How-To Guide for E-Invoicing & CFDI Compliance in Mexico
All companies doing business in Mexico need to comply with local tax regulations, most notably the very specific requirements for electronic invoicing and real-time transaction reporting. The requirements are defined by Mexico’s Comprobante Fiscal Digital por Internet (CFDI), which specifies the exact format and process for issuing tax-compliant invoices in Mexico. This paper will cover the following topics for those wanting to learn more about CFDI and understand the options for getting your business compliant as simply and cost-effectively as possible.
Topics covered in this paper include:
- Electronic invoicing in Mexico
- What is CFDI?
- What happens if I don’t comply?
- Key Steps to Issue CFDIs
- CFDI Solutions with Pros and Cons
- How to Choose and Get Started
Electronic invoicing in Mexico
Mexico has one of the most complex electronic invoicing systems in Latin America, requiring all business transactions to be reported to the tax authorities in real-time. E-invoicing and real-time transaction “stamping” was initially mandated for large taxpayers in 2011, then extended to all businesses in 2014. The specific process and formatting requirements for tax-compliant electronic invoicing in Mexico are defined by a scheme called CFDI.
What is CFDI?
CFDI stands for "Comprobante Fiscal Digital por Internet" in Mexico, which translates to "Digital Tax Receipts via the Internet." It is an electronic invoice regulated by the Mexican Tax Administration Service (SAT). CFDI serves as proof of transactions for tax purposes, replacing traditional paper invoices.
The primary purpose of the CFDI requirement is to help the government and businesses accurately report transactions, create transparency, and streamline the tax collection process.
Summary details of CFDI include:
- Electronic Format: CFDIs are issued and stored digitally, making it easier to track and manage invoices for businesses and individuals.
- Mandatory Compliance: All businesses and individuals in Mexico, regardless of size, are required to issue CFDIs for their transactions to ensure tax compliance.
- Real-time Reporting: When a CFDI is issued, the information is sent in real-time to the SAT, ensuring that all transactions are recorded and can be audited.
- Format: CFDIs have very specific formatting requirements, or “components”, including the issuer's information, the receiver's information, transaction details, taxes applied, and a unique digital seal.
- Purpose: It helps the government reduce tax evasion, streamline tax collection, and provides a transparent system for taxpayers.
The specific format and process requirements of CFDI are beyond the scope of this paper but are easily found online.
What Happens If I Don’t Comply?
There are significant risks for businesses that don’t comply with CFDI requirements, primarily in the form of financial penalties. Taxpayers can expect to receive hefty fines and even business closure. Mexican legislation even allows non-compliance to be treated as tax fraud and smuggling crimes if the provisions regulating CFDI and their complements are not duly observed.
The key point is this: make sure your business complies with local tax regulations, including CFDI compliance.
Key Steps to Issue CFDIs
- Register with the SAT – Of course, your business must be registered with the Mexican tax authority (SAT) who will issue you a valid tax identification number (RFC). You can manage the registration process directly or engage one of numerous law firms who can help you properly register your business.
- Obtain a Digital Seal Certificate (CSD) – A CSD is a cryptographic key issued by the SAT. It is used to sign electronic invoices (CFDIs) and other digital tax documents. It is a mandatory requirement for businesses wanting to issue CFDIs. You can apply for a CSD through the SAT portal.
- Choose a Method for CFDI Issuance – There are several options for issuing CFDIs, ranging from the SAT portal to self-certification for very large enterprises. Various options are explored in the next section.
CFDI Solutions with Pros and Cons
In this section, we will explore various solutions for issuing CFDIs. The right approach for your business will depend on business size, transaction volume, software skills, budget and functional requirements.
Option 1 – Direct SAT Portal
For very small businesses that issue few invoices, the SAT offers a free platform for issuing CFDIs.
Pros:
- No Fees: The SAT portal is free to use
- Direct Compliance: Ensures full compliance
Cons:
- Very Basic: No advanced tools for managing higher volumes, automating processes, generating reports, dashboards, etc.
- Manual: Requires invoice-by-invoice data entry
- Not Scalable: The manual process and lack of automation is not feasible for a business with significant transaction volume.
- Support and Downtime: Support from the SAT can be slow, and uptime can be affected due to high demand volume
Option 2 – ERP or Accounting Software
Some ERP or accounting software solutions offer integrated CFDI invoicing functionality as part of their solution. SAP, Oracle NetSuite and Aspel SAE are popular ERP solutions with CFDI functionality. QuickBooks Mexico and Contpaqi Contabilidad are accouting solutions with built-in CFDI support.
Pros:
- Integrated Workflow: Built-in CFDI support enables a single system to handle invoicing, certification, and financial management.
