Guide to Fiscalization 2.0: There Will Be No Invoices, But Paperwork Will Remain

The entrepreneurial community is slowly counting down the days until the beginning of next year, when the implementation of the largest digital business reform in Croatia to date begins. This is the mandatory exchange of electronic invoices (e-invoices) which, at least on paper, somewhat relieves entrepreneurs but also threatens them with high fines. Fiscalization 2.0, as this reform is called, will primarily affect all companies in the VAT system in its first wave.

Starting from January 1, 2026, they are required to issue and receive e-invoices for all transactions with their suppliers and customers. Entrepreneurs outside the VAT system will only have to receive e-invoices from the beginning of that year, but from 2027 they will also have to issue them.

The introduction of mandatory e-invoices from January 1, 2026, is the largest modernization of the tax system to date, says product owner at Moj-eRačun Matija Ekart.

– With the introduction of electronic invoices, paper invoices and analog archives will become a thing of the past, as will many reports that have so far been compiled and reconciled manually to be submitted to the Tax Administration. The books of incoming and outgoing invoices, reports on issued invoices, additional reports related to fiscalization, and several other tax forms that were submitted monthly or quarterly will be received by the Tax Administration in real-time from the New Year. This will increase transparency, strengthen the fight against the gray economy, and significantly reduce the administrative burden on both entrepreneurs and tax officials thanks to the automated system for exchanging e-invoices and delivering e-reports, emphasizes Ekart.

Eliminated Forms

When the term ‘digitalization’ is mentioned, we first think of simpler processes that save time and money. The fact is that fiscalization 2.0 will eliminate certain paper forms, but this does not mean that entrepreneurial life will necessarily become easier. First of all, which ‘papers’ will no longer need to be filled out? Specifically, along with the book of issued invoices and the special record U-RA, as well as the obligation to submit the PPO report, the DON-H report, and the VAT-F record, the obligation to submit a statistical report on overdue but unpaid claims (form OPZ-STAT) will be eliminated, explains Darko Augustinović, a certified tax advisor from Augustinović Tax Consulting.

– There are no other major obligations that will be eliminated with the introduction of e-invoices. It can also be emphasized that the deadline for submitting the VAT return will be extended from the twentieth to the last day of the month. It should also be noted that the tax records of the U-RA and I-RA books will be formally abolished, as well as the obligation to submit the U-RA book; however, entrepreneurs will generally still have to keep these or similar records to ensure accurate and complete filling out of the tax return. The introduction of e-invoices will not ensure the complete abolition of paper records, but only partially. Therefore, for the correct filling out of the tax return, entrepreneurs will still need to retain these records with possible corrections to their content, emphasizes Augustinović.

Eradicating Bad Practices

An electronic invoice is a digital document in a structured XML format compliant with the European standard EN 16931. Each issued and received e-invoice is automatically fiscalized and reported to the Tax Administration in real-time. In addition, all invoices and accompanying documentation must be stored exclusively in digital form, in the original XML format, for at least eleven years. It is the responsibility of the issuer to report the collection of outgoing invoices, while recipients will have to report the rejection of incoming e-invoices and the address for their receipt. Matija Ekart emphasizes that an electronic invoice is not a PDF document sent as an email attachment, and it is time to finally stop spreading this incorrect information.

– In simplified terms, the so-called original e-invoice, or source invoice, is a document that is read and processed within accounting software and exists exclusively in electronic form. In Croatia, there has been a practice of sending a visual representation of the e-invoice in PDF format, which was supposed to serve as a means for the accountant to verify the data; however, most recipients printed, recorded, and stored it as paper invoices in binders. In addition to this unnecessary cost, they found themselves in a situation where they rejected input tax based on unreliable documents because a printed e-invoice without the original in XML was not allowed to serve for VAT refunds. The new Fiscalization Law should finally eradicate such unlawful practices because it is unequivocally stipulated that electronic invoices are stored exclusively in e-archive for the prescribed retention period, emphasizes Ekart.

