Mexican electronic invoicing system

Mexico's electronic invoicing requirements:

Mexico has one of the most sophisticated electronic invoicing systems in Latin America. Known locally as Comprobante Fiscal Digital por Internet, or simply CFDI, it was established in 2011, when it replaced the CFD or Comprobante Fiscal Digital. The difference between these two types of receipts/certificates that replaced the paper invoice is that the CFDI requires validation by an Authorized Certification Provider, also known as PAC. In some cases such validation can be done directly with the Tax Administration Service (SAT).

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Types of tax certificates

Mexico’s electronic invoice system contains multiple types of tax certificates. Among the main ones are:

Income receipt: issued mainly in sales transactions for which some type of income is received in cash, check or any other form, generally for sales of goods and services, but also in case of donations and fees.

Proof of expenditure: this type of tax certificate is issued in cases where the company pays or returns money as a result of refunds, bonuses, discounts, or total cancellation of an income voucher. These are equivalent to credit notes.

Transfer certificate: these are used to justify the legitimate acquisition or possession of the goods that need to be transferred. 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: these receipts are 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 the collection of a total or partial payment. Therefore, they are used for total payments (single payment), partial payments or credit payments received after the original CFDI has been issued. They contain a complemento de pagos (payment supplement). The Mexican VAT system uses cash accounting, which means that companies only pay VAT on the payments they receive immediately for their taxable sales. However, the electronic invoices that sellers provide to SAT include information on all sales, whether paid in cash, on credit or through deferred payments. That means that the number of invoices for a given month may not match the amount of VAT reported to SAT if sellers have received credit payments or have accepted late payments from previous transactions. The payment receipt add-on closes the information gap between the number of payments received and the number of transactions in a given period.

Withholding and payment information certificates: these are 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.

Related certificates: these are tax certificates that are related to other previously issued certificates of the same type. They are necessary, for example, when a credit note is issued due to an error in its content, or when a transfer CFDI is issued for merchandise that has already been paid for and for which it is necessary to include a reference to the original CFDI.

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 the so-called “complementos”, which are attached to the original CFDI. The main complements of the invoices or CFDI are the following:

IEPS credit
Airlines
Proof of destruction
Foreign trade
Bill of Lading Supplement
Purchase and sale of foreign currency
Fuel consumption
Donations
Fuels statement of electronic purses
Complement of Hydrocarbons

INE
Private educational institutions
Tax captions
Notary public
Works of art and antiques
Other duties and taxes
Payment in kind
Individual member of a coordinated group
Receipt of payments
Payroll payment receipt

Vehicle refurbishment and replacement
Retail sector (Retailer)
Partial construction services
Third party to third party SPEI
Third parties
Digital tax stamp
Foreign tourist passenger
Food vouchers
Used vehicle
Sale of vehicles

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:

Disposal of shares
Dividends
Interests
Leasing

Payments to foreigners
Prizes
Non-business trusts
Retirement plans

Mortgage interest
Derivative transactions
Financial sector

Essential Components

Both the Tax Code (Código Fiscal) and the current Miscellaneous Tax Resolution (Resolución Miscelánea Fiscal, RMF) establish a series of essential conditions with which CFDIs must comply. Annex 20 of the RMF details the technical requirements with which CFDIs must comply, both in terms of content and format, as well as syntax. In terms of content, we detail some of the most essential components for income CFDIs:

Header: used to identify the issuer, its RFC, tax regime, date, and place from which the CFDI is issued, folio or UUID assigned, SAT digital seal, information on the receiver, RFC, etc. In the case of transactions with the general public, a generic RFC must be provided.
Item detail: description by code of the goods and services sold, quantity, unit of measurement, etc.
Value consigned: includes the value for each good or service detailed in numerical format.
Commissions and other charges: mandatory field for invoice settlements.
Discounts and surcharges: identify total discounts or surcharges.
Informative subtotals: optional fields to report subtotals.
Type of payment made: a) one-time payment (cash); b) payment in installments; c) other form of payment.
Reference information: identifies the documents associated with the issued.
SAT digital stamp.
Signature with a valid advanced electronic signature certificate.
Date and time of the electronic signature.

In the case of the printed representation of the CFDI, it must comply with certain minimum conditions established by the Tax Code and the RMF.

Two-dimensional barcode or QR generated according to the technical specification established in item I.D. of Annex 20 or the fiscal folio number of the receipt
Serial number of the issuer’s and SAT’s Digital Seal Certificate
The caption: ‘This document is a printed representation of a CFDI’
Date and time of issuance and certification of the CFDI
Original string of the digital certification complement of SAT

It is important to point out that the requirements indicated above apply to CFDIs de ingresos (income CFDI). Other CFDIs issued on transfer, payment, payroll, expenses or related, contain other additional requirements or substitutes for the above. Likewise, there are other optional requirements depending on the type of good sold OR service. For example, in the case of sales of vehicles, foreign currency sold by exchange houses, donations or disbursements on behalf of third parties, additional information to those indicated above will be required in the CFDI issued.

