Mexico has one of the most complex electronic invoicing systems in Latin America. Its scheme, Comprobante Fiscal Digital por Internet (or simply CFDI), was implemented in 2011 as a replacement for the CFD.
Resources such as this overview, carefully detailing the components of the mandate that taxpayers need to consider for compliance, simplify the country’s complex e-invoicing scheme. Be sure to bookmark this page to stay on top of any regulatory changes over time.
There is a rigorous set of processes that taxpayers must follow when invoicing electronically in Mexico.
The generated XML file must comply, both in terms of format and syntax, with the specifications of the Miscellaneous Tax Resolution in force.
The document must pass the validation rules established for both its content and the format of the XML file generated.
It’s mandatory that all electronic documents, including e-invoices, are sent to the PCCFDI (or to the SAT in exceptions) for validation. The invoice must include specific information, as detailed further down the page, to be considered legally valid.
Mexican invoicing law does not require the recipient to confirm it has received the e-invoice, though they must securely store the documents for five years from the time the corresponding tax return was filed.
Characteristics of electronic invoicing in Mexico
Mexico B2B e-invoicing
Mexico has mandated the issuance of electronic invoices between businesses since 2014, though it had voluntary schemes and conditional requirements for specific taxpayers prior to that year.
Organisations must meet set rules and requirements when participating in the country’s e-invoicing scheme.
Mexico B2G e-invoicing
As well as with B2B transactions, Mexico requires businesses to issue electronic invoices when transacting with governmental and public administration bodies.
The process remains the same, and the aforementioned rules apply – failure to meet the specifications of Mexico’s e-invoicing regulations may result in penalties.
Types of vouchers in Mexico
Mexico’s electronic invoice system contains multiple types of vouchers. Among the main ones are:
Income receipt
Issued mainly in sales transactions for which some income is received in cash, check or any other form. Generally, it is for sales of goods and services, including foreign trade operations, but also for donations and income for professional services.
Proof of expenditure
Issued in cases where the company pays or returns money due to refunds, bonuses, discounts or correction of an income voucher. These are equivalent to credit notes.
Transfer certificate
Used to justify the legitimate possession or holding of the goods that must be transferred within the national territory. These CFDI are used as a transportation contract when a company provides transportation of goods to the owner of the goods.
Certificate of payment receipts
Issued whenever a payment is received on a date other than that on which the transaction is made and the CFDI is generated. Their main function is to document a total or partial payment collection.
Withholding and payment information certificates
Used to report on tax withholdings applied at the time of making payments for which a withholding certificate must be issued. This type of certificate also applies when withholdings are made for payments abroad, royalties, sale of shares, dividends or distributed profits, among others.
CFDI Supplements
In addition to the types of invoices or CFDIs mentioned above, Mexican tax legislation requires that when certain transactions are carried out, additional information must be provided specifying the type of transaction in question. This type of additional information is contained in so-called “complementos”, which are attached to the original CFDI. There are more than 20 “complementos”.
In other cases, the requirement to issue a supplement to the CFDI is due to withholdings made at the time of making payments for specific transactions. These supplements are the following:
Derivative transactions
Disposal of shares
Dividends
Financial sector
Interests
Leasing
Mortgage interest
Non-business trusts
Payments to foreigners
Prizes
Retirement plans
Technology platforms
Format of electronic invoices and documents in Mexico
Mexico has a series of unconditional elements that digital documents like e-invoices must include. These features are established in the country’s Tax Code (Código Fiscal), the current Miscellaneous Tax Resolution (Resolución Miscelánea Fiscal, RMF) and its Annexes.
Some of the essential components of income CFDIs include:
Header
Item detail
Form and method of payment
Value consigned
Discounts and surcharges
Informative subtotals
Type of payment made
Taxes
Related CFDIs
SAT digital stamp
Signature with a valid advanced electronic signature certificate
What is the CFDI?
CFDI, which stands for Comprobantes Fiscal Digital por Internet, is an e-invoice format mandated by Mexico’s tax authorities. It is also used in select countries across Latin America.
CFDI is effectively an electronic invoice, often also referred to as a digital tax receipt. It provides all necessary details of a transaction, including goods or services provided, associated costs and subsequent taxes.
Mexico’s tax administrative service, SAT (Servicio de Administración Tributaria), approves and certifies these electronic invoices – deeming them legally valid.
The most recent version of CFDI in Mexico is 4.0, which has updated major features of the document. This includes the new requirement to include the sender and receiver’s names, additional fields for exported goods, and a section explaining the reason for a documentation cancellation.
Cancellation of CFDIs
Electronic invoices, or CFDIs, can indeed be cancelled in Mexico. However, with the introduction of CFDI 4.0, the cancellation must be adequately justified and documented, including one of the designated service response codes.
An e-invoice can only be cancelled within the year it was issued – after that, it is impossible to do so. However, each year, the Miscellaneous Tax Resolution establishes the ability to cancel no later than the month in which the annual Income Tax return corresponding to the year in which the receipt was issued must be filed.
Timeline of e-invoicing in Mexico
Mexico’s journey towards electronic invoicing becoming commonplace may have started in the early 2000s, but its e-invoicing scheme is still developing to this day.
2004: Mexico introduces the e-invoice
2010: E-invoicing to tax authorities became mandatory for suppliers with annual turnover exceeding MXN $4,000,000
April 2014: E-invoicing became mandatory for all taxpayers
2017: All domestic businesses and VAT-registered entrepreneurs must send e-invoices to the SAT within 72 hours
1 July 2023: Taxpayers must use version 4.0 of CFDI e-invoicing system
Penalties: What happens if I don’t comply with e-invoicing in Mexico?
Failing to meet the requirements of Mexico’s electronic invoicing requirements could lead to penalties.
Taxpayers can expect to receive a fine of:
MXN $400.00 – $600.00 for each CFDI issued that is missing the necessary supplements
MXN $880.00 – $17,030.00 for not issuing documentation for the transportation of goods
MXN $19,700.00 – $112,650.00 for not issuing or delivering the CFDI for their activities or issuing them without meeting the requirements; not delivering or not making available the printed representation of the CFDI when this is requested by its clients; not issuing the CFDI that covers the operations carried out with the general public; not making them available to the tax authorities when required
MXN $19,050.00 – $108,880.00 for issuing a CFDI that includes the incorrect tax identification number for the buyer. In the case of a repeat offence, the penalty will consist of the preventive closure of the taxpayer’s establishment for a period of three to 15 days.
In certain cases of recidivism, the Tax Code establishes that the SAT can sanction offenders with the closure of the establishment from where such infractions are committed. Mexican legislation also includes the possible commission of equated tax fraud and smuggling crimes if the provisions regulating CFDI and their complements are not duly observed.
What else do I need for VAT compliance in Mexico?
For taxpayers in Mexico, there are more obligations than just e-invoicing. Tax compliance requires a lot of care and attention, especially for multinational organisations, and it can take up significant internal resources.
Once buyers receive a notice from the seller, they have 72 hours to accept or reject an e-invoice cancellation. If the buyer does not respond, the electronic invoice will be cancelled.
By default, the recipient of an invoice must accept its cancellation for it to be admissible; however, according to Rule 2.7.1.35 of the Miscellaneous Tax Resolution, there are 12 cases in which accepting the counterparty is unnecessary.
Sovos ensures full compliance with all e-invoicing requirements in Mexico. We are a PAC authorised by the SAT, offering a comprehensive solution to resolve your indirect tax needs, and we support all CFDIs and their complements.
Setting up e-invoicing in Mexico with Sovos
With electronic invoicing becoming more common globally, following the lead of Latin American countries like Mexico, it is important that you prioritise compliance.
The global – yet fragmented – adoption of e-invoicing solidifies the need to choose a single vendor for complete compliance, wherever you do business. Sovos is a tax compliance partner you can trust.
Focus on what truly matters: speak with a member of our team today to begin reclaiming your time.
