Brazil is known for its highly complex continuous transaction controls (CTC) e-invoicing system. As well as keeping up with daily legislative changes in its 26 states and the Federal District, the country has over 5,000 municipalities with different standards for e-invoicing.
The tax levied on consumption of services (ISSQN – Imposto Sobre Serviços de Qualquer Natureza) lies under the competence of the municipalities. Each municipality has authority over the format and technical standard of the services e-invoice (NFS-e – nota fiscal de serviço eletrônica). This poses a significant compliance challenge, as e-invoicing is mandatory for nearly all taxpayers in the country.
However, important steps have been taken towards changing this scenario. An agreement (Convênio NFS-e) recently signed by the Brazilian Federal Revenue Agency (RFB), the National Confederation of Municipalities (CNM), and other relevant entities, has established the National System of the NFS-e with a countrywide unified standard for the services e-invoice.
The National System of the NFS-e (SNNFS-e)
The SNNFS-e introduces a unified standard layout for the issuance of the NFS-e, as well as a national repository of all e-documents generated within the system. Adhesion to the system is voluntary for municipalities. Since the bill proposed to regulate this issue (PLP 521/2018) has been static in Congress since 2019, the agreement was designed to allow municipalities to voluntarily adopt the national standard, which then becomes mandatory for taxpayers.
The system will allow issuance of the NFS-e in a national standard, through the web portal, mobile app or API (application programming interface). It also creates the National Data Environment (ADN), the NFS-e unified repository.
The SNNFS-e offers several service modules and municipalities can choose which ones to adopt. The ADN is the only mandatory module, as it ensures the integrity and availability of information contained in the documents issued is in the unified standard. Additionally, the ADN allows adhering municipalities to distribute issued NFS-e among themselves and taxpayers.
Once the agreement is signed, the municipality must activate the system within a certain deadline, which hasn’t been established. Activation involves configuring system parameters and amending municipal legislation to reflect the national system requirements. Only after complete activation will taxpayers be able to issue invoices based on the unified standard.
Technical documentation of the NFS-e has also been released, but these are not the definitive specifications, which are still to be approved by the National Standard Electronic Service Invoice Management Committee (CGNFS).
What this means for businesses
The NFS-e national standard provides substantial simplification of taxpayers’ e-invoicing obligations. With a standard layout, compliance with multiple formats can be drastically reduced. The document format for issuance of the standard NFS-e is XML and it must be digitally signed.
Another benefit is that one of the available modules allows taxpayers to pay the ISSQN owed in several municipalities at once, using one single document (Guia Única de Recolhimento) issued by the system.
Although municipalities may choose to keep their current NFS-e issuance system, they must still adhere to the communication deadlines, layout, and security standards of the national NFS-e. They must also ensure transmission of all issued documents to the national data environment. This ensures that taxpayers will only be required to issue the NFS-e in one standard layout.
What’s next for e-invoicing in Brazil?
The first phase of production started on 23 July 2022 with five pilot municipalities. Transmission will be available through different methods, with gradual implementation. According to the initial implementation schedule of the National Confederation of Municipalities, API transmission is set to happen from mid-October 2022 or later, depending on the stability of the other transmission methods. Further development of this schedule can be expected in the coming months.
São Paulo, Salvador, and Florianópolis are among the many municipalities that have already signed the agreement. The success of this national NFS-e standard relies on significant adoption by municipalities, so taxpayers must ready themselves to comply as this takes place across the country.
Take Action
Need to ensure compliance with the latest e-invoicing requirements? Get in touch with our tax experts.
Update: 12 September 2023 by Robson Satiro de Almeida
Tax Reform in Brazil: Simplification Statute Published
Recent developments in Brazil indicate changes on the horizon, as the country continues to move towards a tax reform for simplification of e-invoicing obligations.
A significant reform of ancillary tax obligations is underway aiming to create a unified system for issuing tax documents. The government has long anticipated and discussed this project, but it now shows promise of becoming a reality.
The Brazilian government published Complementary Law no. 199 (Lei Complementar no. 199) in August 2023, establishing the National Statute for the Simplification of Additional Tax Obligations (the Statute). The Statute derives from Draft Law Proposal no. 178/2021 and seeks to streamline ancillary tax obligations, including filing tax returns, keeping accounting records and issuing electronic invoices.
What will change in e-invoicing?
The Statute’s primary change provides the unification of rules for issuing electronic invoices and fulfilling other ancillary obligations. There are currently more than a thousand different electronic invoice formats throughout the country, driving up business maintenance costs and resulting in adversities in company budgets.
Specifically, the Statute establishes integrated action at the Federal, State and Municipal levels to reach the following:
Unified issuance of electronic tax documents
Use of e-invoicing data to calculate taxes and provide pre-filled tax returns
Simplification of tax and contribution payments by consolidating collection documents
Centralisation of tax records and their sharing in accordance with legal mandates
How will changes occur?
To achieve unified e-invoice issuance and integration of other ancillary obligations, the government will assess existing systems, legislation, special regimes, exemptions and electronic tax platforms. The next step is to standardise legislation and the respective systems used to fulfil such obligations.
