Financials 2015 speaker Steve Sprague of Invoiceware International took readers' questions on current and upcoming regulations, including the latest requirements from Columbia, Chile, and Argentina, along with updates in Brazil and Mexico.
Review all the Q&A discussion by viewing the chat replay, below, along with the edited transcript from this informative chat.
Kristine Erickson, SAPinsider, Moderator: Welcome to today’s chat on managing your SAP systems for Latin American e-invoicing compliance.
Thanks to everyone who already posted questions – we’re looking forward to a great discussion! You can continue to submit your questions during today’s live chat.
Here to answer your questions today is Invoiceware International’s Steve Sprague, a speaker at our recent Financials and GRC 2015 conferences.
Steve, thank you for joining us!
Steve Sprague: Thanks for having me.
SAPinsider: Steve, before we get to questions that have come in from readers, I wanted to kick off with your thoughts on Latin American compliance generally:
Regulations continue to be added, and the more established mandates in Brazil and Mexico continue to be updated. Where are the biggest areas of change? How have you seen risks, costs, and penalties changed? And what makes Latin America different from invoicing rules in other regions?
Steve Sprague: Latin America is really moving now. What was once 3 countries mandated a little over a year ago is now approaching 10 countries. All the tax authorities are seeing the success in Brazil and Mexico and moving toward similar models.
Additionally, we see the mandates moving across business processes. E-Invoicing in Latin America is not just a financial issue; it is, of course, a tax issue, a billing issue, a payables issue, a VAT reporting issues and, interestingly enough, a supply chain issue.
The biggest areas of change really depend on the country. For example, Brazil just finished their 3.1 migration and is now on to more in-depth fiscal reporting.
Mexico, on the other hand, is more focused on their first set of fiscal reporting known as eContabilidad. Peru and Uruguay are in their initial waves of mandates for e-invoicing. And countries like Colombia and Costa Rica are in the midst of announcing their mandates.
As a company focuses on Latin America, I would give this general advice:
>> For IT
I have seen companies end up with 13 different solutions across the region. One for Brazil, one for Mexico, a different one for Chile. Additionally, it is common to end up with 3 different solutions in a single country — this could be one for billing, one for payables, and a different one for tax.
- You can focus on this regionally, not building out this spider web of upgrade nightmares
- No matter the connectivity solution, remember that SAP configuration, support, and change management is 80% of the implementation and ongoing costs.
>> For Supply Chain:
Remember this is a shipping issue. You can't ship goods in most countries without approval.
- Make sure you implement the "contingency processes."
- You can also turn compliance into an inbound receiving advantage, lowering warehouse and manufacturing costs.
>> For Finance:
This is about taxes — your VAT deductions must be matched by a legal government XML. They literally can audit you in real time.
- You do not want to look at AP and Tax reporting separately - they are one in the same in these countries and the penalties are severe.
SAPinsider: I’m sure we’ll revisit many of these points throughout this chat... For now, we’ll let you get to the questions that have already been posted by readers!
Comment From Matt
Did Argentina just change the laws again? What is the new deadline?
Steve Sprague: Yes, Argentina made another announcement back in February. The AFIP used to mandate by Tax Regime. This new announcement was nationwide, meaning all companies of a certain revenue size, regardless of industry, must be able to send e-factura. The deadline is July 2015 for these new companies.
The other changes are updates to their Libros reporting. Libros are transaction reports for Sales (Ventas) and Purchases (Compra) — they are adjusting these for end of the year.
We expect to see, as in Chile and Peru, a larger focus on Libros — what they call Proforma VAT — over the next 18 months.
Lastly — and this is my opinion, not law as of yet — the AFIP has always had a Buyer-side validation web service, like we see in Mexico. I expect them to mandate this as well at some point.
And remember, Argentina is notorious for quick deadlines, in the order of 3 months to go live.
Comment From N.Rurua
For which countries is it required to renumber the disapproved (by the tax authority) invoices? And, is the procedure the same in case the invoice is canceled by the business?
Steve Sprague: This depends on each country. While there are similarities across the countries, they are ultimately different.