Complete the form below to speak with one of our e-invoicing experts
Electronic invoicing in Colombia, often referred to as Colombia facturacion electronica, is mandated for established taxpayers. While it was an early mover in giving legal weight to e-invoices, Colombia’s mandate only came into effect in 2019 and has been subject to change since.
Understanding the specificities of the rules of overall tax compliance is vital. That’s why Sovos’ regulatory experts have produced this complete overview of Colombia e-invoicing. Bookmark this page to stay up to date with the latest requirements.
Characteristics of electronic invoicing in Colombia
Colombia B2B e-invoicing
All companies are required to issue electronic sales invoices with prior validation before issuance. Companies must enable themselves as electronic issuers through the web portal assigned by the DIAN.
Suppliers must also certify as Technology Services Providers (PST) and receive a unique software identifier. The standard format used is XML, following the UBL V2.1 (Universal Business Language) adopted by the DIAN.
A digital signature is mandatory to ensure authenticity and integrity throughout the invoicing process.
Invoices must use a consecutive numbering system assigned by the DIAN, along with a Unique Electronic Invoice Code (CUFE) for identification and data integrity. Issuers must create a graphic representation of the invoice in PDF format, including a QR code.
Both issuers and recipients must archive invoices for the period established by the tax statute.
Colombia B2G e-invoicing
Starting in November 2020, electronic invoicing became mandatory for all taxpayers – including B2G transactions. All suppliers must issue electronic invoices and buyers are required to receive them. Buyers do not need to validate the invoice, but they can accept or reject it.
Electronic invoices (Facturas electrónicas)
The electronic invoice is the evolution of the traditional invoice. It has the same validity as paper in a legal sense, but it is generated, validated, issued, received, rejected and preserved electronically. In tax terms, it supports sales transactions of goods and/or services.
All electronic sales invoices for tax recognition must be validated prior to their issuance by the Special Administrative Unit of the National Tax and Customs Directorate (DIAN).
The electronic sales invoice will only be classed as issued when it is validated and delivered to the purchaser – providing it also complies with the conditions, terms and technical and technological mechanisms established by the DIAN.
In the context of electronic invoicing in Colombia, equivalent documents are digital receipts issued by the DIAN (National Tax and Customs Directorate) for transactions that do not require a sales invoice.
The Electronic Equivalent Document is defined as a document that:
Contains the information of a commercial operation carried out by a subject that is not required to issue an electronic invoice
Complies with legal requirements
Is generated and transferred electronically through a technology provider authorised by the DIAN
Adjustment notes are included for the electronic equivalent document and have been created as a mechanism for their cancellation or correction.
Electronic sales receipt
An electronic sales receipt is a receipt that is issued to final consumers. It does not generate tax credit and its structure is less complex than electronic invoices.
Electronic debit and credit notes
Credit and debit notes are documents that allow adjustments or corrections to be made to electronic invoices. They must be generated and transmitted electronically to the DIAN for validation.
Document for payments in favour of non-VAT responsible
This document is a type of invoice that must be issued by the buyer when purchasing goods or services from persons not responsible for VAT.
Export and import electronic invoice
These documents must be issued to support export and import operations, in addition to other documents related to customs operations.
Other documents
Other related documents include those supporting expenses, deductions and other types of electronic media that facilitate compliance with tax obligations.
Electronic invoicing law in Colombia
Electronic Invoicing is mandatory in Colombia for businesses that are registered for Value Added Tax (VAT).
The mandate follows a pre-clearance model which came into effect in January 2019, starting with large taxpayers. It became mandatory for all taxpayers as of November 2020, covering B2G, B2B and B2C transactions.
Colombia requires suppliers to issue e-invoices and buyers have to either accept or reject them, though they do not need to validate the document. DIAN, the country’s tax authority, must clear the electronic invoices before they can be sent to the buyer – without clearance, the receipt cannot be issued and the goods cannot be shipped.
For more specifics on Colombia facturacion electronica (e-invoicing), read on.
Types of Operations Subject to the Colombian Electronic Invoice Regime
The electronic invoicing mandate in Colombia applies to the following documents and transactions:
Electronic invoices: Required in B2B transactions and when generating tax credit. The validity of this document is subject to strict compliance rules covering structure, issuance and validation.
Electronic equivalent documents: The following are currently considered equivalent to electronic invoices:
Tickets for cash registers with POS systems
Cinema admission tickets
Passenger transport tickets
Extracts issued by financial and similar institutions for financing operations
Air transport tickets
Documents in localized games of slots, bingo, casinos and the like
The ballot, fraction, cardboard, forms or the like in games of luck or chance
Documents issued in the collection of tolls
Settlement receipts issued by the Colombian Stock Exchange
The document of operations of the agricultural exchange and other commodities
Documents issued for home public services
Income tickets for public shows
Electronic sales ticket: The voucher issued to final consumers. It does not generate tax credit and its structure is less complex than electronic invoices.
Electronic debit and credit notes: Issued by the seller to recover expenses or accredit cancellations, discounts or other modifications to issued electronic invoices and tickets. Like electronic invoices, such notes must be pre-validated.
Document for payments in favour of the non-VAT-responsible: A type of invoice that must be issued by the buyer when purchasing goods or services from people not responsible for VAT.
Receipt for work income: Must be issued according to the format established in the technical documents of the electronic invoice when disbursements related to the taxpayer’s payroll are made, including parafiscal and social security contributions.
Electronic export and import invoice: Must be issued to support export and import operations, in addition to other documents related to customs operations. So far, only electronic export invoices have been developed and put into production.
Other documents: Expense support documents, deductions and other types of electronic media that facilitate compliance with tax obligations.
XML schema based on UBL 2.1
The standard e-invoicing format for e-invoices in Colombia is XML. This format follows Universal Business Language (UBL) V2.1.
The XML document is generated, comprised of the information that Colombia’s tax authority requires, and then signed with a digital certificate. From there, the taxpayer’s certified software validates the data, as well as both the issuer and recipient, and reports the transaction to the DIAN.
The tax authority will then record the document, assign a unique e-invoice number, notify the issuer that it has been processed successfully and deliver the XML to the issuer.
Unique electronic invoice code - CUFE
The Clave Única de Facturación (CUFE) code enables electronic invoices to be identified unequivocally. It’s also known simply as a unique electronic invoice code and is comprised of data from an invoice and the Technical Control Content Key provided by the tax authority.
The CUFE code also ensures the integrity of documents by using SHA384 encryption.
QR code
As well as being in the XML format with a digital signature and unique e-invoice code (CUFE), valid e-invoices in Colombia must include a QR code. This is mandated by law and is possible via certified technology providers like Sovos.
For customers who cannot receive electronic invoices, they are sent a QR Code invoice for the transaction.
Electronic container
One of the changes in Resolution 000012 saw the DIAN modify the e-invoicing law to implement the use of the electronic container. The electronic container is a mandatory electronic instrument used to include the information of the electronic sales invoice, debit notes, credit notes and general electronic information derived from the systems of billing – along with the validation carried out by the DIAN where applicable.
This modification means that e-invoices must utilise digital signatures to guarantee the authenticity and integrity of the document. The issuer must digitally sign the invoice to the standards laid out by the regulation and the tax authority’s signature policy.
How does an e-invoice work in Colombia?
Colombia’s electronic invoicing system contains multiple processes that the electronic biller, the DIAN, the technology providers and the electronic receivers or purchasers participate in.
Once the electronic biller complies with the authorisation requirements, they can start generating electronic invoices and equivalent documents.
Among the most important processes of this generation system are the following:
Validation: Colombia’s current electronic invoicing system requires invoices, and other documents issued by the person responsible for electronic invoicing, to be validated by the DIAN before being issued to their recipient.
Once this process is completed, the DIAN will proceed to register the electronic document in its databases with the value “document validated by the DIAN” while generating, signing, storing and sending a validation message to the electronic biller for its issuance and delivery to the acquirer.