As per the Statute, this integration effort aims to provide benefits such as:
Cost savings for taxpayers
Encouraging taxpayer adherence at all federative levels
Modernising systems and digitalising operations
The Statute also creates the National Committee for the Simplification of Ancillary Tax Obligations (CNSOA) to establish and improve the processes for simplifying tax obligations in line with a definition of a national standard process. However, the Union, States, Federal District and Municipalities may establish additional tax responsibilities related to their respective taxes, if they are aligned with the CNSOA provisions.
What’s next?
After formal composition of the National Committee, the Federal Executive Branch must adopt the necessary measures to allow it to carry out its activities as defined in the Statute. This is essential to start the official move towards national unification of e-invoicing processes and other ancillary obligations.
Additionally, the National Congress will still analyse and vote on certain points of the Statute that the President vetoed, which could result in further alignment or changes within the National Statute for the Simplification of Additional Tax Obligations.
Starting to prepare for eventual changes with e-invoicing in Brazil? Sovos can help.
Update: 21 March 2022 by Kelly Muniz
Brazil is, without doubt, one of the most challenging jurisdictions in the world when it comes to tax legislation. The intricate fiscal system that encompasses rules fromhttps://sovos.com/vat/tax-rules/brazil-e-invoicing/ 27 states and over 5000 municipalities has created a burden on companies, especially for cross-state and cross-municipality transactions.
Furthermore, taxpayers must carefully examine the numerous e-invoicing formats and requirements (and, sometimes, the lack of such). Therefore, hopes for tax reform in Brazil have existed for quite some time.
Simplifying e-invoicing compliance
In recent years, several legislative initiatives towards integrating indirect taxation mandates across the country have not met successful outcomes. Meanwhile, a feasible step into bringing forth such changes may be through the unification of rules on digital compliance with tax obligations, such as VAT e-invoicing and e-reporting.
In late 2021 a draft law proposal (Projeto de Lei Complementar n. 178/2021) was initiated by the private sector. Named the National Statute for the Simplification of Ancillary Fiscal Obligations, it has been welcomed this year by the House of Representatives. Its primary purpose is to introduce a significant reform within digital tax reporting obligations by creating a unified e-invoicing system.
By establishing national fiscal cooperation, the proposal intends to reduce costs with compliance, allow information sharing among tax authorities, and create an incentive for taxpayers’ conformity across all federal, state and municipal levels.
The principal agenda of the draft law proposal is to introduce:
A unified national standard for e-invoicing
A unified e-bookkeeping format, the Digital Fiscal Declaration (DFD)
A pre-filled tax return using e-invoice data
A unified fiscal registry file and information sharing system (RCU)
What this means for businesses
The most significant change is the introduction of the NFB-e (Nota Fiscal Brasil Eletronica), a national standard for e-invoicing. It entails the unification of the NF-e (Nota Fiscal Eletronica), NFS-e (Nota Fiscal de Servicos Eletronica) and NF-C (Nota Fiscal do Consumidor Eletronica) in one single document. This will cover Brazil’s VAT-like taxes, in this case, ICMS (VAT on products and certain services) and ISS (services VAT).
In practice, this means that instead of complying with numerous e-invoicing formats and mandates, according to the state and municipality of the transaction, one national digital standard will provide uniform country-wide compliance for e-invoicing. The NFB-e will cover invoicing of goods and services on state and municipal levels for B2G, B2B and B2C transactions.
The reform will drastically reduce the burden on taxpayers and expand the scope of e-invoicing to municipalities where such a mandate hasn’t been adopted yet.
It’s essential to add clearance requirements for e-invoicing in Brazil will be maintained, meaning that businesses will still need to comply with rules for real-time clearance of invoices with the tax authority.
What’s next?
The draft law proposal is still in early discussions and will follow to the Justice and Citizenship Constitutional Commission (CCJC) for approval and possible amendments before voting by Congress. Until then, compliance with e-invoicing rules across Brazil remains at its current challenging status.
Take Action
Need to ensure compliance with the latest Brazilian e-invoicing requirements? Speak to our team or download Trends Edition 13 to keep up to date with the latest regulatory news and updates.
Sun Chemical consolidates its global tax obligation with Sovos
case study
Sun Chemical
Sovos made multinational reporting simple for Sun Chemical, allowing it to consolidate its compliance efforts.
Summary
Business Challenges
Sun Chemical sought to find the right solution to minimise the impact of changing mandates on 24/7 business operations.
The company needed to address language barrier among local and technical teams.
Solution
Sun Chemical needed a platform that could consolidate its compliance efforts across all its Latin American markets.
Benefits
The Sovos Business to Government regional solution minimises business delays and disruptions for 24/7 operations.
It offers local support in Spanish, English, and Portuguese, eliminating the language barrier issue.
Without the constant need for legislative monitoring, the Sun Chemical team can focus on innovation.
