicing requirements from January 2024.
New Danish law requires digital bookkeeping systems for companies, with main requirements enforced from 2024
A new law has been put in place in Denmark that requires companies to use digital bookkeeping systems. This law came into effect in July 2022, but the main requirements of the law are not expected to be enforced until at least January 2024.
The law outlines the general requirements for digital bookkeeping systems in Article 15 (chapter 5) of the new bookkeeping act (no. 700 of May 24, 2022). The requirements state that the digital systems must be able to record a company's transactions with receipts, securely store records and receipts for 5 years, meet recognized IT security standards, and support the automation of administrative processes.
Suppliers of digital bookkeeping systems, like ERP systems, need to certify their products. The Danish Business Authority is responsible for validating and approving these systems, and it is expected that accounting systems will need to be certified by July 2023.
Timeline for implementation of digital bookkeeping requirements in Denmark
As previously stated, even though the law on digital bookkeeping has been approved, its implementation is happening in stages. Here is the current schedule:
- In July 2022, the regulations that require digital bookkeeping will become effective.
- In January 2023, the Danish Business Authority will publish the requirements that digital bookkeeping systems must meet.
- By July 2023, providers of digital bookkeeping systems must get their solutions certified by the Danish Business Authority.
- The biggest companies will start using digital bookkeeping by January 2024.
- Other taxpayers will be required to use digital bookkeeping by January 2026.
Preparing for changes in digital bookkeeping regulations and possible mandatory e-invoicing in Denmark
Many companies already keep their accounting records in digital form, so the changes that are coming may not seem revolutionary. However, businesses will need to adjust their ERP systems to comply with the new regulations.
One of the new regulations requires that digital bookkeeping systems must be able to automatically receive and distribute e-invoices. This could mean that e-invoicing will become mandatory. Unfortunately, there are currently no details available about how e-invoicing will work, including the specific technical requirements such as the format of e-invoices. We hope that the Danish authorities will provide more information about their e-invoicing system soon.
EU proposes mandatory e-invoicing for member states to fight VAT fraud
In March 2022, the EU Commission published a report on VAT in the Digital Age, which looked at various Digital Reporting Requirements (DRR) introduced in EU Member States, such as SAF-T, real-time reporting obligations, and the e-Invoicing clearance model.
Unfortunately, only 12 EU countries have implemented any DRR so far. The EU Commission has described this as an "insufficient degree of fight against VAT fraud" and recommends the introduction of DRR at the EU level. The report suggests that "an e-Invoicing solution ranks first" as a way to combat VAT fraud.
This report led to a proposal to amend the EU VAT Directive, which was published on December 8, 2022. The proposal includes an important change to Article 218, which now allows Member States to require the issuance of electronic invoices. The explanatory note to the proposal states that "electronic invoicing will be the default system for the issuance of invoices."
Additionally, the proposal suggests deleting Article 232, which required that the issuance of electronic invoices be subject to acceptance by the recipient. These changes are expected to come into force from January 2024.
These changes represent a significant step towards the digitalization of VAT obligations in the EU. The introduction of mandatory e-Invoicing, especially the clearance model, is still subject to EU approval (derogation). If the proposal to amend the EU VAT Directive is accepted, we can expect more EU countries to develop comprehensive e-Invoicing systems.