Receipt of electronic documents: Electronic billers must also act as electronic receivers. To do this, they must establish an email to receive electronic sales invoices issued by their suppliers and other documents subject to the electronic invoice mandate.
This obligation is fulfilled by issuing an acknowledgement of receipt by the recipient and should only be done when the document issued has been validated by the DIAN. From a commercial point of view, if the recipient of the document agrees with the document received then they must formally accept it.
If the document does not comply with the commercial conditions agreed with the supplier, they must commercially reject the document and the associated acknowledgement of receipt issued. If, after receiving the document, the recipient does not reject it within three working days from the day indicated in the deliveryDate field (or in the issueDate field), the document will be considered tacitly accepted.
Contingency: The current electronic invoicing legislation states that if the taxpayer is unable to issue an electronic invoice, or any of the other equivalent documents, due to technological problems attributable to the DIAN, they may issue the document supporting the transaction without the validation of the DIAN.
These documents may be invoices in a paper checkbook. In such situations, the taxpayer must use the billing ranges authorised by the DIAN. After the contingency situation is over, the obligor will have a period of 48 hours to send these documents to the tax authority for validation.
The RADIAN: RADIAN is an information system that allows the circulation and traceability of e-invoices as a security title, hereinafter referred to as an electronic sales invoice value title.
Once an electronic sales invoice becomes a value title and is registered in RADIAN, negotiation is possible for the legitimate holder and/or through agents and/or operators authorised by the Ministry of Commerce, Industry and Tourism.
There are other processes aimed at guaranteeing the negotiation, transfer, endorsement and execution of said document.
Issuance and delivery of the sales invoice and/or the equivalent document: The issuance of the sales invoice or equivalent document includes its generation, transmission, validation and delivery to the purchaser for each of the sales operations and/or provision of services carried out.
The issuance of these documents must comply with the applicable legal requirements, as well as with the special requirements and the conditions, characteristics, terms and technical and technological mechanisms developed by the DIAN.
Benefits of using e-invoicing in Colombia
There are a host of benefits that come with e-invoicing, including:
Reduced material costs – no need for paper, printing, enveloping, postage
Increased accuracy – Automated reporting eliminates the possibility of manual input errors
Time efficiency – E-invoicing and real-time reporting eliminate the paper process
Simple archiving – Paper invoices are at risk when stored for years (and producing copies is harder)
Timeline of e-invoicing in Colombia
1995: Colombia gives e-invoices the same status as paper invoices
18 April 2016: Pilot project launched with 58 companies
January 2019: E-invoicing becomes mandatory for large VAT-registered businesses
February 2023: Large taxpayers required to issue electronic sales invoices for cash register tickets over 5 UVT
November 2020: E-invoicing becomes mandatory for all VAT-registered businesses
March 2023: Decree 442 introduces changes to electronic invoice regulations
March 2023: Taxpayers that file for income and complementary tax must issue electronics sales invoices for cash register tickets over 5 UVT
April 2023: Taxpayers that do not file for income and complementary tax must issue electronics sales invoices for cash register tickets over 5 UVT
June 2023: All taxpayers must issue electronics sales invoices for cash register tickets over 5 UVT
November 2023: Resolution 165/2023 introduces more changes to e-invoicing regulations
November 2023: Calendar of implementation of Electronic Equivalent Documents is postponed until 1 May
1 February 2024: All taxpayers in scope must have implemented the latest electronic sales invoice rules by now
Penalties: What happens if I don’t comply to e-invoicing in Colombia?
Those who do not meet the requirements of Colombia’s e-invoicing mandate may well face repercussions.
The current sanctioning system of the regime of Colombia is regulated by the provisions of article 652-1 of the Tax Statute, which basically provides for two types of sanctions. Non-compliance may result in fines of up to 1% of the value involved in invalid invoices, or the closure of establishments for up to 30 days.
How to choose the right e-invoicing software in Colombia?
When choosing e-invoicing software for Colombia, it’s crucial to consider the future. The DIAN has already introduced changes to the electronic invoicing regulations and there is a high probability that more alterations will come. The ideal compliance partner is one that combines technology with knowledge, flexibility and foresight – a partner that evolves as regulations do.
Another consideration should be the nature of your business. You could choose a point solution, but it’s more efficient to use a solution that covers all facets of tax compliance – not just in Colombia but everywhere you do business. Sovos can help.
What else do I need for VAT compliance in Colombia?
Businesses that provide taxable goods or services in Colombia may need to register for VAT. The VAT registration process is done through the single tax registry (RUT). Once registered, the taxpayer identification number (NIT) is obtained.
Foreign businesses cannot directly register for indirect taxes in Colombia as non-residents. Foreign traders must form a permanent establishment in Colombia and register for indirect taxes.
In Colombia, all VAT-registered businesses are required to send and receive invoices electronically. All taxpayers must establish themselves as electronic invoice issuers through the tax authority’s web portal and then issue e-invoices for transactions.
Colombia’s e-invoicing regime is mandatory for all businesses that are registered for VAT. That said, there are some exclusions like financial institutions, companies with an income below a particular threshold and other segments of business.
Using a software authorised by the DIAN to open and verify the electronic container. The software must be able to read the XML format and the digital signature of the invoice. You can use the free DIAN upload portal or a third-party software provider.
Scanning the QR code of the invoice with your smartphone or tablet. The QR code will redirect you to the DIAN website, where you can see the invoice details and download it in PDF format.
DIAN registration, testing and enablement are the steps that a taxpayer must follow to become an authorised issuer of electronic invoices in Colombia.
The process consists of the following stages:
Registration: The taxpayer must register in the Unique Tax Registry (RUT) and obtain a digital certificate to sign the electronic invoices. The taxpayer must also choose a software provider to generate, transmit and validate the electronic invoices.
Testing: The taxpayer must perform a series of tests to verify the correct functioning of the software and the compliance with the technical and legal requirements established by the DIAN. The tests include the generation, transmission, validation and consultation of electronic invoices – as well as the management of contingencies and errors.
Enablement: Once the taxpayer passes the tests, the DIAN will enable the taxpayer to issue electronic invoices in the production environment. The taxpayer will receive a notification and a number of authorisation of numeration (NAN) to start issuing electronic invoices.
The monthly billing value is calculated by adding the net sales value, the VAT value and the consumption tax value. The monthly billing value must be reported to the DIAN through the electronic invoicing system and must be paid within the deadlines established by the DIAN.
With electronic invoicing becoming more common globally, following the lead of Latin American countries like Colombia, it is important that you prioritise compliance.
The global – yet fragmented – adoption of e-invoicing solidifies the need to choose a single vendor for complete compliance, wherever you do business. Sovos is a tax compliance partner you can trust.
Brazil is widely regarded as a major player in the world of electronic invoicing, largely due to the sheer number of electronic tax documents and e-invoicing models it has in place. If you’re a taxpayer in Brazil, you will have to issue electronic invoices.
From electronic transport invoices to standard e-invoices for tax, there is a lot to consider when operating in Brazil. This page has all the electronic invoicing information you need to be aware of your obligations and will be updated when necessary, so bookmark the overview to add it to your compliance toolkit.
While there are several e-invoice types in Brazil, there is a general process that taxpayers need to follow when issuing invoices electronically. While some steps may vary per invoice type, the process often includes:
Applying for a digital signature
Generating an electronic invoice in XML format
Submitting the invoice via web service to SEFAZ (Secretaria da Fazenda Estadual)
Sending the invoice to the customer
Characteristics of electronic invoicing in Brazil
Brazil B2B e-invoicing
In Brazil, issuing electronic invoices – of which there are several types – is mandatory for all taxpayers. If a business is established in Brazil and supplies goods or services, it must participate in the country’s e-invoicing initiatives.
There are numerous electronic invoicing systems in Brazil, and the product category of goods supplied dictates which system will be used.
Brazil B2G e-invoicing
E-invoicing is mandatory for all established businesses in Brazil, including when issuing invoices to governmental and public administration entities.
