E-invoicing in Mexico | the CFDI
A smart way to e-Invoice and a smarter way to collect taxes
In our second post on Latin American tax compliance, we take a tour through Mexico’s new electronic invoicing landscape.
Shifting the focus a little further north of Brazil, we turn to Mexico, arguably the most advanced Latin American country when it comes to e-Invoicing.
At the start of this year Mexico updated its original mandated e-Invoicing process, Comprobante Fiscal Digital (CFD), to the more sophisticated Comprobante Fiscal Digital por Internet (CFDI).
The CFDI is an easier, more efficient and more economical way for suppliers to send electronic invoices, especially as the government introduces even harsher sanctions for incorrect invoicing. Suppliers, with the help of locally accredited service providers known as PACs (Proveedor Autorizado de Certificación), can send digitally signed e-Invoices, in the prescribed XML format, to the tax authorities for verification before being sent to the buyer for receipt.
Once upon a time in Mexico
But if Mexico had one of the world’s most advanced e-Invoicing processes, why did it feel the need to change? The story begins in late 2012, when the nation elected a new president. As is often the case, a change in government resulted in a change of policy and focus. While e-Invoicing itself may not have been at the top of Señor Peña Nieto’s legislative agenda, significant growth in infrastructure and investment most definitely was.
The global economy was relatively stagnant in 2012, and Mexico was still overly reliant on its primary commercial partner, the United States. It therefore had to look within to fund new growth and combat the staggeringly strong shadow economy. Reuters reported that six in ten Mexican workers, or 30m people, lived in the informal economy during this time. According to Labor Minister Alfonso Navarrete, the country was losing three or four percentage points of GDP every year because 60% of its workers were not generating any taxes.
Fiscal reform was a key catalyst for change in Señor Peña Nieto’s new government: he needed to create funding through increased taxes, which is where e-Invoicing and the new CFDI process enter the story.
The ability for the tax authorities to verify every invoice, from an authorised PAC and in a standardized format, is essential to efficient tax collection. The Mexicans have taken this one step further by introducing a Tax Identification Number for every Mexican over the age of 18. Now every young person who begins their working life must invoice electronically, and all invoices will contain their unique tax number. Anyone who attempts to evade the law and work more hours than they invoice for can be easily located through their address, which is on every invoice previously submitted, or via their unique tax number.
Moving forward, the Mexican government also has extensive plans for electronic audits. New auditing rules compel companies to store records for up to ten years, and the authorities also have the power to ‘re-audit’ previously audited fiscal years.
As for e-Invoicing, new sanctions have been implemented within the fiscal code, and those found guilty of fraudulent invoicing may incur large fines or possibly even jail time. A significant, and many would say necessary, deterrent.
This means that it has never been more important to e-Invoice compliantly in Mexico. And that means that it has never been more important to invest in the expertise of a service provider that can perform thorough validations on every invoice.