Spend Matters welcomes this guest post from ApexPeak.
In previous installments of this series, we have talked about how parallels can be drawn between Southeast Asia and Latin America, economically. In this final part of a 3-part series, we look at how Mexico, Chile, Brazil and Argentina, the continent’s forerunners in implementing e-invoicing and tax reform, designed and rolled out invoicing and ask what Southeast Asia’s emerging nations can learn from their successes and failures.
In a survey conducted by ApexPeak, Gosocket Corp and Invoiceware International, were asked to share what Latin America can teach Southeast Asian nations about moving toward mandatory B2B and B2G e-invoicing.
Did Latin America Start With B2G, B2B or Both?
B2B before B2G. Unlike the European model, which saw B2G e-invoicing mandated first, Latin American nations jumped the queue by beginning with B2B.
“By enforcing B2B first, Latin American countries captured 90%+ of the economy,” said Scott Lewin, chief executive officer of Invoiceware International.
What Did Latin America Do To Prepare For Mandatory E-Invoicing?
Like paper invoices, e-invoices must be legislated. This requires legislators to think differently. The lawmakers need to understand technology such as XML and develop a standard format. The XML format adopted by each Latin American country is not identical.
“A new set of rules is required for e-invoicing. Rules regulate the e‐invoicing process, such as the use of digital certificates in e‐invoices and the way e-invoices are validated with the tax authorities,” said Mario Fernández, chief executive officer of Gosocket Corp.
Each Southeast Asian nation needs to design a business process and put in place the technology to enable the process. There are several models available; each of the Latin American countries designed different systems. The systems in Chile and Brazil were designed with several shared features. A key difference between Chile and Brazil, however, is what happens once an invoice is submitted to the tax authority (SII). Mexico is different: It designed a system that outsources tasks to third parties called Authorized Certification Providers (Proveedores Autorizados de Certificación or PAC).
Irrespective of how Southeast Asian nations choose to design the process, the tax authority plays a pivotal role. The tax authority needs to sign, time-stamp and mark the e-invoice with a unique authorisation code, then send the e-invoice back to the supplier, all in a matter of seconds.
What Is The Timeframe For Mandating E-Invoicing?
E-invoicing does not occur at the snap of a finger. Rather, it is a process involving several milestones, where the journey is as important as the destination. China, Australia and Vietnam have reportedly conducted pilot programs to examine the effects of e-invoicing on both government and business.
“Almost all Latin American countries decided to implement a pilot program first. Government invites a select group of companies to participate and provide feedback. A pilot can take between 6 and 9 months, with the aim of creating a solid regulation that can be implemented for all companies. Some Latin American countries used advisors to assist in creating new regulations,” says Mario Fernández.
The second phase is a period where companies can voluntarily register e-invoices, followed by the last and final phase, where the majority of the businesses are required to register e-invoices. There is normally an amnesty period leading up to the date e-invoicing becomes mandatory.
According to Fernández, “It can take between 2 and 5 years, during which time any company can implement e-invoicing, but it is not mandatory. And, after that, some Latin American countries have implemented a mandatory process.”
Brazil mandated e-invoicing for both B2B and B2G by 2010. Ninety-nine percent of the country is e-invoice-compliant. Mexico completed a full transition to mandatory e-invoicing by 2014. In Argentina, e-invoicing is mandatory for some industries, with more industries added in 2014. Chile mandated e-invoicing for large enterprises in 2013.
What Are The Considerations When Transitioning To E-Invoicing?
The devil is in the detail. This adage is keenly felt when rolling out e-invoicing at national level. There are many stakeholders to consider, and the timing of each task is critical. The key is not to tackle too much, too soon.
- Suppliers before buyers. It has been easier to mandate e-invoicing for small companies, as they have fewer processes and procedures. A portal and free hotline are good ways to provide education on e-invoicing. The larger companies, which buy services from suppliers, are better dealt with later, as these stakeholders require more lead-time to comply.
- Allow exemptions. It is common for countries mandating e-invoicing to allow companies below a certain threshold of annual revenue to be exempt from registering e-invoices. Chile and Mexico have set thresholds, and Argentina has industries that are exempt.
- Mandate fiscal reporting. Multinational corporations operating in Mexico will be required to file accounting information with the tax authority by 2015. The information required includes the chart of accounts, as well as monthly transaction details, including identification for third-parties involved. By tying e-invoicing and reporting together, companies are effecting a real-time audit.
- Logistics last. An e-invoice can behave as the delivery docket. That means that authorities can seize goods immediately that are deemed smuggled.