Compliance in procure-to-pay (P2P) processes can encompass several areas: complying with the company’s internal purchasing policies and procedures, complying with contracted pricing, complying with budgets, and complying with payment terms. Today’s focus is on what compliance means for e-invoicing in Latin American countries and how this affects organizations operating in Latin America.
E-invoicing in Latin American countries differs significantly from other parts of the world. Invoicing and tax compliance regulations are also completely different from country to country in this region.
In this second installment of our series covering e-invoicing in Latin America, we compare Latin American e-invoicing practices with other parts of the world, discuss the importance of compliance for global organization with operations in Latin America and detail some country specifics about e-invoicing documents and regulations.
E-Invoicing Around the World
Many governments have realized that the only way to control tax payments and have audit options is through electronic invoicing. And the only way to achieve this is by having authentic invoices that can be stored without degrading their quality for audit purposes.
Latin American regulations for e-invoicing are country-specific and mandatory in over eight countries. This makes e-invoicing implementations challenging, especially for companies with operations in more than one country. Finding one IT solution to cover all their operations and keep pace with regulatory changes is not easy.
This differs from most European and Asian countries, where the only requirements include an electronic signature to prove authenticity of the origin of the invoice and the ability to archive for audit purposes. In the United States, there is no government requirement to adopt electronic invoicing.
The Complexity of Compliance
The most important difference in e-invoicing in Latin America versus the rest of the world is that governments make e-invoicing mandatory for virtually all businesses regardless of industry or size.
About eight Latin American governments have implemented processes and mechanisms to ensure that all documents (invoices) and digital signatures are authenticated by the government tax administration (in some cases by suppliers guaranteed by the government) before issuing any invoice. This might not sound so scary, especially when an organization has operations in just one country and has already implemented the country-specific e-invoicing process to secure the government authentications and requirements (although regulations and requirements could change from time to time).
However, the complexity increases considerably for global organizations with operations in more than one Latin American country. This stems mostly from all of the validation and authentication processes that each government requires, as well as the rapid rate of changes to regulations and the need to keep systems properly integrated and updated with accurate information to meet some requirements, such as the electronic issuance of financial reporting and taxes.
Ultimately, organizations need to focus their compliance efforts on four areas:
- The authentication of invoices and the digital signatures by the tax administration of each country, including archiving processes for audit trails
- The correct documentation (also authenticated) accompanying the invoice during the entire process of the buying/selling operation
- The correct commercial specifications (required per buying organization)
- The correct tax calculation
The risks of an organization that is not in compliance with the regulations and requirements that each country has for e-invoicing and tax reporting ranges from a fine (which could cost millions of dollars, depending on who is at fault) to the imprisonment of the local CFO of the organization.
LATAM E-Invoicing Documents and Regulations
Below are only a few examples of the e-invoicing requirements and regulations that some Latin American countries have implemented. For additional details on any of them, please do not hesitate to contact us.
The tax administration authority, SEFAZ (Secretaria da Fazenda Estadual), has an e-invoicing mandate requiring companies to use the NFe (Nota Fiscal Eletrônica), a signing attribute proving that SEFAZ has approved the invoice. One unique requirement involves a very specific document during the transportation of the goods called the “Documento Auxiliar da Nota Fiscal Eletrônica” (DANFe), which is linked to the approved e-invoice by bar code. The standard format of the e-invoice is XML.
The tax administration authority is SII (Servicio de Impuestos Internos). It also has an e-invoicing mandate that requires companies to use the Documentos Tributarios Electrónicos, or digital certificate (the signature that authenticates the documents electronically), and the Folio (the unique numbers assigned to a document to identify it). Chilean companies must maintain their electronic accounting reports (Libros Contables). The standard format of the e-invoice is XML.
The tax administration authority is SAT (Servicio de Administración Tributaria). Its e-invoicing mandate requires companies to use the CFDI (Comprobante Fiscal Digital por Internet), the e-invoicing schema defined by the SAT; the “Sello Digital Certificado,” a stamp used to verify the origin of the e-invoice and its authenticity; and the Timbre Fiscal, the assignment of the folio (UUID) and the digital signature (FIEL) to the e-invoice. In addition, e-invoices must be archived for five years and companies are required to do e-accounting reports linked to the e-invoices (CFDI). The standard format of the e-invoice is XML. There are third-party authorized certification providers capable of producing the Timbre Fiscal on behalf of the SAT (PAC) and something called Addenda for buyer’s commercial compliance.
The tax administration is AFIP (Administración Federal de Ingresos Público). The e-invoicing mandate requires companies use the CAE (Código de Autorización Electrónico), a number given by the AFIP that validates the e-invoice and uses dynamic sequencing to number the e-invoices. The standard format of the e-invoice is XML. In addition, Argentinean companies are required to keep their books and reports electronically.
The tax administration is SUNAT (Superintendencia Nacional de Administración Tributaria). Their mandates for e-invoicing require companies to use the “Certificado Digital,” which validates the e-invoices, and a CDR (Constancia de Recepción), the acknowledgment from SUNAT that validates the XML schema of the e-invoice. The standard format of the e-invoice is XML. Companies in Peru are required to archive all of their e-invoices for five years.
The tax administration is DGI (Dirección General Impositiva). The e-invoicing mandate requires companies to use the CFE (Comprobantes Fiscales Electrónicos), the e-fiscal document; the e-Ticket (Ticket Electrónico) e-invoice given to clients; and the digital signature that validate the invoices (Sello Digital). The standard format of the e-invoice is XML. Companies in Uruguay are required to archive all of their e-invoices for 10 years.
The tax administration is SRI (Servicio de Rentas Internas del Ecuador). The e-invoicing mandate requires companies to sign their e-invoices using digital certificates issued by the SRI or the authorized entities (Digital Certificate Entities). Each e-invoice must be validated online (in real time) through the SRI platform. The standard format of the e-invoice is XML. Companies in Ecuador are required to archive all of their e-invoices for seven years.
The tax administration is DIAN (Dirección de Impuestos y Aduanas Nacionales) and their e-invoicing mandate requires companies to use the CUFE (Código Unico de la Factura Electrónica), a unique number that validates and identifies the e-invoice; the signing of the e-invoices with a Digital Certificate; and the UUID, a number that represents the fiscal folio of the invoice. The standard format of the e-invoice is XML. Companies in Colombia are required to archive all of their e-invoices for five years.
Stay tuned for the final article in this series: “Supplier Readiness and E-Invoicing in Latin America.”