Format of electronic invoices and documents in Brazil
Brazil has a complex, somewhat fragmented e-invoicing system that requires taxpayers to use specific systems – depending on the category of the goods or services they supply. To ensure compliance, organisations and persons alike must be aware of what’s required of them when issuing an electronic invoice.
While there are several e-invoice types in the country, there are specific characteristics of electronic invoices. Electronic signatures are required no matter the invoice type, and the documents need to be securely archived for five years. Each invoice type is in a structured XML format, and they need to be validated by the Brazilian tax authorities before being issued to the buyer.
NF-e invoices
The NF-e electronic invoice is Brazil’s standard electronic invoice for documenting the transaction of goods and services.
It is issued electronically to the buyer and the Brazilian government. To be deemed legitimate, NF-e e-invoices must be validated by the tax authority.
NFS-e invoices
Unlike Brazil’s standard electronic invoice, NFS-e e-invoices document the transaction of services. Like NF-e e-invoices, NSF-e documents must be transmitted electronically and validated by the Brazilian government.
What is the CT-e | Electronic Transportation Invoice?
CT-e documents are also known as electronic transportation invoices. These e-invoices document the transportation of goods in Brazil via:
Air
Pipeline
Rail
Road
Water
When using a transport service that is external to the company fulfilling the transaction, the buyer must validate the CT-e e-invoice and list it in its monthly report to the government.
E-signature requirements in Brazil
Brazil requires e-invoices to be protected by an electronic signature. This technology irrefutably proves the signing parties’ identity and the document’s integrity.
Once signed by the seller and the buyer, the e-invoice is considered valid from both a legal and fiscal standpoint – especially considering that invoices are also validated by the tax authorities.
Timeline of e-invoicing in Brazil
Brazil was an early adopter of electronic invoicing, though the implementation took time. Here are the key dates of the country’s e-invoicing implementation:
2005: Brazil publishes its first e-invoicing legislation, introducing a clearance model
2008: Taxpayers became obligated to issue electronic invoices
19 April 2023: Electric energy e-invoices (NF3-e) are introduced, with staggered implementation of mandated use
1 September 2023: Individual micro-entrepreneurs (MEI) that are not subject to Interstate Sales Tax (ICMS) are obligated to issue e-invoices
Penalties: What happens if I don’t comply with e-invoicing in Brazil?
There is a price to pay for failing to comply with Brazil’s e-invoicing regulations. Drastic cases of non-compliance may be considered a criminal offence, such as tax evasion.
Taxpayers can be charged a financial penalty of up to 100% of an invoice’s value or transaction price should they fail to issue an e-invoice. This same penalty may apply if electronic invoices do not meet legal and technical requirements.
What else do I need for VAT compliance in Brazil?
While you must stay on top of your e-invoicing regulations in Brazil, additional tax compliance considerations exist.
We have a dedicated page for Brazil VAT Compliance that is a companion tool to this e-invoicing overview, carefully detailing other tax-related regulations that may apply to you.
Generally, an electronic invoice for goods can be cancelled within the first 24 hours of its validation by the Brazilian tax authorities. That said, this may differ state-by-state, so verifying the deadline with the SEFAZ is important.
As a rule, the NF-e must contain registration data such as CNPJ (National Register of Legal Entities), address and other data of both the issuer and recipient, as well as information such as product code, description, quantity, unit value and details about taxes such as ICMS, IPI, PIS, COFINS, among others, and a valid digital signature. Electronic invoices must be in XML format.
Setting up e-invoicing in Brazil with Sovos
With electronic invoicing becoming more common globally, following the lead of Latin American countries like Brazil, it is important to prioritise compliance.
The global – yet fragmented – adoption of e-invoicing solidifies the need to choose a single vendor for complete compliance wherever you do business. Sovos is a tax compliance partner you can trust.
Focus on what truly matters: speak with Sovos today to reclaim your time.
Complete the form below to speak with one of our e-invoicing experts
Sovos recently sponsored a benchmark report with SAP Insider to better understand how SAP customers are adapting their strategies and technology investments to evolve their finance and accounting organizations. This blog hits on some of the key points covered in the report and offers some direct responses made by survey respondents, as well as conclusions made by the report author. To get the full report, please download your complimentary copy of SAP S/4HANA Finance and Central Finance: State of the Market.
In this year’s benchmark report, research found that most companies are focused on reducing complexity and cost as a primary driver of their overall finance and accounting, including tax, strategies. With this reduction, they are working to solve their biggest pain point which continues to be a lack of visibility into financial transactions and reporting.
The survey revealed several key strategies and investments that SAPinsiders are prioritizing to evolve their finance and accounting processes and organizations. The number one driver of finance and accounting strategy in 2021 is to reduce cost and complexity. This was named by 57% of our audience as the top driver of their finance and accounting strategy. This jumped 24% from last year. To support their top drivers, a majority (56%) of the finance and accounting teams in the study plan to increase their use of automation in 2021.
Clean and harmonized data and a centralized single point of truth are the most important requirements that SAPinsiders are prioritizing. 83% of survey respondents report that clean data is important or very important, while 80% highlight the significance of the Universal Journal in centralizing critical information.
How do technology and tax intersect?
Continued complexity within core financial and accounting systems is limiting organizations’ ability to adapt rapidly to changing business conditions and provide real-time visibility into operations. That is why the number one driver of finance and accounting strategy based on this year’s survey is the pressure to cut both cost and complexity.
Survey responses and interviews with customers about their largest sources of pain consistently mention system and process complexity as one of their most significant challenges. Respondents are focused on addressing this obstacle in a variety of ways such as through investments in analytics, automation, centralization, and system consolidation.
This directly impacts how companies approach tax as rapidly changing global tax laws and mandates often have organizations playing catch up to ensure they are charging and remitting the proper amounts of tax to each country in which they operate. Failure to do this can lead to costly audits, potential fines and penalties and damage to brand reputation.
Why move to SAP S/4HANA Finance?
Simplicity, speed, and easy access to data were among the top benefits cited by survey respondents who have completed or nearly completed their move to SAP S/4HANA Finance. Several mentioned the ease with which they can go from high-level reports and drill down to the document or line-item level, making it easier to understand the numbers and perform in-depth analysis quickly. This directly aligns with the pain points that were identified in the benchmark report survey.
Why now?
What is clear from this survey and subsequent report is that complexity across all layers of finance is having a direct impact on a companies’ ability to function at the highest operational level possible and is threating to impact the bottom line.
Accounting for tax early in your migration strategies and technology upgrades is a key component to ensuring that you are prepared to handle the challenges of modern tax on an international scale. For companies that operate on a multi-national basis, having a centralized approach to tax with enhanced visibility and reporting capabilities is imperative to achieving and remaining compliant no matter how many changes to tax law are introduced every year.
Please download the full report for a more detailed explanation of these critical areas of focus.
On 25 September 2023, the Tax Authority in Mexico (SAT) published Version 3.0 of the Carta Porte Supplement on its portal with some adjustments.
The use of Version 2.0 of the Carta Porte became mandatory as of 1 January 2022 in accordance with the Fourth Resolution of modifications to the Miscellaneous Tax Resolution of 2021.
However, the authority established 1 January to 31 December 2023 as a grace period to correctly issue said supplement, without sanctions or fines for non-compliance with any requirement.
Main changes of Carta Porte V3.0
One of the adjustments announced is the introduction of seven catalogues:
RegimenAduanero
RegistroISTMO
SectorCOFEPRIS
FormaFarmaceutica
CondicionesEspeciales
TipoMateria
DocumentoAduanero
There was also the introduction of fields for foreign trade operations, such as:
TypeMatter
DescriptionSubject
The Customs Document replaces the Pedimento Section with the addition of fields to identify the type, Tax ID of the Importer and ID custom document.