For example, if we are talking about Chile, they use preauthorized Folios. Once you call a Folio off in your SAP system, it must by law show up in the SII server, even if you cancel it. Once a Folio is called off, you can cancel, but you would not reuse.
Other countries have the concept of serialization. They expect to see invoices in order — invoice 1, 2, and 3 — and if you send one numbered 8 next, they would have an issue. For example, in Brazil once you register an NFe, you can cancel it or use a correction notice, but you wouldn't get a decline and just resend. It is all about tracking data.
And in Argentina, the web service will actually fail; for example if you send a batch of 100 invoices in and invoice 2 fails, the other 998 won't process. You need what we call dynamic sequencing built into your web service.
So the best answer is: Each country is different, but ultimately they are tracking every invoice whether through Folio or serialization.
Comment From Guest
What are the digital signature requirements to submit the XML files to SAT Mexico electronically in the fiscal mailbox? Can those files be encrypted?
Steve Sprague: This one is actually pretty interesting.
As you know, for CFDI (which is what they call their e-invoice) your organization is assigned a FIEL and private key. All CFDI must be signed with this key -- this ensures authenticity and pretty much states that this is a legal document from your company and the values carry tax values.
For the mailbox, there is no encryption or use of this same private key at this time.
We are talking with SAT about this, as many companies have concerns about producing XML out of SAP, then having an employee assigned to physically upload it to the website, as compared to Chile where Libros have a web service.
But in short, nothing to date on encryption or the signing of chart of accounts, trial balances, or journal entries.
Comment From Guest
Where can we get Annexo 24 requirements published by Mexico SAT in English translation, that defines what transaction types we need to submit Journal Entries?
Steve Sprague: This is a reality — there are no English versions of the legislation and in many cases there really aren't English terms.
For example, there are really no English words for devolucion or compensacion, which are critical tax processes for when and why you have to file Polizas (journal entries) — basically ways of getting VAT back on your remittances.
This is why you really need a partner that is bilingual, and in the region (so actually has Portuguese, Spanish, and English support) and can do three things
- Advise you on constant change
- Help you understand the legislation
- More importantly, translate that legislation into an SAP business process.
OSS notes do not solve the process issues - they are just data containers in these cases. And in many countries there is no SAP support or incomplete support. This is critical, as all changes and laws will be Spanish or Portuguese.
Comment From Gabriel Vassallo
Hello, Steve. What are the main regulations to be considered for a US company doing business in Mexico? For example, a Mexican vendor provides a repair service in a Mexico location and submits an invoice to a US company. What are the main SAP configuration settings to be considered and Hacienda regulations to be fulfilled? Thanks!
Steve Sprague: First question: Does the Mexico location where the service was provided have a Mexico RFC? If the case is no, and it truly is a Mexico to US invoice, this changes the web service.
For example, CFDI is called for on domestic VAT invoices — those that are from one RFC (Mx Tax ID) to another RFC.
In 2015, the Mexico government released a new web service for "Foreign Invoices." And these have to be registered. For the most part, in our client base — Fortune 1000 — we see a very small volume of these types of invoices, so recommend using a portal to hand-enter these invoices.
If you do have a large volume that requires this new web service, there is no standard SAP configuration.
You could augment your billing document and create a new document type for this. There is a schema of data that, based on master data, trigger that billing doc type. But as of today, I haven't seen anyone do this due to volume.
Comment From Jason
How does e-invoicing in Latin American countries affect companies’ abilities to use offshore banking structures or in-house cash solutions where invoiced items may not be backed up with local or foreign cash flows?
Steve Sprague: E-Invoicing is all about in-country VAT taxes. So you would have to have a tax ID and have a bank account in the country for these to apply.
For example, Mexico eContabilidad reporting tracks the banks and payments as part of their e-invoice reporting. However, there is an effect on cash which can be taken advantage of. Often it is difficult or costly to repatriate cash out of these countries, so we see many companies using their cash as part of Supply Chain Financing initiatives to earn high-yield, short-term investment income while strengthening their supply chain — especially in manufacturing countries (Brazil and Mexico).