Processes

Validation

In order for a CFDI to be legitimate, it must be duly validated before the SAT or by the Authorized Certification Providers (PACs) before being sent to its recipient. For this validation process to be possible, the CFDI must comply with the essential format conditions defined in Annex 20 above:

a) The generated XML file must comply with the technical conditions of format and syntax established in the Miscellaneous Tax Resolution and its technical annexes.
b) Said CFDI must pass the validation rules established for the content and format of the XML file generated.
c) In case the CFDI contains additional supplements required according to the type of transaction or parties involved, such attachments must also comply with the validation rules established by law and the RMF. All this requires that the electronic file of the CFDI is duly referenced to the XSD scheme specified according to the path published by the SAT.

In general, CFDI validations are not performed directly by the SAT (with few exceptions), but by PACs. A PAC is the legal entity authorized by the Tax Administration Service to review the integrity of the XML file, ensuring that it complies with the current technological standard defined by the SAT. In addition, it is obliged to send the authority a copy of the CFDIs validated by its clients. Once the corresponding validations have been performed, the PAC will assign the corresponding fiscal folio -also known as UUID- and will stamp or certify the XML file, thus converting it into a digital invoice. This process is always done electronically and 100% digitally.

Tax Mailbox

The fiscal mailbox is a digital messaging system installed in the SAT’s web portal, through which the SAT communicates with taxpayers and taxpayers must use to communicate with each other, especially in matters related to invoices received and issued. The notification, acceptance, or rejection of the cancellation of the CFDI by other means is not valid for tax purposes in Mexico. Acceptance may be express or tacit.

CFDI Cancellation

The CFDI cancellation process is currently regulated by the Rules of the Miscellaneous Tax Resolution and Article 29A of the Mexican Tax Code, which provides two basic processes for the cancellation of a CFDI: one that requires the authorization of the invoice recipient through the fiscal mailbox (tax mailbox) and one that does not. The cancellation can be made no later than the last day on which the income tax return must be filed.

By default, the recipient of an invoice is required to accept its cancellation for it to proceed; however, according to Rule 2.7.1.35 of the Miscellaneous Tax Resolution, there are twelve cases in which exceptionally the acceptance of the counterparty will not be necessary:

The amount of the invoiced transaction does not exceed MX$1,000.00
The sales are to final consumers
The sales are to residents abroad
Payroll
For expenses (credit note)
For concept of transfer
When the CFDI to be cancelled contains withholdings and payment information
When the cancellation is made within the following business day
Por concepto de ingresos expedidos a contribuyentes del RIF (actualmente RESICO)
For income issued to RIF taxpayers (currently RESICO)
When the CFDI is issued by governmental organizations
In the case of certain CFDIs of income issued for agricultural activities and others

As of January 2022, when the CFDI must be cancelled, the cause of cancellation must be indicated in the cancellation request. These causes of cancellation are the following:

Receipts issued with related errors.
Receipts issued with unrelated errors.

The operation was not carried out.
Nominative operation related to a global invoice.

When the purpose of the cancellation of the CFDI is to replace it with a new one, the new CFDI must make reference to the cancelled CFDI and vice versa.

Penalties

Mexico provides a wide range of penalties for those who fail to comply with the electronic invoice obligations established in the Federal Tax Code (Código Fiscal de la Federación or CFF) and in the current Miscellaneous Tax Resolution (Resolución Miscelánea Fiscal). In general, these penalties correspond to fines applied according to the seriousness and periodicity of the violations. Articles 83 and 84 of the CFF establish in detail these infractions, whose penalty is defined and updated annually in Annex 5 of the Miscellaneous Tax Resolution in force. It should be noted, however, that in certain serious cases, both the Tax Code and the Miscellaneous Tax Resolution establish that the SAT may sanction violators with the closing of the establishment from which such violations are committed.

Evolution of the Electronic Invoicing Law in Mexico

Legal Framework

The general obligation to issue CFDIs is defined in the Mexican Tax Code (Código Tributario de México), also known as the Federal Tax Code (Código Fiscal de la Federación). Article 29, paragraph II, requires taxpayers to issue CFDIs using the formats established for this purpose by the Tax Administration Service (SAT). These provisions are more detailed in the Regulations of the Federal Tax Code.

Miscellaneous Tax Resolution in force

The technical details of the CFDI are established in a decree issued annually, known as the Miscellaneous Tax Resolution (RMF). In such resolutions, the tax administration sets forth the technical conditions that such electronic documents must comply with, the term for their remission, validation process and others. Rule 2.7.1.2 of the RMF requires that the CFDI, and the digital stamps for the same, comply with the technical rules established in such resolution.

SAT Publications

The SAT periodically issues technical publications aimed at changing the content of CFDIs. The schemes, files, guides, and other documents necessary to comply with the electronic invoicing mandate are regularly updated by the SAT and published on the SAT's website.