Through the anticipated version of the 8th RMRMF, the SAT has modified Rule 2.7.1.7 relating to the requirements of the printed representations of the CFDI, indicating that in the case of the CFDI to which the Carta Porte is incorporated, the structure of the supplement allows the printed representation of the CFDI and the Carta Porte to be displayed separately.
Likewise, Rules 2.7.7.1.1. and 2.7.7.1.2 for the CFDI of the income type and the transfer type to which the Carta Porte is incorporated, respectively, will serve to prove the legal stay and/or possession of the goods and merchandise of foreign origin during their transfer in national territory, providing the number of the customs request or custom document in said receipt in terms of the applicable customs provisions.
Transition and mandatory terms for Carta Porte 3.0
Carta Porte Version 3.0, published on 25 September 2023 on the SAT Portal, must be used as of November 25, 2023
Taxpayers obliged to issue CFDIs to which the Bill of Lading complement is incorporated, may continue to issue the complement in Version 2.0, until 31 December 2023.
From 1 January 2024, the only valid version of the Bill of Lading supplement will be 3.0
Printed representation
The printed representation introduces a new two-dimensional barcode that will accompany the printed representation of the Carta Porte.
Technical documentation about the latest changes to Carta Porte is available at:
For historical information on the initiative, read our dedicated Carta Porte 2.0 blog.
Key information about the Carta Porte Supplement
Update: 31 July 2023 by Maria del Carmen
Updates to the Scope and Definitions of the Carta Porte Supplement
Mexico’s Carta Porte supplement was introduced in May 2021 to ensure the traceability of products moved within the country. Use of the supplement became mandatory on 1 January 2022 but there have been many changes and additions to its requirements.
Taxpayers in scope of the Carta Porte
Section 2.7.7 of the Miscellaneous Tax Resolution (RMF) 2023 regulates the Carta Porte Supplement which specifies that the following must issue a CFDI of Income to which they must incorporate the Carta Porte supplement:
Taxpayers, intermediaries or transport agents dedicated to the transport service of general and specialised cargo, who circulate by land, rail, air, or navigate by sea.
Those who provide the parcel and courier service, of towing cranes, towing and salvage cranes and deposit of
Those who provide transport of funds and values or dangerous materials and waste, among other services that involve the transportation of goods or merchandise.
Owners of goods transporting its own assets via its own transport methods in national territory, including the use of towing cranes and vehicles for the transport of funds and values, can provide proof of transport through the printed or digital representation of the CFDI of Transfer issued by themselves, to which they must incorporate the Carta Porte supplement.
Transport of imported goods
For those within the scope mentioned above, the RMF indicates that the carrier must prove the legal stay and/or possession of foreign goods and merchandise during their transport in national territory. This can be done using the CFDI of Income or Transfer as appropriate, to which the Carta Porte supplement is incorporated if the CFDI contains the import request number.
Types of transport in scope of the Carta Porte
The current RMF includes a specific section for Maritime Transport and Motor Transport, which also establishes the rules for exported goods.
It also establishes specific rules for:
The provision of dedicated services
The provision of services for the transport of funds and values
The provision of services for the transportation of goods by carriers who are resident abroad and without permanent establishment in the national territory
Exceptions to the Carta Porte obligation
The exceptions are applicable to:
Taxpayers who provide land transport services of general and specialised cargo when the transportdoes not imply transit through any stretch of federal jurisdiction.
Owners of goods transporting their own assets, when the transport does not imply transit through any stretch of federal jurisdiction.
These taxpayers must prove transport with the printed or digital representation of either the CFDI of Income or Transfer as appropriate without Carta Porte. The CFDI must include the product and service key according to the CFDI Filling Instructions to which the Carta Porte supplement is incorporated. Transport of medicines is not included in this exception, among others.
There is also an exception for the provision of parcel or courier services and consolidated transport of goods, following the corresponding rules.
On 1 May 2021, the Mexican tax administration (SAT) released one of the most important updates to the electronic invoicing system of the country since 2017.
The update was about the new Bill of Lading Supplement (locally known as Suplemento de Carta Porte) that should be added as an annex to the electronic invoice (CFDI) of Transfer (CFDI de Traslado) or to the CFDI of Revenues (CFDI de Ingresos) that are issued for hauling services.
This supplement is based on the provisions of Articles 29 and 29-A of the Fiscal Code of Mexico, and the rule 2.7.1.9 of the Miscellaneous Fiscal Resolution. The articles of the tax code grant the tax administration the power to define the documents to be used for supporting the legal transportation goods inside that country via specific rules. The mentioned rule describes the specific requirements of the Supplement of Carta Porte.
Why has Mexico introduced the Carta Porte supplement?
Latin American countries have a serious problem with tax evasion, usually made possible by smuggling goods without paying the corresponding taxes. According to the information provided by the SAT, 60% of the goods transported in Mexico have an illegal origin.
Therefore, the purpose of enforcing the use of the Carta Porte supplement, whether as an annex to the CFDI of Transfers or the CFDI of Revenues, is to ensure the traceability of the products moved inside the Mexican territory by requiring the provision of additional information about the origin, location, precise destination and routes of transport of the products transferred by roads, rail, water or air in Mexico.
Once this change comes into effect, transporters of goods by road, rail, water or air must have a copy of the Supplement of Carta Porte in the vehicle that proves lawful compliance with this mandate.
Who is required to issue the Carta Porte supplement?
The owner of goods transporting its own assets:When the owner is moving assets from one location to another without making a sale (i.e. from a warehouse to retail store) or when such owner is shipping the goods on consignment. The same obligation to issue the Carta Porte supplement applies when the seller ships the goods to their customer using their own means of transport or when they are shipping those goods for export. In those cases the Carta Porte supplement will come as part of the CFDI of Transfers.
The intermediaries and agents of transport:These agents of transport are known in Mexico as ‘Agentes de Carga’ and they act as intermediaries between the owners of the goods and the hauling companies controlling the logistics, legal documentation and other issues necessary for the delivery of products. In these cases, they will be required to issue the Carta Porte supplement as part of a CFDI of Transfers. The same obligation applies to those that provide intermediation services on behalf of the owner of the goods being transported.
The hauling companies:When they supply services of transportation of goods by whichever means: water, air, road or rail. The suppliers of transportation services should issue a CFDI of Revenues with the Carta Porte supplement.
When will the supplement become mandatory and when should it be issued?
The new Carta Porte supplement became effective on 1 June 2021, but its use will become mandatory 120 days counted from that effective date (30 September 2021). The Carta Porte supplement, whether as part of a CFDI of Transfer or a CFDI of Revenues, should be issued by any of the three parties indicated above, before the transportation of goods begins.
The transporter of the product should have with him a copy of the digital CFDI of Transfer or the CFDI of Revenues, properly validated with the SAT via the corresponding authorised provider of certification services (PAC). The tax and transportation authorities will enact random verification checks on the roads, airports, waterways, train stations, and other transportation means, to ensure compliance with this mandate.
The Carta Porte as a supplement of the CFDI of Transfers or the CFDI of Revenues
As we know, the new regulations require the Carta Porte supplement to be added to the CFDI of Transfers or to the CFDI of Revenues, depending on who is transporting the goods.
The Carta Porte supplement will be added to the CFDI of Transfers when the transport of goods is made by the owner (i.e. internal distributions between warehouses and stores, consignment, etc.) or when the seller assumes the shipment of the products to the purchaser.
The Carta Porte supplement will also be added to CFDI of Transfers when the shipping of the goods is made by an intermediary or by an agent of transport as explained before. In such cases the current regulations provide that the CFDI should have zero as a value of the products and the RFC key to be used is the generic key established for transactions carried out with the public. In the field for description, the object of the transfer should be specified.
When the Carta Porte supplement is issued as part of the CFDI of Revenues (CFDI de Ingresos) as a result of the goods being transported by a haulage company, the haulage company should issue the CFDI of Revenues with the Carta Porte supplement. However, different to the previous case where the CFDI had a value of zero, the value to be included in the CFDI of Revenues will be the price of transportation services charged by the haulage company to the client.
