How to adapt SAP to comply with the Mexican CFDI E-Invoicing law
Mexico offers very attractive business opportunities with lower wages for skilled workers and lower transportation costs since this country is situated close to the US and Canada. Location also ensures faster production turnaround time, not to mention ease of communication, and similar time zones to the big US and Canadian markets.
Thanks to the North American Free Trade Agreement (NAFTA) between Mexico, Canada and the United States, there are many benefits of doing business in Mexico. NAFTA eliminates tariffs between the countries and has built in agreements and legal processes, with international rights for business investors. Mexico is currently one of the countries with the largest network of tax and information exchange treaties and trade agreements, which brings it into the list of the largest and most open economies in the world.
How to cope with the challenges of doing business in Mexico
When you are already doing business in Mexico or planning to do so, you will, of course, be faced to quite a few challenges, such as language barriers, cultural differences and specific legal regulations. Especially for these local legislation, I recommend you adapt your ERP system accordingly to avoid being exposed to high penalties.
How the Mexican government fights tax evasion with CFDI
One of the most important Mexican legal requirements is CFDI (Comprobantes Fiscal Digital por Internet). Since 2014, the Tax Administration Service (SAT) of the Mexican federal government have made this electronic billing regulation come into force, requiring any company that generates an annual revenue of more than 250.000 pesos (approximately EUR 11.000) to use a digital tax receipt called a Comprobante Fiscal Digital por Internet (CFDI) – essentially an e-invoice that allows immediate verification of the identity and tax eligibility of the person signing the document.
CFDI is not only about the e-invoicing process, but it also regulates various e-accounting requirements for the chart of accounts, account balances and journal entries. Its main focus, however, is to use e-invoicing to add visibility into organisations’ tax liabilities, so that the Mexican government can ensure it is receiving accurate payments.
Click here to read how we have helped our customer, Hirschmann Automotive, to make their SAP ERP system fully comply with CFDI so that they not longer have to worry about the high penalties that are imposed in Mexico.
Why you should adapt your SAP ERP system to comply with CFDI
This Mexican legal requirement affects the document flow, that is created in the SAP modules for financial accounting (SAP FI) and sales and distribution (SAP SD), for sales invoices, credit notes, debit notes and purchase order invoices. According to the latest CFDI version (CFDI 3.3), a typical Mexican sales invoicing process works as follows in SAP ERP:
- After an SD-invoice has been created an IDoc (electronic document) with all legally required information will be created in your SAP ERP system. In many cases, your customer will require you to provide additional information on the invoice, such as e.g. a PO number. This information will help them to process and validate your invoice much quicker. Within the IDoc, a special area, called “Addenda”, is foreseen to store these customer-specific data.
- In a second step, the created IDoc is sent to a middleware system that converts this IDoc into an XML file. This is the mandatory data format for the validation by the Mexican SAT.
- The converted XML file is then sent to a PAC, which is an authorized certification provider that is responsible for all communication between the vendors and the Mexican tax authorities.
- The PAC gets in touch with the SAT to validate the document. In case of approval, the SAT will link a UUID (universally unique identifier that contains the approval code) to the XML invoice. Thanks to these UUIDs, the SAT is able to track all relevant CFDI documents and its corresponding payments. In Mexico, UUIDs contain a code of 32 characters. In case of rejection, the SAT will link a rejection code to the XML file, indicating the reason for rejection.
- Next, the PAC receives the validated document in XML format from the SAT and sends it to the middleware system.
- In this middleware system, the XML file will be reconverted to an SAP IDoc. After conversion, the IDoc is submitted to your SAP ERP system, in which it will automatically update the validation information. In case of approval, the sales invoice and corresponding accounting document will be updated with the UUID. If the invoice got rejected, your ERP-system will also be updated in order to inform the invoice issuer that he needs to make changes to the invoice. After the changes have been carried out, a new IDoc has to be sent to the middleware system and the validation process will start over again.
- In a next step after the approval, the XML invoice and a printed invoice, if required, are sent to the end customer. As a vendor, it is mandatory by the Mexican law to make the XML invoice version available to your customer, as he needs to keep this on file for 5 years.
- You also need to print out the approved invoice for the truckdriver who will deliver the goods to your customer. According to the Mexican law, it should be possible to present the approved invoice during each delivery.
Challenges of adapting your SAP ERP system to comply with CFDI
- The Mexican CFDI regulation is a frequently changing legal requirement with many updates by the Mexican authorities. This slows down the process to fully integrate and maintain all CFDI requirements in your ERP system. It also requires you always need to be on top of the latest CFDI version and update your ERP system accordingly. At PIKON, we help our customers with this step and always make sure their ERP system is up to date and fully complies with the latest version of CFDI. Please do not hesitate to contact us if you want us to help you as well having a fully CFDI compliant SAP ERP system so that you not have to worry about the penalties that are imposed by the Mexican government.
- You might have quite a few customers with specific requests regarding information that needs to be added to your sales invoices. These specific requests need to be included in the CFDI implementation in your SAP ERP system and makes the integration more complicated.
- Shaping a process with a maximum automation level to get your SAP ERP system up to date with all required SAT information. This ensures you avoid the high penalties that are imposed by the Mexican government.
Benefits of automating your invoicing process in SAP ERP
If you are also doing/ planning to do business in Mexico and are using SAP ERP as a digital backbone for the automation of your business processes, I strongly recommended to adapt your SAP system accordingly to comply with the CFDI regulation. You will then benefit from a stable, automated and streamlined e-invoicing process that prevents you from paying six figure penalties. Moreover, this e-invoicing process can fit in your organisation’s digital transformation strategy. Please click here to find out how we have successfully made Hirschmann Automotive’s SAP ERP system comply with the Mexican CFDI regulation.