Electronic Invoicing in Mexico

ELECTRONIC INVOICING IN MEXICO

A White Paper prepared by IT Convergence

Author

Angélica Villegas
Copyright

IT Convergence 2006



ELECTRONIC INVOICING IN MEXICO

TABLE OF CONTENTS
Introduction ............................................................................................................................................................................... 3 Digital Invoices: Characteristics and Requirements .................................................................................................................. 4 Electronic Invoice ...................................................................................................................................................................... 6 Digital Invoice Generation Process Flow................................................................................................................................... 7 Conclusion ................................................................................................................................................................................ 8

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Introduction
In Mexico, initiatives legislated by the Fiscal Code of the Confederacy and the Code of Commerce and implemented through the System of Tax Administration (SAT) have led to the development of the concepts of the digital invoice and electronic invoicing. The impetus provided by these initiatives led Mexican companies to begin developing policies and procedures for electronic invoicing. Subsequently, the role that electronic invoicing and electronic services play in everyday business has evolved rapidly over the last ten years. The graphics below detail this evolution.

1995 – 2004 SAT Evolution The Mexican government establishes the Centro de Información de Redes de México to regulate internet resources in Mexico Public Agents (Fedatarios Públicos) Fiscal Receipts Electronic Payments Plan Declara SAT Dictámenes Validation of fiscalization orders Digital Invoice Advanced electronic signature

1995 2001 2002 2002 2003 2003 2004 2004 2004

2004 – 2006 Evolution

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The digital invoice in Mexico is a type of fiscal digital receipt; it is a digital document with legal validity that utilizes internationally recognized technical security standards to guarantee its integrity, confidentiality, authenticity, and acceptance. These are the principle benefits to invoicing electronically:

Digital invoices have exactly the same validity as traditional paper invoices. Digital invoices simplify administrative and operation processes, and this saves both time and money. The validity of digital invoices can be determined quickly utilizing the SAT’s on-line services.

Digital Invoices: Characteristics and Requirements
An invoice formalizes a commercial operation by verifying the commitments and obligations between the buyer and the seller participating in the transaction. In Mexico, this document can take two forms: the digital invoice and a traditional paper invoice. As mentioned above, the digital invoice (CFD, Comprobante Fiscal Digital) maintains the same characteristics and has the same legal validity as a traditional paper invoice, with the difference that the CFD travels electronically and is encrypted to ensure security. It is an alternative mechanism that can be used to verify incomes and expenses for fiscal purposes, which utilizes digital technology in its generation, emission, and storage. In addition, it utilizes security standards that are internationally recognized, guaranteeing that the invoice is authentic, integral, and unique.

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Since 2005, any party that issues or receives digital invoices is required to use the advanced electronic signature, in order to request the SAT the consecutive numbering certificates and the digital seal certificates, needed to issue the invoices (or receipts). These types of requirements are made through the SAT website. The advanced electronic signature is a unique piece of data that is included in a digital invoice, and its purpose is to identify the transmitter of the message as its legitimate author, in the same way as a handwritten signature. Its design is based on international standards of infrastructure of public keys. Public Key Infrastructure, or PKI by its English acronym, is an encryption infrastructure where two keys or codes are mathematically related and utilized to securely transmit messages.

These are the characteristics of the digital fiscal documents:

Integrity: They guarantee that the information contained in the digital invoice remains protected and cannot be
manipulated or modified. Parties participating in the electronic invoicing process are able to validate the invoices’ approval number and ensure that its digital seal certificate matches the original invoice. This ensures that the invoice has not been tampered with, falsified, or reproduced.

Authenticity: The identities of the transmitter and the receiver of the invoice can be verified. Acceptance: Once the transmitter seals an invoice digitally, that party will not be able to disable the invoice.
The requirements that businesses must comply with to issue digital invoices are:

To include the advanced electronic signature. To use an electronic system to account for invoices issued. The electronic system being used must be able to
control the correlative numbering of invoices and series issuing. The system must also guarantee that no duplicate invoices are issued, and it must also be able to simultaneously track all transactions in all accounts.

To include a digital seal protected by a certificate issued by the SAT. This digital seal will allow confirmation of
the value of the digital invoices issued. This guarantees that the author of the digital invoices will be legally accountable for value of the invoice.

To request the “sequential numbering and series form” from the SAT through their website. To establish a technical environment that conforms with standards issued by the SAT. This includes utilizing
the XML Schema Definition (XSD) to generate digital invoices and MD5, RSA Private Encrypt and RSA Public Decrypt algorithms of encryption, as detailed in clause C of the 20 Annex of the Fiscal Miscellany Resolution for 2005.

