Latin America leads the world in tax-related Electronic Invoicing or “ e-invoicing”- implementation, the practice of submitting and formalizing every business invoice electronically through the government before it can be sent to customers. But compliance can be fraught with challenges for multinational organizations as they struggle to understand and adapt systems to each country’s unique and varied requirements.
In this blog, we will show you best practices for navigating the complex landscape for electronic invoicing in Latin America that impacts customer invoicing as well as the supplier side – preventing unfamiliar, country-specific legal and technical standards from becoming an obstacle to doing business in the region.
Chile is widely considered the pioneer of e-invoicing implementation in Latin America, emerging as one of the first countries globally to start the practice in the early 2000s. In 2014, it passed a law enforcing participation from all companies within five years. Mexico and Brazil were also early adopters.
Specific rules vary among countries. But electronic invoicing essentially requires businesses to obtain a digital certificate from the local tax authority for every invoice they issue before they can seek payment from customers – regardless of industry or size. This digital stamp certifies the document includes all the tax information the country requires; for instance, the face of invoices issued in Mexico must show tax ID number, fiscal address, payment method, folio number, type of electronic document, and more.
In most locations, the volume of invoices needing approval quickly overwhelmed local tax authorities. Now, most jurisdictions require companies to work with a PAC – a government-approved, third-party certification provider - to validate and stamp invoices. Information collected from each certified invoice drives a company’s VAT (value-added tax) and withholding tax liability in the country.
Electronic invoicing has spread like wildfire across Latin America, with most countries imposing or planning to impose mandatory use. Topping the list of countries with robust requirements in place are popular commercial destinations like Argentina, Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Paraguay, Peru, and Uruguay.
More than 15 billion of the 36 billion electronic invoices issued globally in 2017 came from Latin America, according to web tech blog ReadWrite.
Latin America’s regulations are designed to mitigate high tax evasion rates - creating transparency and improving collection with traceable, reliable registration of taxes on sales and income. That deters tax fraud like invoice omissions and claims of false purchases.
Case in point: Mexico started e-invoicing implementation in 2012, with nearly 100% of businesses compliant by the end of 2018. Since then, its government tax revenue has jumped from a rate of 37.4% in 2012 to 57.7% in 2017, ReadWrite reports.
However, electronic invoice services provide operational and strategic benefits for companies as well: streamlining processes, reducing costs, improving fiscal control, creating an easy audit trail, and providing better access to actionable data that leads to informed decision-making.
Yet while e-invoicing implementation is widespread in Latin America, U.S.-based organizations with Latin American operations lack experience with the process and often struggle to get it right. Non-compliance leads to many pain points, including returned invoices and payment delays that can impact cash flow.
Failure to comply can harm customer relationships as well, as some countries penalize enterprises for paying invoices without a digital stamp by preventing them from deducting the expense from their taxes. It’s important to note that vendors that do business with companies operating in Latin America are subject to the same requirements.
But why does e-invoicing cause trouble?
- With every country implementing different e-invoicing rules and regulations, organizations operating in multiple Latin American locations face multiple compliance checklists. Compliance is often elusive, as enterprises struggle to navigate varied, complicated, and ever-evolving tax regulations to understand what information is missing from their invoices in each country. Beyond country-specific invoice fields, applying taxes to invoices in Latin America can be extremely complex, with a variety of taxes and tax rates and differences that may exist at the federal, state or region, and city or municipal levels.
- If a company’s existing software isn’t integrated with the local tax authority, officials can’t electronically certify the invoice application and issue a digital certificate. Most Latin American countries require invoice submissions in a specific data format – typically XML.
- Both Latin American businesses and multinationals struggle to generate invoices that capture country-specific requirements through their ERP system’s available fields. Even local software solutions won’t work if they were developed before current mandates were enacted.
- Without the required fields, the process will fail because enterprises can’t transmit a compliant XML e-invoice file.
- Workarounds currently in place aren’t a sustainable solution - forcing companies to manually re-create each invoice in the local tax authority’s portal. That’s a massive undertaking for businesses that produce thousands of invoices daily, eliminating the ability to leverage time-saving automations within their ERP. Such a significant amount of manual rework also increases the risk of mistakes, tax audits, and penalties and fines for non-compliance. Time and resources are wasted as well as staff must enter invoices in their ERP and the tax portal, and then reconcile the information to ensure it matches.
It’s not easy to find a centralized technology solution that can adapt to the legal and technical standards defined by the electronic invoicing system of each country. Fortunately, enterprises can achieve best practices and automatically comply with Latin America’s local e-invoicing rules in three ways:
Implement local software packages that comply with current requirements. This solution is best suited to smaller companies with smaller invoice volumes. However, the cost can quickly add up because companies will need to purchase a separate package for each country.
Leverage existing localizations within your ERP system. Some ERP systems offer localizations that meet country-specific requirements in the region. An experienced third-party provider is typically used to configure the necessary fields and generate valid invoices.
Leverage your existing ERP by customizing forms if localizations don’t meet the mandate of a country you do business in. Once again, an experienced third-party provider can help you customize invoices that incorporate fields omitted from existing localizations.
E-invoicing implementation might not sound so scary to organizations with operations in a single Latin American location. But the complexity of securing government certifications and keeping pace with fast-changing regulations increases considerably for enterprises that operate in more than one country.
An exceptional BPO provider with deep experience managing electronic invoice services in Latin America can help companies easily overcome these challenges. Experienced nearshore providers know how to properly assess your invoicing process and technology to identify gaps that will cause electronic invoicing to fail.
They also assume responsibility for sending information that complies with the specific technical and legal requirements of each country. Reputable providers have the expertise to coordinate and manage an end-to-end solution: designing an e-invoicing process that ensures compliance, updating your system so it integrates with local tax authority requirements, producing the proper XML files, working with PACs, and reconciling data to avoid fines and audits.
The electronic exchange of invoices can deliver many benefits – but it can also turn into a costly headache for companies that struggle to get it right. Outsourcing the process to an exceptional nearshore provider ensures the challenges of e-invoicing implementation don’t negate the rewards of doing business in Latin America.