Comment From Guest
Who is typically responsible for managing e-invoicing? What roles and skills? How much support do you see being given to a local finance team?
Steve Sprague: This actually confuses a lot of companies. Ultimately, whoever maintains the SAP ERP system for orders to cash, procure to pay, and record to report is responsible.
I think a lot of people forget that the e-invoice is not just the XML and government connectivity. The hardest part is getting the data in/out of SAP in the proper way, ensuring no data discrepancy, and ensuring transactions equal reporting tables.
So ultimately, this is an SAP COE problem. For Latin America, we see more companies turning to hybrid cloud providers to take over the SAP updates, eliminating the burden on the COE to constantly update SAP, and have local support staff and regional expertise to ensure that all the data flows to and from the government system properly.
One big thing I would say for large companies is that billing, vendor invoicing, payables, and reporting are all tied together. I often see Shared Services centers want to split and evaluate the three separately. This is virtually impossible in this region; it creates a lot of risk for data discrepancies and for ultimately ending up with 3 solutions per country.
Many companies are looking at having the business focus on their business and providing a service from corporate that ultimately ensures compliance. The question is, do you try to build it on your own or partner with a regional expert that can buffer you and provide the services at a fixed annual cost? We see more companies moving away from on-premise as more countries jump on board.
Comment From Guest
How do we set up configuration steps for Mexico in SAP? We plan to go live in September 2015.
Steve Sprague: Mexico is probably the closest to Brazil in complexity.
The taxes are a lot easier and so is the localization, but here are a few things you should consider in SAP ERP when going to Mexico:
- Pedimento — if you import into MX, you will get these from the customs process, and they need to link to e-invoices (CFDI). There is no SAP standard way – this is almost always a Z-program.
- Comprobante — if the government XML for the invoice has a lot of extraction issues - like only one filed for Discount. So if you have line-item level discounting in your pricing conditions, you will have an extract problem. Also there is no field for Shipping and Handling, and no PO# field, so the AP matching process is difficult, etc.
- Addenda - end customers like Retailers and Auto will demand additional data in this invoice field, so the XML extract is different and so is the PDF.
- eContabilidad -- this is next, once you get CFDI sending and receiving done. This is chart of accounts, trial balances, and journal entries.
Comment From Ken
You mentioned Argentina's mandates based on revenue. Which countries are setting requirements by company revenue vs. for specific industries?
Steve Sprague: Each country is a little different. For example, in Mexico any company over 250K pesos in revenue a year (~20K USDollars) must do CFDI, but for eContabilidad it is currently 4 million pesos.
Ecuador had industry types still, but most are moving through revenue levels. Chile, Mexico, and Brazil are revenue.
Across the board though, we see the governments going after the top 80% of potential VAT revenue, which ultimately is the SAP user base and Fortune 2000. This is the main focus at least from the tax initiatives and where audits arise.
Comment From Guest
Why are we now having difficulties shipping in Brazil in the switch to 3.1? What can we do to stop this issue?
Steve Sprague: This is critical. With 3.1, the government changed its contingency models -- and it is no longer the company's choice to switch. So you get a lot of "red lights" in monitors and shut down of shipping.
Your solution should automatically do two things: First is to move through the 3 types of contingency - SVC, EPEC and FS - Provisional DANFe. That is the only way to ensure you can control your own destiny and be able to ship.
Second -- and this is just as important -- your solution should automatically reconcile those contingency invoices with the government server. This is key so your controllers aren't scrambling at the end of the month to figure out what is legally registered.
It is a huge issue, but easily fixed with the right solution approach.
Comment From RM
Hello Steve, For Argentina, is creating a 'branch' org unit really necessary? What if we do not create a 'branch'? What then can we not do in SAP without a branch? Are you aware of any company that has implemented Argentina’s mandates without the use of 'branch'?
Steve Sprague: Branch is a key contingency in Argentina -- we see Argentina have a lot of internet issues. They have a paper process known as Puntos de Ventas, and the branch is key to being able to fall back onto this approach. If you are shipping a lot or invoicing at the end of the month, this is one of the larger concerns.
