Mexico’s New E-Invoicing Requirements: Advantages, Cross-Border Impact, and Brazil/EU Comparisons

Mexico recently accelerated the implementation of its e-invoicing requirements. The compliance requirements under the Comprobante Fiscal Digital por Internet (CFDI) are complex by any electronic invoicing standard. In a multi-part series featuring an interview we recently conducted with Invoiceware’s CEO Scott Lewin and VP of Marketing/Product Strategy Steve Sprague, we’ll explore the impact of the legislation and how it came into play based on the latest announcement.

Spend Matters: What are some of the advantages to the legislation?

Invoiceware: Regarding advantages, there are real business benefits to everyone. It shouldn’t be looked at as a negative. It might sound surprising, but “Big Brother meets Big data” has huge advantages.

For the government:

  • Reduce tax fraud and evasion, as the legislation calls for real-time feeds – not just ad hoc reports; this lowers costs to monitor fraud and audits
  • As the invoice is tied to the shipment in CFDI, it will reduce black market goods on the road
  • Big Data – beyond tax issues, the requirement will provide insight into what is being consumed by business, trends in business, understanding where to invest, where to apply tax breaks, etc. The data will be a clear leading indicator compared with trailing indicators of economic growth and developmen

Now, consider the advantages for business, beginning with transparency:

  • Lower costs of audits and personnel for tax issues
  • Provides auditability for FCPA compliance (Foreign Corrupt Practices Act ) – this is more for US companies doing business in Mexico (e.g., Walmart)

It will also provide a real-time understanding of VAT remittances, and taxes owed to the government and offer additional advantages in business process efficiency:

  • Days Sales Outstanding – customers will know this is a valid, government approved invoice and can be safe in paying if it matches commercial terms and deducting VAT on remit to government
  • Accounts Payable – can do straight-through processing (i.e,. touchless invoice processing) by automatically matching the eInvoice to Purchase Order and Goods Receipt
  • Simplify warehouse/inbound receiving – using the PDF on the truck with the bar code to simplify data entry and get goods into the warehouse and off the unloading docks faster

There are also numerous advantages for cash management and trade receivables financing, including using authorized XML to offer supply chain financing capability. This provides the ability for smaller suppliers to gain access to cash outside of traditional factoring based on the electronic stream of invoices and the fact that the invoice can be approved for payment much faster in the cycle (i.e., leaving more of the payment terms)

Spend Matters: Does the requirement impact cross-border transactions, like what's increasing because of re-shoring/near-shoring from China?

Invoiceware: The CFDI legislation currently is applicable to in country invoices (i.e. Mexico RFC Tax ID to Mexico RFC Tax ID) and is not applicable to cross-border invoices.

Spend Matters: If I worked with a 3PL or freight broker who handles logistics within Mexico for my company, will they offer a solution?

Invoiceware: We have not seen 3PL providing the signing and einvoicing services; more often there are einvoicing compliance providers such as Invoiceware International or local vendors 100% focuses on einvoicing. The question is who owns the inventory, who is recognizing the revenue, and who is on the hook for the taxes. That company is the one that needs to sign and validate the invoices.

Spend Matters: On a high level, can you compare Mexico's e-invoicing requirements to other countries in Latin America? What is different?

Invoiceware: The process is closest to the Brazil Nota Fiscal process. Key differences to Brazil include:

  • There is no distinction between invoices types (there is the CFDI). In Brazil, you have different government validation points for Goods (State level validation) and Service (City level validation) invoices.
  • In Brazil you have specific validations as a buyer with the government. These validations create approval codes that need to be in monthly fiscal reports to the government.

Spend Matters: For those with experience in e-invoicing in the EU and Nordics, how does Mexican compliance requirements differ? Why is the emphasis on the seller?

Invoiceware: This is a topic we’ve written about before extensively (e.g., Top 5 Differences Between LATAM E-Invoicing and European E-Invoicing) Our response to the question is based on these previous analyses. To start, one of the most common mistakes made in approaching electronic invoicing in Latin America is thinking that the process is similar to the European Union. Simply, EU eInvoicing is not the same as Latin American electronic invoicing. A key takeaway here is that Latin American e-invoicing will affect the configuration of your ERP system, your ability to ship your product, and will require constant attention to keep up with the changing mandates.

Five additional differences include:

  1. In many Latin American countries, an e-invoice is mandatory – Yes, in many of the EU countries, we are seeing governments requiring electronic invoices. However, this is specific to Business to Government (B2G) interactions. EU countries don’t dictate that you must send an approved electronic invoice for Business to Business transactions or Business to Consumer transactions or you can’t do business in the country. Instead, the EU outlines functional requirements if you choose to send an invoice electronically.  These functional lego blocks center around “authenticity and integrity.” In Latin America, countries like Brazil & Mexico require you to send a government approved electronic invoice if your organization meets certain revenue criteria. If you don’t, there will be heavy fines and of course a potential to go to jail.  Not something I would want to entertain in any country.
  2. Latin America requires a real-time, fully integrated process – In countries such as Brazil, this is not just about applying a digital signature to a PDF and sending it to your customer via a portal and in parallel storing it in a long-term archive.  These are highly evolved, real-time integrations with the government that can take 20 to 30 seconds for approval. In future blogs, we will explore the Latin American processes in more detail, but some of the most typical elements include: a defined XML schema via Web Services, a sequencing process, a printing process that defines an output that must accompany the truck, designated barcodes on the print outs, archiving and more.
  3. In countries like Brazil and Mexico, the electronic invoice approval is linked to your logistics process – In other words, you can’t ship your product from your warehouse until you receive the approvals from the government on your invoice.  This can actually take many forms beyond just your ability to ship. In the worst case, the government can confiscate your truck, the physical goods, and levy very strict financial penalties if the invoice information doesn’t match what is on the truck or what arrives at your customer. For example, in Brazil all the fiscal information and approval information must be printed on a DANFE that accompanies the truck. This is also the reason why you should always have real time, local language support from your provider and a well-defined contingency process in place.
  4. Latin America defines strict process standards – In Brazil, you have Nota Fiscal Eletronica 2.0 and in Mexico you have CFD v3.2 which clearly outlines the XML schema, integration touch points, process, archiving, and printing procedures.  Most of the EU regulations will dictate what makes an invoice VAT compliant, but they don’t mandate a specific format like Brazil or Mexico.  Also, it should be noted that Latin American countries tend to expand upon these process standards, so be prepared to adjust the XML and process during the year.
  5. Latin America e-invoicing will affect your ERP configuration – The solutions required to comply in Brazil, Argentina and Mexico require configurations and many times specific localizations to the ERP system before you can even send an electronic invoice. In Brazil, organizations must ensure that they have not only installed and localized the taxes and fiscal information correctly (which by the way is no easy task), but they also must comply with SPED, Sistema Público de Escrituração Digital, reporting requirements.

These are just the top differences between Latin American eInvoicing and EU eInvoicng.

Stay tuned for Part 4 in this series when we explore lower-tier supplier requirements, archiving, supplier networks and systems integration. 

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