It is important to mention that Carta Porte supplement does not substitute other documents necessary to prove the legitimate origin or ownership of products. Other additional documents will be required for this purpose.
Documents accompanying the Carta Porte supplement
While the Carta Porte supplement provides clear information about the transportation of goods being transferred, that document alone does not prove the lawful status of the goods being hauled. That status should be proven by whoever is providing the transportation, with the corresponding documents proving the origin of those hauled products, such as import documents, CFDI of Pagos, registrations and licenses etc.
In the case of transportation of petroleum products, the lawful status of the product will be proven with the printed representation of the supplement established for that type of products (the Complemento de Hidrocarburos y Petroliferos).
Structure of the Carta Porte supplement
According to the technical documentation released by the SAT, the information provided via the Carta Porte supplement will be conveyed via a number of fields (around 215) that will contain optional and mandatory information about the product being transported, type of packaging used, weight, quantity, insurance, the permit of transportation provided to the hauling company by the Secretary of Public transportation, plate and registration of the motor vehicle used, driver, as well as information about the recipient of the products being transported within Mexico.
The information of those fields will be filled via direct input by the taxpayers or in some cases via the specific choices available in a set of catalogs established by the SAT.
Such catalogs can be grouped as follows:
Catalog of transport: Contains the keys for choosing the means of transport used to move the goods (01 transport by land, 02 Maritime transport, etc.)
Catalog of station: Describes the place from where merchandise was shipped
Catalog of waterways ports, airports and train stations: Lists all the ports, airports and stations across Mexico
Catalog of units of measurements and packaging: Informs the choices about the type of container and the measurements related to the goods being transported.
Catalog of products and services: Indicates the different codes used to identify the products being transported.
Catalog of dangerous materials: Lists the options to describe and identify the products considered dangerous, when they are being transported.
Other catalogs included in this supplement are those related to the type of transport and trailers used to transfer the products by land, packaging, the types of permits, the municipalities, neighborhoods, and locations, among others.
Penalties and sanctions
Once the use of the Carta Porte supplement becomes mandatory, noncompliance with this requirement will have several immediate consequences for the violators.
Seizure of Hauled Goods:The Authority of Roads and Transportation enacts random verification checks of the goods being hauled on public roads in Mexico. If the vehicles transporting goods do not have the proper documentation proving the lawful transportation and origin of those goods, the authority will proceed to seize them until they comply with these requirements.
Fines:both the haulage company and the owner of the goods will be subject to fines by the SAT. In this case, the sanctions will be applied in proportion to the severity of the infraction. Most of the infractions are contained in Articles 84 and 85 of the Federal Fiscal Code and in Annex 5 of the Miscellaneous Fiscal Resolution. In addition to this, the transportation authority may suspend or cancel the driving permissions of the haulage company.
Non-Deductible VAT:When the CFDI of Revenues does not have the corresponding Carta Porte supplement, the VAT charged by the hauling company will not be deductible for the owner of the goods being transported.
Additional clarifications about the scope of the Carta Porte supplement:
When the SAT released the new Miscellaneous Fiscal Resolution for 2021 there were several doubts about the scope of this mandate. This was because for the case of land transportation, the rule established that the use of the supplement would be required only when the goods were transported via federal roads. That original release of the Miscellaneous Fiscal Resolution also established compliance with this mandate would be required to owners of national goods that are part of their assets when they haul those assets in Mexico.
To remove those misunderstandings and limitations, the SAT has recently released a new modification specifying that the mandate will be required for all movement of goods, regardless of the road used. The new resolution also excluded the reference to “national goods that are part of their assets”, so that it is clear now that it applies to any goods being transferred, regardless of its origin.
Take Action
Contact us to discuss your LATAM VAT compliance needs.
The Colombian electronic invoicing system is reaching maturity level. Since its inception in 2018, Colombia has been steadily consolidating and expanding the mandate to make it more stable, reliable and comprehensive.
As a result of the enactment of the recent Resolution 000013/2021, the Colombian tax administration (DIAN), officially expanded the electronic invoicing mandate to also include payroll transactions. This expansion follows the pattern established by Mexico, Brazil and other countries that already expanded the electronic invoicing mandate to payroll transactions as well.
The Support Document for Electronic Payroll is known locally in Colombia as Documento Soporte de Nomina Electronica or also simply as Nomina Electronica. It is a new digital document intended to support and validate the payroll related costs and deductions of income tax and the VAT credits (if applicable) when businesses make payments resulting from labor, legal, and other similar types of relations (pensions).
In simple terms, labour cost transactions should be reported under this new digital system for them to be valid. This is whenever employers make payments for wages, salaries, reimbursements, pensions etc.
Who is required to comply with the electronic payroll mandate?
Employers paying wages under a labor relation, where payments are reported as expenses for income tax purposes or as deductible taxes for VAT, need to comply. However, there are important exceptions derived from that legal framework. For instance, public offices, non-for-profit entities or taxpayers under the simplified regime are not currently required to comply. Consequently, they do not need to use such payments for deductions of income tax or VAT.
Schedule of deployment
The DIAN established an implementation schedule based on the number of employees the taxpayer has in the payroll. There are four stages or groups subject to the following deadlines:
Group
Deadline to start the generation and remittance of the document
Number of employees
From
Up to
1
1 September 2021
More than 250 employees101
2
1 October 2021
101
250
3
1 November 2021
11
100
4
1 December 2021
1
10
Deadline for remittance
As the Nomina Electronica is required to be reported monthly, the payments for each month should be reported by the 10th day of the next month as a result. The adjustment notes should be reported within the same deadline, once they have been made by the employer.
Reporting elements of the electronic payroll mandate
There are two basic types of reports that are parts of this mandate: the Support Document of the electronic payroll, and – when necessary – the Adjustment Note.
Support Document of Electronic Payroll or Nomina Electronica
This electronic document contains the information supporting the payments made to employees as wages and other compensations, deductions and the difference between them made by the employer, as reported in the payroll. The employer must then generate and transmit the document to the DIAN using the XML format established in the technical documentation included in the regulation 000037/2021.
Adjustment Notes
In this mandate there are no credit notes as we know them in the electronic invoice system of Colombia. However, when an employer needs to make corrections to the Support Document of Electronic Payroll reported to the DIAN, it can issue what we know as Adjustment Notes (or Notas de Ajuste) where the employer will be allowed to correct any value previously reported to the DIAN via the Nomina Electronica.
Content and structure of the reports
Employers must submit reports to the DIAN individualised for each beneficiary receiving payments from the employers. As a result, the report requires the provision of some mandatory information for the DIAN to validate. This includes the proper identification of the report itself, the reporting party, in addition to the employees, wages or other payments employees, date, numbering, software etc.
Another mandatory information element that is worth mentioning is the CUNE or Unique Code of Electronic Payroll Support Document. This is a unique identifier for each Electronic Payroll Support Document. It will allow exact identification of each report or the Adjustment Notes issued after it. However, there is some additional optional information that can be provided depending on the needs or convenience of the employer making the report.
From a technical perspective, neither the Support Document of the Electronic Payroll nor the Adjustment Notes are based on the UBL 2.1 structure used in Colombia for the electronic invoice. This is because the UBL standard does not include modules for payroll transactions or reports. Therefore, the DIAN has based its architecture in a different XML standard. Each report requires a digital signature. For that, the taxpayer can use the same digital certificate used for signing electronic invoices.
Generation, transmission and validation
The current regulations do not require that the Nomina Electronica or the Adjustment Notes should be generated by a particular software solution or by a software provider authorized by the DIAN. Taxpayers have the option to generate the report using their own solution. That is a market solution or a solution that the DIAN will provide for small taxpayers. However, all reports should strictly follow the technical documentation issued by the DIAN within the Resolution 000037/2021. The remittance of those documents is electronic, using the webservices specified by the DIAN.
