Spend Matters welcomes another guest post from Steve Sprague of Invoiceware. This is Part 2 in a five-part series on Latin America e-invoicing.
In my last article, I focused on Brazil Nota Fiscal. For this week, I want to focus on Mexico electronic invoicing. The subject for many has been confusing over the past six months because the government has been changing at a dramatic pace. However, rest assured that the SAT (Mexico’s tax authority) and this current government are focused on tax reform. While penalties have not been prominent or as common as the Brazilian model, these changes will come and come in full force.
In the past six months, the government under President Enrique Peña Nieto has passed legislation requiring upwards of 95% of businesses to move to real-time electronic invoicing CFDI and increased income tax rates. Now the government is pursuing the payroll tax via a concept called Nomina Electronica (also a CFDI process). This means that VAT, Payroll, and Income tax have all been altered. I call that serious tax reform.
Here’s what you need to know from a legislative and implementation perspective:
- CFD, the legacy XML version, is no longer valid for companies doing over 250,000 pesos in annual revenue. There once were “grandfather” laws, but now they’ve all been revoked. January 1, 2014 was the deadline for transition for companies.
- Contingency – Unlike Brazil and Chile, there is no contingency model. This is more an issue for the outbound Account Receivable and logistics teams, as by law you should not be shipping without one of these three documents accompanying the truck: CFDI, CFDI Traslado, or Carta Porte.
- What is a PAC? The Mexico government, unlike Brazil, Chile, and Argentina, outsourced its signing to third party providers. This doesn’t mean they are certified e-invoicing providers; they are just certified to provide the government stamp. Because there is not a contingency process – you need to have a multi-PAC strategy. Look for providers that can automatically fall back to multiple PACs in case one is slow or down; you do not want an issue with closing books or potential shipping issues because you can’t get the government stamp.
- CFDI does not distinguish between types of invoices like Brazil does with goods invoices and service invoices. They are virtually the same XML and stamping requirements.
- Addenda – This is the complex issue. This is a segment within the XML that large companies can use to request additional information. For example, Wal-Mart, VW, Soriana, and many others force Addenda on their suppliers. Common data requests would be the Purchase Order numbers as this is not a standard field in the government XML.
And here’s the Account Payables perspective. Much like in Brazil’s case, you should view Account Payables CFDI in two phases: Okay to Deduct (what the government requires you to do) and Okay to Pay (what you should be doing if you have a decent volume of inbound invoices).
For the former, you should be collecting the XML CFDI from your suppliers, validating they are accurate and registered, and archiving them for five years. Regarding the December 2012 CFF, government documentation states very clearly that for audit purposes the government will only consider the XML CFDI as the legitimate tax document. This means that all supplier invoices, expenses (i.e. hotels and airlines produce CFDI folios), and now payroll need to be in CFDI XML formats with proper government signatures.
For the latter, remember that your supplier must make the XML available to you, and a PDF replica of the exact XML version should be on the truck. Also, if there is a discrepancy against the Purchase Order, the invoice cannot be changed by you, the buyer. It must be adjusted and re-registered by the supplier. Many companies cannot force the Addenda. However, you can still do a line time Goods Receipt to close out the Purchase Order match. Because the PDF that should be on the truck is a representation of the XML invoice, there are unique ways to configure SAP and other ERP to ensure automated matching and integration.
So as you look at Mexico from a CFDI perspective, focus on these three best practices:
- Make sure you are collecting, validating, and archiving the CFDI XML across supplier invoices, expense invoices that have CFDI, and payroll
- For the Account Payable team, look into the Commercial Compliance. Many companies are collecting supplier invoices, but the data entry is manual. You can automate the full three-way match or use the line item Good Receipt transaction to close out the matches for invoices in Mexico.
- Make sure you understand what “we are compliant” means. This is a common statement, but know what is the architecture cost and what is the impact to your global ERP system for support and change management. This is not about a signature; it is about your business process and applications. And if you are a US-based public company, you are responsible for what is happening because of the Foreign Corrupt Practices Act.
Mexico is constantly evolving their electronic invoicing and tax legislation. And with new changes come errors, so be sure to fully understand what is going on and how this will affect you.