CFDI is an electronic invoicing (e-invoice) standard and related process necessary to conduct business in Mexico and Latin America. This article focuses on Mexico's digital transformation program that requires CFDI-compliant electronic sales. bills instead of paper invoices in Mexico.
What is the CFDI?
CFDI (Digital Tax Receipt over the Internet) is a government standard for conducting business in Mexico and Latin America that requires issuing electronic sales invoices (e-invoicing) and other electronic documents in a specific format instead of using paper documents, and sharing them electronically. documents with tax authorities. For taxpayers, the CFDI is a digital tax receipt that allows tax deductions.
An electronic invoice in Mexico, which was originally used in 2004, is known as a CFDI. Mandatory CFDI for large companies began in 2010. In 2014, all companies were required to comply with an earlier version of the CFDI. Version 3.3 came into effect in 2017.
In addition to requiring electronic sales invoices that comply with the CFDI 4.0 standard for doing business in Mexico, the country's CFDI regulations also require the use of related electronic credit memos, payment receipts, and payroll invoices.
Who participates in the CFDI?
In Mexico, the CFDI e-invoicing process involves companies that issue e-invoices, their e-invoice clients, e-invoice generating software, PAC intermediaries that examine and validate e-invoices for the government and authorities. Mexican. tax authority, (SAT).
PAC means a third party that is an Authorized Certification Provider approved by the Mexican tax authority, SAT. The abbreviation SAT is the acronym for Tax Administration Service.
Given its complexity, attorneys and public accounting firms are also engaging in CFDI to advise clients. The CFDI's reach has even reached the realm of M&A transactions, but not without legal problems.
Why is the CFDI important?
The CFDI is important because it enables efficiency through document digitization and electronic exchange and helps Mexico and certain Latin American countries enforce tax compliance by seeing business transactions validated almost immediately.
From another point of view of importance, if companies do not comply with the CFDI, they can receive sanctions and penalties from the SAT, preventing them from doing business in the CFDI country and costing them money. If they are not already banned from doing business in the country, companies will experience delays in receiving payments from customers until they comply with the CFDI.
CFDI Version 4.0
CFDI 4.0 is currently the latest version of the CFDI standard in Mexico for submitting electronic documents such as sales invoices, instead of paper documents, when doing business in that country.
Starting January 1, 2023, the CFDI requires companies to submit compliant electronic sales invoices (and other documents covered by CFDI, excluding electronic payroll invoices) in Mexico. He date of implementation for electronic payroll invoices was delayed three months until April 1, 2023.
How does the CFDI work?
The CFDI process works with these steps:
- The business connects electronically with a PAC and obtains an electronic signature key called Advanced Electronic Signature (FIEL).
- The business uses a CFDI-compliant electronic invoice generator and digitally signs the electronic sales invoice in XML format that follows CFDI 4.0 standards.
- The PAC validates the electronic invoice, applies a Digital Seal upon validation and assigns a folio number to the CFDI.
- The PAC sends the validated electronic invoice with the digital seal to your business to send it to the client (either in XML or PDF format).
- The PAC, immediately after validation, digitally reports the CFDI electronic invoice to the SAT tax authority.
- The SAT includes the electronic invoice in the tax portals of the issuer and the client.
- The SAT requires this CFDI digital tax receipt to allow tax deductions by taxpayers.
- The SAT issues a list of government sanctions, initiates tax audits, and investigates tax evasion schemes.
To get started with CFDI compliance, find a software and PAC company authorized to generate electronic invoices for your company to conduct business in Mexico or geographic areas of Latin America, where CFDI is required. Nanonets enables businesses to generate CFDI-compliant electronic sales invoices through its automation software platform.
How to Meet CFDI Requirements?
To comply with CFDI requirements in Mexico, follow the requirements of the current CFDI 4.0 standard (or any subsequently issued) to use electronic invoices and cancel a previously issued CFDI. Additionally, consider the CFDI requirements for any other related CFDI electronic documents that may be referred to as “supplement” addendums.
The digital tax receipt (CFDI electronic invoice) includes income, costs and taxes of the product or service to allow the SAT tax authority to receive validated electronic information within 3 days after the time of the transaction to make the tax collection effective in Mexico.
The standard requirements for CFDI 4.0 electronic invoicing are:
- XML data format for electronic invoices
- Digital signature of the issuer of the electronic invoice
- Digital Seal as a second digital signature by the PAC after validation of the invoice
- Standard format, which includes a two-dimensional barcode, is linked to the SAT for validation of the electronic invoice by the PAC and allows the printing of the digital invoice.
- Electronic archive of CFDI documents for five years, with business and client access
- Information requirements added by CFDI version 4.0
- Name of the sender or recipient company
- Postal Code
- Tax address of the recipient
- Primary sector
- Specify whether to export
- Indicate whether you are subject to taxes, including indirect taxes
- Changes in the information and validation rules of CFDI 4.0
With CFDI 4.0 the following changes have been made to the CFDI cancellation rules:
- You must indicate your choice between 4 reasons for canceling CFDI and replace the CFDI with a specific numbered folio
- Service response codes have changed
- CFDI cancellations must be validated as occurring in the fiscal year in which the CFDI was originally issued.
- The client must approve the cancellation of the CFDI within 72 hours
Related electronic documents affected by the CFDI regulations include:
- Version 2 changes the payment receipt plugin for a CFDI Type P, used to receive partial payments or deferred payments
- Changes to validation rules
- Is the payment taxable?
- Taxes transferred or withheld?
- CFDI withholding for tax withholding
- Payment information for resident taxpayer payments made outside the country
CFDI Compliance Challenges and Solutions
Challenges with CFDI compliance include the wide range of rules and the complexity of electronic billing. when they are doing cross-border payments, these regulations are different from the normal rules of your home country. If your company does not follow CFDI regulations, you could be prohibited from doing business in CFDI jurisdictions.
Companies that issue electronic invoices must follow exactly the XML formatting standards and keep up to date with changes to these CFDI standards. CFDI rules are issued in Spanish, which requires an understanding of the language or access to accurate translations. Most companies need help to do it right, collect B2B payments quickly and continue doing business in Mexico or other CFDI-regulated countries in Latin America.
Your company needs to overcome electronics invoice versus sales order Challenges of the CFDI. Nanonets stays up to date on global CFDI regulatory requirements and enables businesses to efficiently generate CFDI-compliant electronic sales invoices (e-invoices) through its automation software platform that works with different data formats and includes advanced solutions. document capture.
Conclusion
Following CFDI requirements is essential for doing business in Mexico and some other countries that use CFDI rules. Technological solutions like nanonets can help automate workflow requirements, such as those required for CFDI, and streamline the management of your company. order to cash process.
Nanonets is an automation software company with accurate OCR solutions based on artificial intelligence and machine learning. invoice data extractionand business process workflows. Nanonets provides a CFDI-compliant e-invoicing solution to companies selling products or services to customers in Mexico or Latin America. Contact Nanonetworks For more information on how to implement CFDI with electronic invoicing.