After making the transmission, the DIAN then validates the document. They will then report back the corresponding application response to the taxpayer, indicating its acceptance and validation. Only then, will the amounts reported in the payroll document are valid expenses for the deduction.
Penalties and sanctions
Non-compliance with electronic payroll in Colombia will be subject to the same fines and penalties established for not complying with the electronic invoicing mandate, as defined in Art. 652-1 of the Tax Code of Colombia (Estatuto Tributario). But the most important implication of non-compliance is that any payment not reported by the employer, will not be allowed as expenses for income tax or VAT purposes when applicable.
As managing director, Latin American development, Virginia Costa believes that the key to building motivated teams comes from a clarity of common purpose. This is the way to unleash the full potential of talented teams, build great products and solutions and complete our company mission.
Virginia has successfully led multiple integration processes, overseeing the creation and growth of development teams. She empowers her teams to set high standards built on a strong foundation of integrity.
Her Leadership philosophy is to continuously foster open and honest communication, creating an environment of trust and transparency, mutual respect and diversity.
When she is not working towards our company vision, Virginia enjoys playing tennis and spending time with her family.
Virginia credits her ability to relate to people in different jobs and situations with her well-rounded educational background and many years managing complex projects that required her to look at problems from different angles.
It is time to get ready for the digital transformation of tax with Sovos VAT solutions.
New VAT reporting requirements are sweeping across the world with increasing intensity and diversity. Tax authorities are on a digital transformation journey, profoundly impacting how companies operate and comply with VAT law. As a result, the challenges that a company trading cross-border faces today may well be among the most onerous in history.
We are here to help.
The Rise of Continuous Transaction Controls
The end of this tax revolution, caused by varying forms of digitalization, is not yet in sight. Many countries around the world, particularly in Europe, have just started their individual journeys toward continuous transaction controls (CTCs). Then there are other countries such as Chile and Brazil in Latin America that have had them for many years. They continue to add new features to further close VAT gaps and to add interoperability. As a result, these additions increase economic benefits to the foundations they built.
Multinational companies need a global VAT solution that grows with them. Many companies feel lost among the rapid succession of CTC mandates around the world. They don’t know how to avoid placing themselves in a costly and perilous corner by using a multitude of diverse local solutions. In working with such companies and their solution providers, we know how crucial it is for responsible executives to help all affected corporate functions cooperate toward forming and adopting a coherent approach that turns CTCs into an advantage rather than a risk.
Tax peace of mind
Sovos is a global leader in tax compliance with global coverage and local expertise. We process more than five and a half billion tax compliance transactions every year in more than 100 countries. Our global coverage is supported by over 2,500 employees in more than 15 countries.
We provide our customers with complete tax peace of mind by providing the first complete global cloud solution for modern tax. Our team of 100 regulatory experts constantly monitor the VAT landscape for regulatory changes across thousands of jurisdictions.
As more tax authorities introduce tax reforms to increase efficiency and close VAT gaps, we make sure our customers are prepared. We ensure they’re able to meet the challenges that increased compliance requirements bring. We help businesses stay ahead of fast-changing government regulations allowing them the breathing space to innovate and grow.
Get ready for the digital transformation of tax
Our solutions are built into the business process platforms used today, including SAP, Oracle, and Magento. Sovos provides seamless integration with one global provider and a centralized global VAT solution.
With two weeks to go until the first mandatory phase of the Indian e-invoicing reform go live, the GST Council slammed the breaks. Or at least, bring it to a significant temporary standstill of 6 months. As a result, the India e-invoicing reform is now postponed until 1 October 2020
Following a long list of complaints — both from the private sector toward the GST Council, as well as from the GST Council vis-á-vis the IT infrastructure provider that powers the GST Network, Infosys — the council decided to revisit the 1 April go-live in a recent meeting held today, Saturday 14 March.
Delaying the first mandatory go-live of the e-invoicing reform with six months, from 1 April 2020 until 1 October 2020
Delaying the obligation for B2C invoices. Those issued by the largest taxpayers in India, with a threshold above Rs.500 Crore. This is to include a QR code, from 1 April 2020 until 1 October 2020
Excluding certain types of taxable persons from the scope of the e-invoicing reform
The obligation to generate QR codes. For example, insurance companies, banks, and other financial institutions. Also non-banking financial institutions, and passenger transportation services
Postponing the entry into force of the new GST returns until 1 October 2020
Calling the chairman of Infosys to attend the next three GST Council meetings. This is for the purpose of reporting status updates of technical and infrastructure improvements to the underlying IT platforms that are the foundation of the on-going GST control reforms
The decisions made in the 39th meeting of the GST Council will require either that the legislative framework (Notifications) published in early December be amended or entirely replaced with new ones to reflect the new reality. However, it wouldn’t be unreasonable to expect even further delays to the roll out of this reform. This given to the recent economic volatility triggered by the ongoing pandemic. Only once both global markets as well as the underlying technical platforms of the GST control reform seem to stabilize will the post-October timeline of the roll out be fully certain.
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.
Companies dealing with complex sales and use tax determination, VAT regulations and other tax challenges across the globe know that SAP alone is not equipped to support the varying requirements from country to country. As SAP sunsets support and updates for ECC and R3, companies must move to HANA to keep their systems up to date. With this inevitable change to S/4HANA or HANA Enterprise Cloud, now is the perfect time to step back and develop a comprehensive strategy to managing tax worldwide.
SAP users must migrate to HANA by 2025, but a majority have not yet started the process. Since the move requires major changes to ERP infrastructure, SAP users with global operations should take advantage of the unique opportunity to be more strategic in their implementation. With the right approach, companies can future-proof their solutions in a way that ensures they can keep pace with constant changes in tax regulations throughout Latin America, Europe and beyond.
Learn how to minimise business disruption during an SAP S/4HANA upgrade project in the wake of modern tax: Read Preparing SAP S/4HANA for Continuous Tax Compliance and don’t let the requirements of modern tax derail your company.
Governments around the world are implementing technology for tax enforcement. In order to keep up, companies must make the digitisation of tax a core pillar of their HANA migrations.
In the move to HANA, companies must consider the new world of tax, which includes:
Constant change management – Companies must be able to anticipate and quickly adapt to major tax reform legislation and smaller rate and field changes while not disrupting operations or risking non-compliance.
Internal processes – Compliance often requires changes to basic processes, procedures and technologies employed by global companies. For example, in Latin America, logistics can be impacted by VAT regulations because many countries now require e-invoices to act as a bill of lading, created before products can ship.
Required automation – Standardisation requirements in Latin America and Europe are designed to quickly identify errors and data discrepancies by eliminating paper-based reports in favour of automated processes. Companies must automate their own operations to avoid errors and audit triggers.
The move to S/4HANA or HANA Enterprise Cloud requires companies to move all of their processes, customisations and third-party add-ons to the new platform. As such, there are several critical considerations.
What to migrate, and when
Since most companies’ SAP ERP systems have been built and customised over many years, many will benefit from a phased approach to HANA implementation. The less customised modules, such as Financial Accounting (FI) and Controlling (CO) will be easier to move than Materials Management (MM) or Sales and Distribution (SD), which will need a long-term plan for customisations.
What to do with customisations and third-party apps
Many SAP configurations have become a patchwork of customised code and bolt-on applications. This is especially true when it comes to sales and use tax determination, e-invoicing, and VAT compliance and reporting, since requirements are vastly different in every jurisdiction a company operates. The move to HANA gives companies the opportunity to consolidate, eliminating local configurations in favour of a global strategy. Companies that proactively plan can help to ensure that the next 15 years are simplified, without the constantly changing configurations needed in the previous 15 years as governments have gone digital.
Take Action
With an upcoming migration to SAP HANA, businesses must consider a solution that maintains SAP as the central source of the truth while keeping pace with constant regulatory change. Learn how Sovos is helping companies do just that, safeguarding the value of their HANA implementation here.
