Real estate practitioners, mark your calendars for July 2024. A new real-time invoice reporting regime will be introduced in Poland, marking both a revolution and evolution in tax digitalization reporting. While technology is driving the implementation of the new rules, the potential benefits for the real estate sector are extensive. Zbigniew Deptuła, Partner, Global Compliance & Reporting and Paulina Faryn, Manager, Global Compliance & Reporting at EY Poland explain how these changes could impact businesses.
Instead of buzzwords like automatization or AI, it seems that technology is becoming an integral part of daily business, including tax reporting. Real-time reporting definitely is an opportunity for moving investors’ and property manager’s life to another level by improving invoicing process, reducing errors and ensuring compliance with tax regulations.
E-invoicing is now understood as sending invoices in pdf format e.g., via e-mail, but soon it will be completely more than that. Real-time reporting is rather about the digital transformation of manual invoicing practices and replacing paper invoices with electronic alternatives without human interaction starting from issuing to archiving documents. Under the Polish model, all invoices will be obligatory issued via the platform called the National e-Invoicing System – KseF. Once an invoice is validated, it will be deemed delivered to the contractor. As a rule, each invoice sent via KSeF will be assigned a unique number meaning that it has been introduced into legal circulation. The lack of implementation KSeF, which means not issuing e-invoices or issuing them in an inappropriate form, will result in severe fines.
Consequences of real-time reporting for real estate investors may be observed in different areas.
What are the next steps during that journey? What is in it for me?
Increased tax compliance and reduced risk for investors
Looking at a risk perspective, with the introduction of real-time invoice reporting in Poland the quality of data and information is expected to improve significantly. As a result, the potential risks of additional fines due to lack of invoicing, late invoicing or empty fake invoices, as well as VAT sanctions should be much lower for board members and those responsible for finance matters. And naturally, the potential risk for investors of being non-compliant with the local provisions will be decreased.
Reducing administrative work for property managers
Providing the tax authorities with accurate information may lead to reducing the risk of errors and omissions in the invoicing process, which obviously will decrease the number of typo mistakes and correcting invoices. Therefore, the property managers and finance people will be able to refocus their day-to-day activities, shifting from repeatable and time-consuming tasks to becoming involved in nurturing the relationship with tenants even more. It may be expected that real-time reporting will decrease the effort required from taxpayers during tax audits as much relevant information would be available for the tax authorities in KSeF (the actual invoices). We envisage that the introduction of real-time reporting, in a long-term perspective, will also decrease the number of amended VAT fillings filed as a result of error detection or other formal invoice omissions. It can be especially relevant for property managers supervising multiple properties being separate reporting units for VAT reporting purposes.
Positive impact on cash flow
Real-time reporting may increase cash flow through more timely payments and easier tracking of overdue payments, including the extra deduction for tax purposes possible in some jurisdictions: so-called bad debts relief. From an investor's point of view, it is a significant factor which may reduce the risk of late payments, especially important for smaller real estate businesses. When it comes to tax settlements, as all invoices would be available for the tax authorities process of VAT refunds will likely be faster and simplified.
Decreased costs of processing invoices
Our experience has proven that invoicing process involves a high volume of manual processing, which may be reduced by real-time reporting. This is though not an advantage visible at the first stage of implementation, as we need to engage many shareholders and incur additional IT costs. What is more, during the initial step of the real-time invoicing revolution, one of the biggest challenges is the development of all IT solutions required for this purpose, proper setup of communication and division of responsibilities between stakeholders, especially the finance team and property managers.
Nevertheless, it is widely expected that the long-term gains of real-time invoice reporting will be a reduction of manual processing and a significant decrease in human mistakes, especially given that invoices are often generated by non-finance professionals. Considering the huge number of invoices issued per year potential savings will be an additional benefit.
Run your business smartly
Real-time reporting will bring up a great source of reliable data for real estate investors needed to manage the business effectively. It will enable much pacey tracking of their expenses and revenues generated on each property. Ultimately they will use one source of information in order to manage daily operations, verify the status of invoices issued to tenants, as well as plan an appropriate budget for the next period. Additionally, the invoice circulation system between the investor, property manager, tax team and the tax office would be significantly simplified.
The implementation of real-time reporting in Poland will certainly be a challenge as it amounts to be the greatest business/tax/IT change of 2024.
Without a doubt, this should be of particular interest to the real estate sector, as it may trigger a reevaluation of the role of property managers in invoicing processes. This, in turn, will have a profound impact on investors' confidence in the reliability of financial, tax, and accounting-related data throughout the entire life-cycle of the asset, including the exit phase.
