Colombian e-invoicing adoption – an ambitious deadline with good progress
Colombia has aggressively promoted the adoption of e-invoicing since 2015. That year, Decree 2242 introduced mandatory e-invoicing in XML format through regulated schemas, use of digital signatures and real-time invoice controls by the tax authority DIAN as a clearance point. This model, which represents a significant departure from the previous ‘classic’ VAT invoicing scheme, can easily be explained by the 23 to 40% VAT gap. Last year, Colombia updated its legislation in this area by including a Tax Code that regulates invoicing obligations in general terms. Amongst other things, a final deadline for full implementation of the e-invoicing mandate was set to 1st January 2019 so that all taxpayers could prepare and embark on a smooth transition led by the tax authority (DIAN).
Anyone dealing with new frameworks understands that there are always delays, turns and changes. When we look at the experience of other country framework such as Chile, Mexico or Brazil who pioneered clearance models, Colombia’s deadline is an ambitious one. In fact, the general rule is that delays or tight schedules make governments fail their own deadlines, granting taxpayers exceptions or grace periods to adjust their processes. In fact, while Chile took around 10 years to implement a stable technical and legal framework before making it mandatory, Colombia aims at doing that in just a couple of years. Furthermore, Chile’s mandate expansion will take almost 5 years (2014 -2019) to include all taxpayers while Colombia aims at doing the same in only two.
In addition to the approximately 1,000 companies who have already engaged in e-invoicing, the Colombian tax authority (DIAN) has been performing the required analysis to detect industry sectors and taxpayers with a high risk of tax evasion. This has resulted in individual mandates being issued towards taxpayers who must start issuing invoices in electronic form during 2017. This process of issuing individual or group mandates is expected to continue and even speed up during 2018, a year in which DIAN is expected to increase the number of taxpayers using e-invoicing exponentially. Considering that by 2019 over 800,000 taxpayers must be issuing invoices electronically, 2018 will be a very active year for the Colombian tax authority. As activities promoting the change have been going on since 2015, it will be interesting to see if DIAN grants facilities or grace periods to those who fall behind. It is important to remember here that taxpayers notified by DIAN of their obligation to issue invoices in electronic form have only six months to adjust their systems.
In addition to the above, there has been continued progress toward the voluntary adoption of e-invoicing. Besides serving the purpose of speeding up commerce, the initiative aims to develop a market that currently represents 1% of Colombia’s GDP but aims to increase this to 10%. Such process envisions a design that is similar to Chile’s e-factoring process, with the participation of an Electronic Registry of Transferred invoices as a platform in which the issuer or the holder of the invoice can register its transfer.
During 2018, we also expect to see the implementation of the outsourcing of DIAN’s function as a clearance point to authorised third parties, as well as further developments of DIAN’s own technical infrastructure in order to better support the expansion of the mandate. This means that Colombia adopts a model similar to the one used in Mexico and that is also being implemented in Peru. This aspect of the model must yet be regulated and depending on how that is done, it could potentially represent a challenge as taxpayers who already using the new framework may have to migrate and adapt once more. In addition to this challenge, organisations wishing to become authorised third parties will have to go through a certification process that could delay implementation.
2018 is also the year in which DIAN will roll out a free tool within its own portal, enabling small taxpayers to engage in electronic invoicing and be compliant with the mandate by 2019 deadline.
Colombia’s efforts seem to be in right track, taking advantage of the vast experience of its neighbors in Latin America. There is a long way to go though and challenges will arise. We look forward to the next couple of years and to see if this will be a success story.
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Francisco de la Colina, Legal Counsel, TrustWeaver