The Common Reporting Standard (CRS) is fast becoming the global standard for tax information reporting outside the United States. As more countries adopt CRS, and as penalties for late, incorrect or missed CRS filings become more severe, financial institutions need to know what their compliance requirements are. The following are clarification and detail about what insurers need to know about CRS reporting obligations.
Establishing Key Terms
Under the CRS, the term “Financial Institution” means a Custodial Institution, a Depository Institution, an Investment Entity, or a Specified Insurance Company. (CRS, Section VIII: Defined Terms, A.3).
A “Specified Insurance Company” is “any Entity that is an insurance company (or the holding company of an insurance company) that issues, or is obligated to make payments with respect to, A Cash Value Insurance Contract or an Annuity Contract.” (Section VIII, A.8). Insurance companies that only provide general insurance or term life insurance will not be specified insurance companies, nor will reinsurance companies that only provide indemnity reinsurance contracts.
Typically, an insurance company meets the criteria of a Specified Insurance Company if:
It’s regulated as an insurance business in the country where it does business
More than 50% of the company’s gross income in the past calendar year came from insurance, reinsurance, and annuity contracts
At any time in the last calendar year, the combined value of the entity’s assets associated with insurance, reinsurance and annuity contracts was more than 50% of its total assets for that year.
The entity issues cash value insurance or annuity contracts
Insurance companies that provide only general insurance or term life insurance are typically not classified as FIs; likewise, reinsurance companies which provide only indemnity reinsurance contracts and insurance brokers are typically not considered to be FIs.
Of the five types of financial accounts that must be reported under CRS, two relate to insurance companies: annuity contracts and cash value insurance contracts.
Reporting Requirements
Under the CRS, all reporting FIs have the obligation to report the following:
Name, address, jurisdiction(s) of residence, TIN(s), date of birth, and place of birth of each reportable person that is an account holder
For insurers, reportable TINs may include insurance contract numbers.
The account number
Name and identifying number of the reporting FI
Account balance or value at the end of the relevant calendar year or other appropriate reporting period
The CRS does note that in reporting account balances or values, that Cash Value Insurance Contracts and Annuity Contracts, FIs should report the Cash Value or surrender value of the contracts. (Section I, A.4).
In order to meet the requirement to report residence of the account owner, insurers who provide Cash Value Insurance Contracts may rely on the current residence address in its records until 1) there is a change of circumstances that causes the FI to know or have reason to know that the residence address is incorrect or unreliable, or 2) that the time of pay-out (whether full or partial) or maturity of the Cash Value Insurance Contract.
Insurance companies do not have to report, review, or identify a pre-existing individual account that is a Cash Value Insurance Contract or an Annuity Contract provided that the FI’s jurisdiction prevents FIs from selling contracts to residents of that jurisdiction.
Due Diligence Requirements
The CRS establishes an alternative due diligence procedure for Cash Value Insurance Contracts and Annuity Contracts in Paragraph B of the Special Due Diligence Rules. The CRS advises that a reporting FI may presume that an individual beneficiary (other than the owner) of a Cash Value Insurance Contract or Annuity Contract receiving a death benefit is not a reportable person, and that FIs may treat such accounts as other than a reportable account unless the reporting FI has actual knowledge or reason to know that the beneficiary is a reportable person. If the beneficiary is a reportable person, the FI is required to follow the procedures established in paragraph B of Section III.
The Commentary to the CRS notes that an alternative procedure similar to the above may be necessary for certain employer-sponsored group insurance contracts or annuity contracts. In such cases, the Commentary suggests adding a provision to account for group insurance contracts. In cases where such group insurance plans exist, the Commentary advises a provision to state something similar to the following: “A Reporting Financial Institution may treat a Financial Account that is a member’s interest in a Group Cash Value Insurance Contract or Group Annuity Contract as a Financial Account that is not a Reportable Account until the date on which an amount is payable to the employee/certificate holder or beneficiary, if the Financial Account that is a member’s interest in a Group Cash Value Insurance Contract or Group Annuity Contract meets the following requirements:
The group cash value insurance contract or group annuity contract is issued to an employer and covers twenty-five or more employees/certificate holders;
The employees/certificate holders are entitled to receive any contract value related to their interest and to name beneficiaries for the benefit payable upon the employee’s death; and
The aggregate amount payable to any employee/certificate holder or beneficiary does not exceed $1 million.
(Commentary on Section VII, paragraph 13; pg. 153). The last provision is provided if the Financial Institution does not have a direct relationship with the employee/certificate holder at inception of the contract and thus may not be able to obtain documentation regarding their residence.
Conclusion
Insurers who fall under the definition of Financial Institution provided by the CRS are obligated to report on Cash Value Contracts and Annuity Contracts, so long as such contracts are allowed in the jurisdiction the FI is reporting from. These FIs have an obligation to comply with the due diligence requirements that the CRS imposes on them, and can make use of an alternate procedure to comply.
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Overview
The main indirect tax of Mexico is the Value Added Tax (locally known as IVA), which generally applies to all imports, supplies of goods, and the provision of services by a taxable person unless specifically exempted by a particular law. The tax is imposed by the federal government of Mexico and ordinarily applies on each level of the commercialisation chain. This tax has been applied in Mexico since 1980.
Click here to read “Why the New Process for Cancelling E-Invoices in Mexico Matters“
Tax Rate
Mexico applies a single standard rate of 16% across the country. However, there is also a 0% rate applicable to exports and the local supply of certain goods and services. Sales of ice, fresh water, machinery and raw materials for manufacturers, books, newspapers, magazines by their editors, medicines, as well as the supply of services to eligible manufacturers, are subject to the 0% rate.
It is worth mentioning that until December 2013, Mexico applied a reduced rate of 11% in Mexican Border states of Baja California Norte, Baja California Sur, Quintana Roo, the municipalities of Caborca and Cananea, and in the bordering regions of the Colorado River in the state of Sonora. This was an effort largely to attract businesses to these areas and because the sales tax in the U.S. border states was half of the IVA in Mexico. These regions were commonly referred as the “maquiladora zones.”
That 11% reduced rate was revoked starting January 1, 2014, and substituted with a broader regime of incentives aimed at the manufacturing companies located in that region.
Taxable Base and Exemptions
As mentioned before, the Mexican IVA applies to all goods and services unless specifically exempted by the law. There is a wide variety of goods and services exempt from the tax, including:
Sales of houses except those to be used for commercial purposes
Retail sales of books, magazines and newspapers
Used goods sold by non-taxpayers
Currencies
Financial instruments
Gold at least 99% pure
Machinery and equipment used on agriculture
Certain goods between manufacturers subject to special export oriented regimes
Certain commissions related with mortgage loans and the administration of retirement funds
Free services provided to members of qualifying nonprofit organisations
Educational services provided by public and private chartered entities
Public transportation provided in urban or suburban zones
Maritime transportation of goods provided by entities not resident in Mexico
Insurance services
Qualifying financial services
Certain public shows
Professional medical services
Copyrights
Credit-Debit Mechanism
The Mexican IVA doesn’t differ much from IVA in other countries in that it allows the taxpayer to deduct the IVA that has been paid to the taxpayer’s suppliers or IVA that the taxpayer has paid himself at the time of importing goods that were subject to the tax. In addition to the IVA paid on imports and local purchases, the taxpayer also has the right to credit the IVA withheld by clients that are required to apply the reverse charge system that we are going to examine later.
In those instances where the taxpayer cannot use all the credit that has been accumulated on its purchases, the remaining amount can be carried over to later periods or eventually even to request a reimbursement from the government.
Taxable Event and Periodic Payment
One of the unique characteristics of the Mexican IVA is that when determining the taxable event, the law requires the taxpayer to use the cash accounting method rather than the accrual accounting method. What this basically means is that IVA on a sale is considered due when the seller is effectively paid, rather than when the invoice has been issued, the service provided or the good has been supplied. If the seller does not get paid, no tax liability exists either.
In general, the Mexican IVA should be paid on a monthly basis, no later than the 17th day of the month after the taxable event occurred.