Comment From Andy S
Hi Steve, I work for a company that will be doing more direct market sales into Brazil (shipments and billing performed in the US) instead of monthly distributor fill-ups. What are some key regulations that we should be familiar with if we were to begin e-billing to customers within Brazil?
Steve Sprague: Nota Fiscal and, for the most part, Latin American compliance generally, is about domestic VAT invoices, not about foreign invoices. These are usually paper, just not, for example, in Brazil, as theirs is not a tax treaty with the US. You would see in many industries an uplift of taxes close to 50% -- many of these countries really "incent" you to have a local presence and tax ID.
Comment From Guest
Are these requirements specific to foreign governmental sales? Or would they apply to all channels including retailers in these countries?
Steve Sprague: In Latin America, it is all invoices, not just B2G -- all B2B and moving towards B2C. For example, certain states in Brazil are moving to Nota Fiscal at the point of sale. Internet sales are already under Nota Fiscal -- so in these countries, it is virtually all transactions down to the line-item level.
Comment From Crystal
Any general advice pertaining specifically to Brazil and invoicing requirements?
Steve Sprague: Brazil is the most complex in the world in my opinion. You should look at 3 core buckets:
First, localization — make sure you have a good partner who has done this, especially TAXBRA to ensure your SAP system is producing the correct data. Ultimately, we find companies that don't invest in this properly or take shortcuts can cause major — and I mean major (multi-million dollar) — fines down the road. If you bring SAP to Brazil, do it right from the beginning.
Second, once you can produce data, now it’s on to the transaction level. You will hear the term Nota Fiscal (NFe). Know that goods are real time and done at the state level, and you can't ship without an NFe on a truck. Know that service invoices are done at the city level and each city is different, and know that there are CTe, which are from logistics providers. You will need to look at these from an AR, Logistics and AP perspective.
Then, you get to SPED. There is a new report due in September which is 1,300 pages long. And the penalties are severe — up to 3% of net income in the country if there are issues.
Make sure you really understand all of those 3 in order to be successful. And then know that it changes every few months. I think that is a big mistake; companies roll out SAP, select low-cost solutions and then it changes. SIs leave and no one knows what to do -- I see it happen all the time. Implementation, support day-to-day, and change management need to be in your business case and need to be in your offering by your vendor.
Comment From Guest
Hi Steve, You said most companies are moving away from on-premise and prefer to have local expertise to satisfy compliance requirements. In your opinion, which model worked better so far?
Steve Sprague: Hybrid cloud is the best model. This is the only model that solves the SAP configuration and change management issues and government connectivity. We have seen 80% reduction in costs – that’s why if you try to do this yourself, you will need local solutions for each country; subject matter experts to keep up with changes; functional staff across SD, MM, and FI to implement and manage projects, and PMO, etc.
A hybrid cloud has a native SAP management console that absorbs the changes so you don't constantly have to update core; it manages connectivity and supports the process in Spanish, Portuguese and English. More importantly it maintains both SAP and the government system at a fixed annual cost. You will know down to the penny, peso, and real the compliance costs over 3 years versus constant fire drills and budget requests for on premise.
Comment From Guest
Are there any plug-ins for SAP for managing the legal/tax requirements, instead of activating the country-specific localization components in SAP? Especially when SAP instance is a global one?
Steve Sprague: This is actually what Invoiceware International does -- we are an SAP Management Console that buffers core from SAP upgrades across 8 countries. A single SAP solution that is implemented, monitored and maintained at a fixed cost, so you don't have to constantly change your global system.
Steve Sprague: In closing, you should look at Latin America with long-term views. This is not about one project, this is about shipping as much as invoicing, and this is always an SAP issue, not just a connectivity or PDF issue. For our guests, here is a link to an overview of best practices and key lessons learned across the countries for 2015. As you look at Latin America, you have a choice: be reactive to changing government regulations or, instead, use the standardization to drive IT cost savings, supply chain efficiency, and even cash flow optimization through SCF in the region.
SAPinsider: Thank you again to Steve Sprague of Invoiceware International, for all the great advice.
For those who joined us today you can review the Q&A at any time in the chat replay, and we will alert you when the transcript is available. Thank you again for joining us!