What is CFDI?
The Comprobantes Fiscal Digital por Internet, or CFDI, is an electronic invoice format mandated in Mexico and also used in certain Latin American countries. It serves as a digital tax receipt that provides all the details of a business transaction: the goods or services provided, their costs and calculated taxes.
These documents are then digitally certified by a tax authority, such as the Mexican tax authority or SAT (Servicio de Administración Tributaria), as legally acceptable.
Other commonly used terms to describe this electronic invoice process are “digital fiscal document through internet” and “digital tax receipt by internet.”
Mexico was among the pioneering countries to aggressively transition from paper to electronic invoicing for business-to-business commerce.
Simply put, the CFDI is the digital version of invoices that were previously made on paper. Its purpose is to expedite the capture and validation of business transactions, so SAT can more effectively collect the required taxes from these transactions.
Electronic invoicing first appeared in Mexico in 2004 as an option for business commerce. In 2010, Mexico made e-invoicing mandatory for large businesses, and extended that requirement to all businesses in 2014. Mexico also mandated the XML file format standard for electronic invoicing along with the use of digital signatures.
Steps for Issuing a CFDI
Today, the CFDI electronic invoice format is a requirement for doing business in Mexico. Before you can issue a CFDI, you must follow these steps:
- Complete federal taxpayer registration with SAT
- Obtain an electronic signature key (Firma Electronica Avanzada – FIEL)
- Obtain a unique digital stamp (Certificado de Sello Digital – CSD)
- Appoint a government-approved, third-party company (Proveedor Autorizado de Certificación – PAC) to validate your invoices with the digital stamp once you issue them.
The PAC will track, retrieve and provide secure storage for your invoices.
Following this process, you must ensure SAT has automatic access to CFDI transaction data within 72 hours. SAT can review transaction/accounting information digitally, identify any accounting record issues, and apply electronic audits if necessary.
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How Does CFDI Work?
The CFDI takes a paper process and makes it electronic. In Mexico, you are also required to work with an authorized partner (PAC) to manage the e-invoicing process and certify the transaction.
Here is how the CFDI process works:
- In place of a paper invoice, you partner with a PAC to generate an electronic invoice as an XML (Extensible Markup Language) file with a unique invoice number.
- The invoice automatically captures the buyer’s electronic signature and an electronic certificate for authenticity.
- The PAC validates your invoice and returns it to you with a Certificado de Sello Digital (CSD), a unique digital stamp for validation to ensure that the CFDI won’t be modified.
- The PAC simultaneously sends the stamped CFDI to SAT.
- Your accounting or ERP system creates an easier-to-read PDF version of the invoice. The PAC sends both the XML format and PDF version to your customer.
You can add additional information to the CFDI called addendas and/or complementos if necessary. This could be a purchase order number, service delivery start and end dates, sales order number, estimated production or shipping date, bank account information, or related transaction data.
How to Comply with CFDI Requirements
A valid CFDI must be created in partnership with a PAC as described above and delivered to SAT with these components:
The CFDI must include an electronic signature key (FIEL) on all invoices. This signature serves as a generic tax ID, authenticating the taxpayer in the SAT system. It is also required to request a CSD digital stamp.
Digital certificate (e.Firma)
With this certificate, you can apply for a digital stamp (Certificado de Sello Digital – CSD), which is required to sign CFDI documents such as electronic invoices. This guarantees the integrity and authenticity of the invoice. Both are issued by the SAT.
Folio Fiscal or UUID (Universal Unique Identifier)
This is the unique number provided by an authorized PAC that makes an invoice unique and allows the SAT to track the electronic invoice. UUIDs contain a code of 32 characters.
Date the invoice was stamped
SAT requires e-invoices to be archived as electronic documents for five years, accessible to both issuers and recipients.
Format for Printing
In Mexico, SAT requires a specific way to view and print the CFDI XML file. You must include a two-dimensional barcode with a link to an official SAT page.
This is how the e-invoice is validated as authentic.
Validation by Authorized PAC
The PAC must validate an invoice before a seller can ship goods.
Cancellation of CFDIs
You can’t cancel a CFDI. Your PAC must do that on your behalf, and the customer must approve or reject your request within seventy-two hours.
Challenges of CFDI
CFDI is a dynamic e-invoice format with stringent guidelines that has evolved over the years. For example, the process for canceling an electronic invoice in Mexico changed dramatically with the introduction of the Miscellaneous Fiscal Resolution of 2017.
That new procedure became effective on November 1, 2018. It required suppliers to submit a cancellation request (instead of a credit note) to void a previously issued CFDI invoice. It also required the buyer to accept or reject the request within 72 hours.
CFDI Version 4.0
More recently, Mexico instituted CFDI Version 4.0. The main features of this update include:
- Requirement to include the name and/or business name of the sender and receiver as well as the tax domicile
- Additional fields for listing exported goods
- Section for products or services that have been invoiced and would incur indirect taxes
- Section to list the reason(s) for cancellation of tax receipts
- Modified deadlines for the cancellation of invoices
Working closely with their PAC partners, companies doing business in Mexico began using this CFDI version on January 1, 2022 and have until May 1, 2022, to comply.
Importance of CFDI
Without the ability to create a CFDI-formatted invoice or partner with a PAC, you could not conduct business in Mexico.
Companies that don’t follow Mexico’s stringent e-invoicing requirements or keep up with the changing requirements face penalties, substantial fines, potential disruptions to their supply chain, and payment delays for goods and services delivered.