Cost Assessment

For all of this to come to life in practice, entrepreneurs must check and upgrade their IT systems, select an information intermediary, and report it to the Tax Administration between September 1 and December 31, and ensure a digital archive. Does this pose a new cost in the form of investment in equipment necessary for adapting to e-invoices? For all small entrepreneurs who have a software solution for issuing invoices that supports sending e-invoices, the adjustment will consist of signing a contract with an information intermediary, explains Božidar Andrija Lukša, director of the accounting consulting firm Texel.

– As far as I have seen, most intermediaries also allow for invoice creation within their platform, so for a small number of outgoing invoices, there may not be a need to acquire software solutions for creating invoices. The cost of intermediaries is from six euros per month, depending on the intermediary and the number of invoices sent and received. Some packages from certain intermediaries include fees for a specific number of sending, receiving, and archiving documents, so it is necessary to choose a package suitable for the business and check prices with multiple intermediaries, advises Lukša, adding that it is difficult to definitively state what the total costs would be as it depends on the software solution and the requirements it needs to meet.

– Cloud software solutions offer lower entry costs, but usage is paid in the form of software rental. Simpler cloud software solutions cost from eight euros per month, while more complex ERP solutions range from three hundred to a thousand euros per month, depending on the number of users and functionalities, notes Lukša.

Problematic New Tasks

In an article that Darko Augustinović published in Lider in June on this topic, he noted that it is desirable to involve experts in the introduction who will ensure that business events are correctly and in accordance with tax and other regulations transferred into the form of e-invoices, which is a task that can be very challenging in certain industries. Augustinović explains this with the example of companies that provide construction services.

– These are usually carried out over a longer period, involve multiple types of different jobs and various types of delivered goods and services, so there may be a problem in how to correctly transfer all of this into the items of the issued invoice. There may also be special construction works, and the question is how to transfer the work items to the invoice. Then there are examples of various types of services that will need to be correctly represented on the invoices, again depending on the type of work. For example, in accounting services, the question arises whether they should be presented separately by item types or can they be listed on the invoice in one item as a flat fee, which will depend on the contractual provisions and facts in each case, explains Augustinović.

Engaging Experts

He also refers to an example available on the Tax Administration’s website, which shows that a simple situation of purchasing and installing vehicle wipers can be represented on the invoice in three different ways, depending on the circumstances of the transaction execution.

– Therefore, all these are situations that will need to be considered separately, all facts and circumstances of execution, the legal framework, i.e., contracts, and then ensure that the tax regulation is correctly applied to all of this. It will also be necessary to resolve ambiguities related to the emergence of the tax obligation to pay VAT, i.e., the date of delivery. Therefore, it is advisable to engage experts who will ensure that all business transactions are conducted and documented in accordance with regulations. Certified tax advisors are certainly experts who have the necessary knowledge and experience to resolve these issues, asserts Augustinović.

Restraining Entrepreneurial Freedoms

As part of the legal changes necessary for the implementation of fiscalization 2.0, Article 67 of the General Tax Law, which allows the Tax Administration access to electronic documentation, records, and other data of taxpayers and the persons who maintain their business books, has attracted significant public attention. Božidar Andrija Lukša considers any restriction of entrepreneurial freedoms and individual liberties to be controversial.

– Thanks to the new fiscalization, the Tax Administration will now receive data not only about the amounts of invoices but also about the types of sold products or services. Therefore, I do not understand this tendency; I do not consider it good for entrepreneurship and human freedoms. Namely, when the data collected as part of the fiscalization 2.0 project, along with already available data, start circulating on the servers of the Tax Administration, with slightly better software for processing large databases, tax officials can gain insight into the approximate balance of each entrepreneur, so I do not understand why the Tax Administration still needs the right to request access codes to data and their decryption without a court order, emphasizes Lukša.

Digitalization often has a downside as well. We will see which will prevail in the case of fiscalization 2.0.