The new billing obligations imposed by the Royal Decree 1007/2023 will greatly affect the way all the business work. And, for sure, these new rules will impact Xero users in Spain. We all love Xero as accounting software, but currently it only allows to produce invoices in pdf format, which soon will be part of the past.
The Royal Decree was published at the official Gazette on December 6th, 2023 and will be compulsory by July 2025. As the challenge for small business is enormous (may of them still use excel or word to raise invoices) I do not discard that the application is further extended as often happens with this fields. But make no mistake, sooner than later it will become the new reality. And not only in Spain, as the move towards electronic invoicing and automatic reporting to the Tax Office will be the new standard in all the developed world in a few years. In fact, many European Countries (Portugal, France, parts of Spain as the Basque Country…) have these systems already in place.
The new rules, which ultimately arise from article 29.2.j) of the Tax Code established that billing software must legally comply with the requirements of integrity, conservation, accessibility, legibility, traceability and inalterability, thus avoiding the so-called ‘dual-use software’ or ‘software of sales concealment’. With this primary purpose, the royal decree defines a specific format and structure of the invoices, to which certain security features are added (chained hashes and electronic signature) that ensure that said sales records cannot be modified after bills are produced.
There are also related obligations regarding billing which will impact Spanish business and, of course Xero users. The most important one is the obligations to send electronic invoices among business (B2B).
How new billing rules will impact Xero users in Spain
Currently Xero, like other accounting software frequently used by Spanish entities, do not comply with this rule as it does not produce electronic invoices (xml format). As per my understanding, it does not plan to implement this feature anytime soon, at least in the global version. This circumstance has caused some uncertainty among Xero users in Spain since the use of a non-authorized billing software could lead to severe fines, up to 50.000 €. In our view, these concerns are legitimate but, as we would explain below, unfounded.
The first important fact to consider is that the new rules do not affect accounting software. They only refer to billing software which is only one of the features of Xero and other software’s. Therefore, Xero can still be used as accounting software in Spain as it is compliant with the rules in force. However, as it does not produce electronic invoices in xlm format, it must be complemented by other tools. True, it will make the process of sending the invoices slightly more complicated.
The current legislation establishes three pathways to comply with the new billing standards: certification, the so-called verifactu system or enrolling into the SII scheme
The first one is to have the billing software certified by the provider. This is a simple private statement that the software complies with the requirements of the Law. As simple it appears, this path is of little help for Xero users in Spain, as we do not think that Xero will certify this. The Spanish market is to little for Xero to worth the effort to analyse the Law, involve their legal team…They are not likely to do this. I am convinced that Xero complies with all the features that the Law requires in terms of integrity, conservation, accessibility, legibility, traceability and inalterability, but if you do not have the certificate this is just an opinion.
The second path to comply with the new standards is to route the invoices issued by your software to the Tax Office. It will work like this: once a bill is raised by your software, before sending it to the customer, it must be sent to the Tax Office servers which will acknowledge the reception by a code. The invoices sent to the Tax Office for verification (or registration, if you prefer) must be in electronic format. Then it can be sent out the customer who can check that it has been verified by the Tax Office. This system has been called “Verifactu” (true bill).
Under this second path, businesses are free to use whatever software they like and do not need to get it certified. For Xero user this is clearly the only feasible solution. In this new system, Xero users will need to implement a kind of tool or app to convert the invoices raised in Xero to the electronic format (xml), since the bills must be sent to the Tax Office in this format. Once produced, they can be uploaded in any tool or service connected to the Tax Office to get them verified. The Tax Office will provide an app to upload the bills to their servers, but many other providers will also provide this service. They already do.
The system seems a complex one, but actually is not. We are already working with partners to get a solution to extract the data of the bills (contact, date, amounts, tax rates…) from Xero via API and automatically produce the electronic format to be sent to the Tax Office.
The third choice is the already known SII scheme which has been around since 2017. Taxpayers with an annual turnover of 1 million Euros or more must adhere to the monthly reporting scheme. Under this scheme, they must send the bills and invoices info to the Tax Office every 5 days. Other taxpayers can also enroll in this scheme (called Servicio Inmediato de Información or SII) if it is of their interest. The main reason for this is to apply for the monthly refund of VAT. Whatever is the case, voluntarily or compulsory, taxpayers enrolled in the SII scheme are unaffected by the new billing rules. They do not apply to them. The reason is that this system already ensures a tight control of their activities by the Tax Office, so they are exempted from the new obligations. They can keep on using the same billing software that they were using.
In my view, if enrolling into the SII makes sense for the taxpayer (for instance, because they normally have receivable VAT as they perform zero taxed activities) the wiser choice would be to do so. This would allow them the ask for the refund of VAT every month and, simultaneously, free them from any restrictions about the billing software. This provides a great deal of flexibility and great peace of mind for Xero users! However, one word of caution: this system will not relieve you from the obligation to send electronic invoices to other business once this obligation is established.
We have implemented SII reporting for many Xero users, so we have the tools to do this efficiently. We also do SII reporting for other clients using other foreign software (SAP, Netsuit…)
At Tax Partners we have been helping our clients with their legal and tax compliance for years. Please feel free to contact us to see how we can help you.