The Company
Sun Chemical is the world’s largest producer of printing inks and pigments. With more than $3.5 billion in annual sales, the company is a leading provider of materials to packaging, publication, coatings, plastics, cosmetics and other industrial markets in 56 countries. Sun Chemical operates 24 hours a day, seven days a week, and has hundreds of multinational suppliers and partners from around the world.
The Challenge
Sun Chemical cannot afford business disruptions or shipping issues due to its operating schedule. Its e-invoicing process must be seamless across throughout the process, including SAP configuration, middleware performance, connections to the local authority’s compliance server, and printing.
Because of e-invoicing mandates in Latin America, Sun Chemical faced the challenge of conducting constant legislation reviews to determine new requirements that needed to be converted into the system. The language barrier also posed a challenge. With technical requirements being communicated in local languages, fluency to understand the mandates and to convert changes into the system was required. For parties without a high level of technical proficiency in the local language, this caused lag time and confusion, contributing to reduced efficiencies.
The Solution
Based on individual compliance needs, Sun Chemical initially elected to implement different solutions in each country. In Argentina, it selected the regional Sovos Business to Government Reporting solution to maintain its compliance platform. In Chile and Mexico, it selected two separate local providers with two different models, and in Mexico, it implemented an internal solution. Get in touch with our experts for your compliance journey.
“Change is happening, but we’ll automatically solve it with the [Sovos] solution. Converting a legal requirement in a local language into a configuration plan is very complex, so the service of automatic updates to the new legislation was a clear key point of help for us.”
Aldo Magenes
SAPAnalyst, Sun Chemical
The Benefits
The metrics showed a large production support advantage in Argentina, where Sun Chemical had implemented the Sovos Business to Government Reporting regional platform. The company elected to expand its partnership with Sovos to cover its operations in Chile, Mexico and Brazil as well.
The Results
With local support in English, Portuguese and Spanish, the Sovos Business to Government Reporting regional platform helped Sun Chemical isolate its compliance problems and focus on driving business results. The Sovos solution alleviated the need to monitor every single change and translate each of those changes into system configuration plans, saving the team valuable time and reducing the risk of penalties.
Why Sovos?
Sun Chemical evaluated each of its four Latin American e-invoicing compliance solutions with a series of analytics measuring cost and benefits. Company leaders knew the internal team’s time was best spent on innovation and improving business and customer relationships, so they were looking for the solution that would minimise delays and disruptions and keep the team focused where it mattered most.
Real-time processes and responses required by mandates impacting business operations
Limited IT resources to monitor and implement requirements
Solution
Brown Forman selected Sovos’ Business to Government regional reporting platform for:
Brazil Nota Fiscal
Mexico CFDI
Mexico eContabilidad
Benefits
Seamless integration with SA
Constant monitoring and support has resulted in zero business disruptions
Ability to redeploy resources to core business functions
Need for ongoing SAP upgrades and IT burdens eliminated
The Company
Brown-Forman is one of the ten largest spirits companies in the world, distributing products in more than 160 countries. Based in Louisville, Kentucky with offices across the globe, Brown-Forman manufactures iconic brands such as Jack Daniels, Southern Comfort and Woodford Reserve.
The Challenge
International expansion has been integral to Brown-Forman’s success, but this growth strategy placed a great demand on its IT team. The company’s SAP systems needed to comply with the constantly changing financial legislation around the world, and e-invoicing mandates threatened to exceed the Brown-Forman IT team’s bandwidth. This was especially a concern in Brazil and Mexico, where the company operates nine facilities and regulations change frequently.
Demanding real-time processes and responses, any e-invoicing oversight in these countries would affect both the finance and supply chain teams, and could significantly impact business operations.
The Solution
With limited in-house IT resources to monitor and implement each country’s fiscal requirements, Brown-Forman needed a solution that would help it adapt to the ever-changing Latin American landscape and also integrate into its single global instance of SAP ERP.
Given the extensive scope of its operations in Latin America, Brown-Forman realised that it needed a specific subject matter expert. In addition, the company required a predictable cost structure during its heavy expansion.
“Because Sovos provides the network upgrades as well as the SAP ERP configurations, we have been able to work with one vendor across multiple countries and confidently manage the changes to Brazil’s Nota Fiscal and Mexico CFDI’s legislation.”
Randy Isdahl
Director, SAP Process Architecture at Brown-Forman
The Benefits
Sovos provides Brown-Forman with constant monitoring and support, ensuring no compliance-related business disruptions. Plus, the Sovos solution seamlessly integrated within Brown-Forman’s existing systems, allowing the company to manage multi-country compliance directly within its internal SAP system.
The Results
With Sovos e-invoicing compliance in place, Brown-Forman was able to redeploy resources to core business functions, including account receivables and account payables, and focus on supply chain and logistics enhancements. In addition, the partnership has eliminated the ongoing SAP upgrades and IT burdens caused by the constantly changing e-invoicing regulations.
Why Sovos?
Brown-Forman selected the Sovos eInvoice and eAccounting regional solutions to simplify its compliance efforts in Brazil and Mexico. The company sought a solution that could help it cut down on human resource capital and technology investments, and Sovos’ SaaS platform allowed it to accomplish that goal.
