How to Reduce Risk and Protect Revenue In Mexico with the Digitization of Tax Administration

Gustavo Jiménez
June 12, 2018

Invoicing in Latin America has become complex to the point of being daunting. Businesses that get electronic invoicing processes wrong could quickly grind to a halt. Mastering the eInvoicing process is critical, then, and it involves making sure that all four elements of eInvoicing are working smoothly at the same time.

New regulations, most notably in Mexico, have scrapped paper processes in favor of entirely digital methods of invoicing. What has developed is that four critical elements of eInvoicing have emerged, each of which is as important as the other and all of which have to work together in order for a business to keep its operation efficient and free of government-issued penalties.

Basics of the eInvoicing Process

The process starts with the eInvoice itself. (In Mexico, it’s called a CFDI.) This used to be a paper invoice, but it can’t be in Mexico anymore. In an effort to cut down on tax fraud, the government now requires electronic invoices in a standard XML format.

Companies doing business in Mexico must generate an electronic invoice in the standard format with information such as a tax ID number, description of goods, total amount of the invoice, taxes due and much more. The shipper has to submit that invoice and then receive unique a number back from the government called a UUID. Once the government generates the UUID, the company can ship its goods. This all happens in real time.

On the other side, companies receiving invoices must validate them with the government, matching information in the invoice with information stored in a government database. If the information matches, the company can take delivery of its shipment. If it doesn’t, the government can see discrepancies and can delay reception of goods, and in some cases penalize the company for submitting incorrect data.

The importance of eInvoicing

It’s clear, then, that getting the eInvoicing process is absolutely critical for business. Delayed or canceled shipments can quickly lead to frustrated customers and lost revenue. And then there are the tax implications themselves, which also have a strong financial component.

Value-Added Tax (VAT), which eInvoicing tracks, is effectively what a company paid in invoices minus what it received. If a company collected more tax than it paid, it owes extra in VAT, but it receives a credit if it paid more than it collected. eInvoicing compliance, then isn’t just about staying out of trouble with shipments and government penalties; it can actually help put money back in a company’s coffers and improve its cash flow.

There are four essential elements to the eInvoicing process in the cycle of the taxpayer

  • eInvoice. This is the invoice itself in the standard XML format, the file that contains critical information about a shipment.
  • eAccounting. This is the process of tracking eInvoices and determining how much a company owes or is due in VAT.
  • eAudits. This is when things get a little scary. With invoicing taking place electronically, the government can also audit invoices electronically. With eAudits, the government has total visibility into a business and the ability to levy penalties as necessary. There is nowhere for a business to hide.
  • eMailbox. The government uses this method to communicate with taxpayers electronically.

Staying compliant in Mexico

In order to successfully manage eInvoicing in Mexico and stay compliant with the SAT (tax administration), companies need to understand how all electronic documents are related to one another That’s a difficult task for an organization to take on alone.

Sovos facilitates eInvoicing smoothly, enabling a company’s employees to take on other activities and giving the company’s sales, accounts receivable and accounts payable leaders confidence that shipments will come and go on time with accurate VAT tracking and audit defense.

The key is to partner with a third party that can embed itself into an enterprise resource planning (ERP) or similar back-system and manage all components of the eInvoicing process. The third-party service needs to generate, signs and validate all invoices, and send outbound invoices to the government while receiving and validating all vendors’ invoices.

The importance of getting eInvoicing right

Of course, there’s more to managing eInvoicing than just managing the invoices themselves. Accounting is critical for calculating VAT, and audit defense is extremely important in a country with an automated auditing system. And those operations need to interact each time the company receives or sends an invoice.

Take Action

Sovos solutions can provide your organization with a comprehensive eInvoicing solution. Learn more about Sovos eInvoicing, or contact Sovosfor more information.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Gustavo Jiménez

Gustavo Jimenez is the Product Marketing Manager for Sovos’ e-invoicing solutions and is based in Atlanta. Gustavo is responsible for go-to-market strategy for Sovos LatAm e-invoicing solutions in countries with existing and upcoming mandates. He has more than five years of experience in e-invoicing, middleware integrations, and regulatory research. He works closely with the product management and development team as well as sales and marketing to facilitate compliance process transformations for Sovos clients. Prior to joining Sovos, Gustavo was responsible for marketing activities and strategy at Invoiceware International, a leading e-invoicing solution for businesses with operations in Latin America. He focused on the go-to-market strategy of their solutions as well as communications with the LatAm market about regulatory changes and new solutions.
Share This Post

EMEA VAT & Fiscal Reporting
September 17, 2019
Why Storage of Electronic Invoices in the EU Gets Complicated Quickly

It’s very possible that US companies are breaking laws governing storage of electronic invoices in the European Union without realizing they’re putting themselves at risk for financial penalties.  The EU is an entity that, as the Brexit debate has shown, can frustrate and baffle its own citizens. In the US, the EU is frequently misunderstood. […]

Tax Information Reporting United States
September 16, 2019
6 Reasons You Should Attend the 2019 GCS Intelligent Reporting Summit

The tax information reporting event of the year is coming in October! Sovos will present the 2019 GCS Intelligent Reporting Summit in San Antonio Oct. 28-30. You can’t afford to miss it! Here’s why:  NEW! Unclaimed Property Regulations: De-mystify unclaimed property reporting and learn how to protect your company from risk you might not even […]

Tax Information Reporting United States
September 13, 2019
California AB5 Gig Economy Bill will Affect Tax Reporting, But How?

California Governor Gavin Newsom is poised to sign into law a bill that would recategorize gig economy workers such as ride-share drivers from being independent workers to full-time employees.  The bill, California AB5, could have a profound impact on tax withholding and information reporting at state levels, with other states closely monitoring California’s activity. It […]

Sales & Use Tax United States
September 12, 2019
New Sales Tax Laws Require Ecommerce Retailers to Step up Cyber Monday 2019 Preparations

5 steps ecommerce retailers should take to prepare for Cyber Monday 2019 Retailers with ecommerce channels have a lot to gain during Cyber Monday or Cyber Week in 2019. According to BlackFriday.com, Cyber Monday spending is anticipated to grow 20% this year, with consumers spending nearly $9.5 billion online. Cyber Monday also falls on December […]

EMEA IPT
September 5, 2019
Location Location Location

EU and local legislation Location of risk is one of the key criteria an insurer must identify and consider before thinking about insurance premium taxes. It’s important to understand the location of risk rules and apply them correctly to be able to settle insurance premium taxes compliantly and to the correct tax authority. Whilst location […]