- Comprehensive Features: These solutions include enhanced features such as inventory management, CRM, payroll processing and other business management tools.
Cons:
- Cost: Most businesses do not have the budget to pay for the software license, implementation costs, and ongoing maintenance.
- System Integration: These solutions can be extremely expensive to set up, especially if any customization is involved.
- Personnel Costs: These solutions often require dedicated personnel just to setup and maintain the systems involved.
- Vendor Dependence: Your business will quickly become dependent on your software for support, updates, and compliance with rapidly changing regulatory mandates.
Option 3 – PAC and “PAC+” Software
PAC (Proveedor Autorizado de Certificacion) software is a popular option for managing CFDIs. PACs are authorized by the SAT to certify electronic invoices and offer software applications for that purpose. Most PAC software is extremely basic, providing functionality similar to the SAT portal. Other, more advanced solutions, which we call “PAC+”, provide an application layer on top of PACs to offer richer functionality such as enhanced dashboards, electronic receipt generation, or large volumes of CFDI processing (aka “descarga massiva”). FacturAPI and Facturama are the market leading examples of “PAC+” solutions.
Pros:
- Compliance: PAC software ensures CFDIs are compliant with SAT regulations.
- Up-to-Date: PACs keep their software updated with the latest tax regulations and requirements.
- Customer Support: PACs typically provide dedicated customer support.
- Rich Functionality: Especially “PAC+” providers such as Facturama and FacturAPI offer a range of features beyond CFDI certification such as rich dashboards, reporting, analytics, archiving, bulk downloads, electronic receipts, etc.
Cons:
- Cost: PAC software usually involves subscription or usage fees, depending on transaction volumes and features used.
- Feature Overlap: If you already use an ERP or accounting system with CFDI support, some features of PAC software might overlap with functionality you’re already paying for.
- Limited APIs and Documentation: Many PACs offer no APIs, and those that do tend to be poorly documented and difficult to use.
Option 4 – Outsourced CFDI via API
Modern companies that do business digitally will often want the ability to automate business processes and customize in-app customer experiences. While some of these companies will have software teams that can handle the CFDI issuance and management process, another wonderful option is for them to outsource the complexities of CFDI compliance to dedicated service providers easily accessible via an API. FacturAPI is the leading API-first CFDI solution company that is especially appropriate for global companies doing business in Mexico. Pros and Cons of the API approach to CFDI compliance include:
Pros:
- Simplicity: The CFDI specification is complicated and constantly changing, making it ideal for outsourcing. The API approach allows you to make your software CFDI compliant in a matter of minutes.
- Focus: Even if you have in-house software skills, you will want to focus those skills on mission critical business applications rather than managing esoteric tax regulations. APIs allow the CFDI management process to be easily integrated with your software while outsourcing the burden of developing and maintaining the software.
- Customization: APIs enable the development of tailored solutions and workflows that align with specific business requirements.
- Flexibility: Enables custom workflows and processes, providing extensive flexibility in how CFDIs are processed and managed.
- White Labeling: The leading API solutions come with white label options that allow you to customize the user interface of the invoicing and CFDI stamping process under your own brand identity.
Cons:
- Software Skills: While the best APIs are well documented and simple to use, they still require basic software programming skills.
- Ownership: Some companies, especially larger enterprises, may want to own all the software they use. While this is rarely the case in the modern era, it does apply in some cases.
How to Choose and Get Started
As described earlier, anyone doing business in Mexico must implement a CFDI solution. After registering your business with SAT and obtaining your CSD, the most important step is in choosing your method of CFDI issuance. Options range from the SAT portal to ERP solutions to APIs, with each option having tradeoffs outlined in the pros and cons lists above.
If you are a small business with very few transactions, there is a good chance that the SAT portal will support your needs.
If you are a large enterprise with an existing ERP or accounting system, then you should engage your software platform about how to implement CFDI compliance. If it turns out that they do not support CFDI directly, then you should direct them to an API-centric solution such as FacturAPI who they can very quickly integrate with.
If you are a small-to-medium business who does not have your own software, then you may want to consider one of the PAC or “PAC+” solutions available on the market. More modern businesses will want to work with one of the PAC+ providers such as Facturama and FacturAPI because of the enhanced functionality they offer such as dashboards, analytics, archiving, batch downloads, electronic receipts, etc.
Finally, if you are a modern business who wants to automate the CFDI process within your own software and/or to customize the experience for your customers, then you are strongly urged to use an API-centric solution since this approach will give you the most insights and control over the process.
In any case, CFDI compliance is a serious matter that requires action. Please reach out to our team if we can be of assistance in either assessing your options or getting you up and running in just a matter of hours or days.
