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

Gustavo Jimenez
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 Jimenez

Gustavo is Sovos’ Product Marketing Manager for eInvoicing solutions.
Share This Post

Tax Information Reporting United States
2019-03-22
How to Respond to the Growing Challenges of 1099-R Reporting

The demographics don’t lie: Reporting for form 1099-R is only going to grow more difficult as baby boomers retire. The form used to report distributions from IRA, pensions, annuities and other similar retirement accounts is poised to explode in volume. As such, financial institutions (FIs) and insurance companies can’t afford to mishandle 1099-R reporting. The […]

E-Invoicing Compliance EMEA
2019-03-21
Portugal Issues New E-Invoicing Rules: A Flavour of Clearance but Not Quite There

On 15 February 2019, Portugal published Decree-Law 28/2019 regarding the processing, archiving and dematerialization of invoices and other tax related documents including: The mandatory use of certified invoicing software General requirements for paper and electronic invoices Dematerialization of tax documentation Archiving of tax documentation (including ledgers, etc) Adjacent tax rules and obligations The decree aims […]

EMEA LATAM VAT & Fiscal Reporting
2019-03-18
Are We in the Golden Age of VAT Recovery?

The value-added tax (“VAT”) was described in the EU as a “”money machine” over 20 years ago. Yet according to a 2015 study by the European Commission by the Centre for Social and Economic Research (CASE), the “VAT gap” was approximately 168 billion EUR. This represents 15 percent of the theoretical VAT that would be […]

Tax Information Reporting United States
2019-03-15
As Legal Sports Gambling Grows, So Does Growth in W-2G Reporting

With the NCAA basketball tournament approaching, the US is gearing up for its biggest gambling weeks of the year. And while most “March Madness” pools might technically be illegal, legitimate sports betting is sweeping the US following last year’s landmark Supreme Court decision allowing states to legalize sports gambling in casinos.   As legal sports […]

E-Invoicing Compliance EMEA Italy
2019-03-14
Italy E-invoicing: Esterometro Reporting Requirements for Cross-border Transactions Updated

What is Esterometro? The Italian government’s e-invoicing mandate became effective on 1 January 2019.  While cross-border invoices are exempt, all domestic B2B and B2C invoices must be cleared through the SDI platform. This means that the Italian government and tax authority now have real-time access to the data of all B2B and B2C VAT transactions […]