To generate and send a monthly report to the SAT. Every month, businesses that invoice electronically must
file a report of the digital invoices issued to the SAT. The report must be filed using the company’s advanced electronic signature, and it must be filed on-line through the SAT’s website.

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Contributor Obligations

Depicted above is the process flow required by the SAT, and the key elements that must be taken into consideration when designing a digital invoice.

Electronic Invoice
The basic elements that must be included in a digital invoice are the following: 1. ID number: ID numbers are requested using the SAT’s Integral System of Fiscal Invoice. 2. Digital seal certificate series number. 3. Security seal & encrypted chains: each invoice is sealed with the private key and with the owner’s digital seal certificate. 4. Authorized digital seal: The seal guarantees the integrity of the information and acts as validation for the transmitter, who will not be able to deny its validity. The validity of this seal is recognized by fiscal authorities. 5. Legend: This certifies that the document is a hard copy of a digital invoice.

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Digital Invoice Generation Process Flow
Currently, Oracle Financials’ standard functionality does not need to be custom-tailored to generate a digital invoice, but Oracle Financials’ configurations do need to conform to certain standards established by the SAT. The process flow for creating a digital invoice is diagramed below, and the text that follows discusses requirements of the SAT that need to be taken into consideration when configuring Oracle Financials for electronic invoicing.

Electronic Invoice Generation
Elements obtained from SAT Customer Java Process – Data extraction to create XLM format

XML & Digital Seal Standard SAT Electronic Document (XML)

Java Process – Data Extraction to Original Chain (Encrypted)

Digital Seal Digital Seal Certificates with public and private keys

Digital Seal Creation process

Documentation Storage 5 years

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The digital invoice generator does not require a user to custom tailor an extension into the application and/or change the applications setup, but a specific type of invoice needs to be included in the Accounts Receivable Setup. This invoice must have a specific numbering sequence that is validated by the SAT. An Oracle Financials generated digital invoice is the representation of the data requested by the SAT in an XML format, and it should include the mandatory requirements established in the ANNEX 20 of the DOF Document (Diario Oficial de la Federación). The digital invoice must contain a digital seal and the ID numbers assigned by the SAT. The ID numbers need to be sequential, and each series should start with number one. The use of digital invoices and other digitalized financial documents (Credit Memos, Debit Memos) are important topics in Mexico today. To this date, the SAT has not mandated that all companies use electronic invoicing. Nevertheless, many businesses are putting pressure on manufacturers to use electronic invoicing, and the popularity of digital invoices is expected to grow in Mexico. Companies interested in integrating electronic invoicing into their business flows need to take a few items into consideration. First, a company must clearly establish its own internal policies for processing invoices. Next, a company should analyze its own situation to see if electronic invoicing will improve efficiency. Finally, a company should carefully consider its customer base and ensure that its customers are willing and able to accept digital invoices. One important factor to consider, at both the operational and functional levels, is communication with the SAT. Every month, a company that issues digital invoices has to report the ID numbers used in the billing process, and these numbers must be submitted using the company’s electronic signature. It is very important that a company create administrative and operating controls to ensure that all of these relevant documents are submitted correctly. The digital invoice can be sent, filed, and transmitted electronically, but it is also possible to print it under the specifications of the SAT, if required. Traditionally, the law obliges all contributors to keep or store digital invoices for a minimum period of five years, in their original format (XML).

Conclusion
Using Oracle Financials to implement electronic invoicing is a fairly straight forward process. No customizations need to be made, but Oracle Financials’ Accounts Receivable needs to be configured to include an invoice that matches the specifications mandated by the SAT. The SAT’s specifications are not overly complex, but businesses will need to develop a secure interface that can be used to send and retrieve data from the SAT. For this reason, organizations that are not familiar with this process will likely find it useful to work with someone who has technical expertise and has experience working with the SAT. Although this paper has exclusively dealt with electronic invoicing in Mexico, Mexico’s electronic invoicing procedures are currently considered as a Latin American benchmark. Businesses interested in implementing an electronic invoicing system either in Mexico or in another Latin American country are welcome to contact IT Convergence. IT Convergence’s global number is 1-415-675-7935. IT Convergence specializes in providing service to multinational corporations that do business in Latin America. IT Convergence can be reached at 52-55-9171-1549 in Mexico.

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LEGAL DISCLAIMER:

The information contained herein should be deemed reliable but not guaranteed. The author has made every attempt to provide current and accurate information. If you have any comments or suggestions, please contact us: [email protected].

IT Convergence White Paper: Electronic Invoicing in Mexico September 2006

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