Spend Matters welcomes a guest post from Steve Sprague, Vice President, Marketing & Product Strategy at Invoiceware International.
In all of my travels and meetings, I find that not only is the entire Brazilian eInvoicing process confusing to most companies, but they don't have a high-level understanding of the basic requirements. This is a little cheat sheet that every finance, AR and AP manager can use to start to understand the complex mandates for Brazil Nota Fiscal.
First, it is important to understand that the Brazil tax authority, also known as SEFAZ, imposes a defined electronic standard format that all companies must adhere to closely. This "Nota Fiscal Eletronica" (NF-e) format is officially recognized as the sole and only invoice document of record for tax compliance purposes. But there are really three different kinds of invoices:
- NFe for Physical Goods: This is the nota fiscal that most organizations will utilize. And for suppliers can be the most complex, as the truck cannot leave the warehouse until the approval codes are incorporated into the process and printed out and put on the truck (the output is called a DANFe). To comply with the mandates, there are a minimum of 21 states and a national fallback web service called DPEC that must be integrated.
- NFE-s for Services: I find services invoices are the most misunderstood by global corporations. Instead of having to integrate at the state/national level, service invoices are managed at the city level within Brazil. This means that the city of issuance (i.e. if I invoice from Sao Paolo, then Sao Paolo is the city of issuance) is the connectivity point. A supplier of services will send the invoice to the city, the city will apply the appropriate legislation, and a buyer will pick up their invoices directly from the city websites.
- CTe: (or more simply, Transportation Invoices) This is a newer requirement for many companies. If you are utilizing a 3PL or freight forwarder, then these transportation invoices must be validated by the buyer and posted in the back-end system and included in their monthly reports to the government.
Here is Brazil's 7-Step Process for NF-e physical goods:
**Note: Entire process should be archived, logged, and available via a web portal if any discrepancies or investigations are undertaken by government officials.
- Supplier registers for signing certificates with the government. This is much like registering for a passport. Once approved, the government will provide the supplier with a private key that can be used as the electronic signature. The supplier must be able to produce the appropriate XML approval document from their ERP system and sign the XML invoice with their private key. This signed XML is then sent to the SEFAZ via a third party service or via direct integration. Note: most organizations are utilizing cloud services to manage this connection.
- The SEFAZ receives the signed XML invoice and will validate and assign the "signing attribute" (also known as approval codes) in real time, which must be posted back to the XML and ERP system prior to the release of goods.
- The supplier would receive the approved XML invoice back from the SEFAZ, and print out the physical representation of the invoice. This PDF is called a DANF-e (Digitally Authorized Nota Fiscal Eletronica) which is a paper representation with bar codes embedded. Once printed, the DANF-e must be placed on the truck with the shipment. Traditionally the approved XML invoice is sent to buyer as well via electronic means. In most cases, this is done via email; however, direct communications such as Web Services, FTP/s, and portals are also common.
- The truck is released. At any time, a Government official including Customs agents and patrolling police have real-time access into the validity of shipment by scanning the DANF-e. If shipment doesn't match released NF-e by SEFAZ, the truck can be impounded and will not be released until financial penalties are paid.
- Buyer receives goods and checks in at unloading dock.
- As of April 2012, the receiving party must validate the inbound NF-e with the SEFAZ. The returned approval codes must be incorporated into the buyer's monthly accounting reports to the government. By forcing the buyer to validate, the government can ensure, without a doubt, that not only the goods match but also the prices and taxes. This second validation eliminates the tax leakage of the government.
- Receipt of Goods Conformation closes out the entire process.
Note: this is just a high level summary of the NFe for Physical Goods process. Of course, there are variations for cancellations, credits, returns, contingency processes (back-up procedure when the network is down), service invoices and transportation invoices. But this is the basic process flow that most organizations will need to understand. In future articles, I will address the differences in service invoices and transportation invoices in Brazil.