Costa Rica’s move to mandatory e-invoicing: what you need to know
Costa Rica is currently in the process of transitioning to mandatory e-invoicing by 2019. The use of e-invoicing will help the Costa Rican government strive toward its goal of digital inclusion, but also help combat tax evasion by optimising tax controls. Its strategy will place it alongside other Latin American countries, including Mexico, Brazil, and Chile who have significantly benefited from similar strategies.
How does the Costa Rica e-invoicing strategy compare to other countries in the region?
Costa Rica, like Chile, Peru, and Colombia, is introducing clearance e-invoicing framework where suppliers have to clear the invoice with the tax authority but do not need to wait for the authorization to communicate the invoice to the buyer. However, the invoice’s authorization message, returned by the DGT (the Costa Rican Tax Authority), is essential to ensure the invoice’s validity as a legally recognized tax document. To this end, electronic invoices must be sequentially numbered, issued in an XML format, digitally signed and generated by an issuance system that fulfills the necessary security requirements.
This system differs from Brazil, Mexico, and Argentina which operate a clearance e-invoicing framework where an invoice cannot be communicated to the buyer without the authorization message from the relevant tax authority.
What are the e-invoicing requirements in Costa Rica
Under the new rules in Costa Rica, taxpayers are obliged to implement an issuance system for all ‘comprobantes electrónicos’ (which translates to electronic vouchers or credit and debit notes, e-invoices and e-tickets). Among other things, the system used to issue these documents must:
- Fulfill strict security requirements
- Be capable of providing the required baseline functionalities for both inbound and outbound e-invoicing
- 3. Be accessible, with reasonable prior notice, by the DGT to ensure they can verify processed documents
No certification of the issuance system, by the DGT or any other accreditation body, is required. Indeed, it’s important to point out that the issuance system targeted by the legislation isn’t necessarily a unique platform or software component. On the contrary, it may be interpreted in a wider sense as the combined operation of different systems, where each component fulfils a function as part of the whole issuance system (this includes enterprise resource planning (ERP), document exchange and reception, signing capabilities).
In addition, the law mandates that the invoice must be communicated to the DGT for clearance immediately after it has been generated. The tax authority will issue a reception message and validate or reject it within 3 hours. Invoices that do not contain the acceptance message as a proof of clearance will not be considered valid legal documents and cannot be used to reclaim tax for credit fiscal purposes. Accordingly, taxpayers must store the acceptance message received from DGT, for both their outbound and inbound invoices. If an invoice is rejected by the tax authority, the supplier must issue a credit note canceling the invoice and issue a new invoice that references the canceled document and the reasons why it was rejected.
Acceptance and rejection of an e-invoice
Once a buyer has received an e-invoice they must issue an acceptance or rejection message in the regulated XML format. This acceptance or rejection must be sent to the tax authority within 8 days from the issuance date of the invoice. The DGT then issues a message accepting or rejecting the buyer’s response.
“Such interaction with the tax authority and their method of reporting buyer’s acceptance or rejections of invoices is comparable to the situation in Chile. However, the difference in Costa Rica is that the DGT must authorize the buyer response once it has been validated.”
This differs from Chile where the tax authority only issues a ‘received’ message. As a consequence, it is important to note that while it is true that other countries have frameworks in which the buyer interacts with the tax authority with regard to the invoice (Chile as mentioned above or Brazil with the Manifestação do Destinatário). No other country in the world except for Costa Rica has a clearance model for buyer responses. This could potentially be copied in other countries as a method that provides more guarantees, certainty, and stability to the life of the invoice as a credit document (known as e-factoring). Factoring allows suppliers to meet their working capital needs by selling their invoices, or accounts receivable, to lenders for cash. The growth of e-factoring within Costa Rica will enable the further expansion of such a market in the Latin America region.
Archiving e-invoices in Costa Rica
Under the rules, comprobantes electrónicos or e-invoices, have to be archived for 5 years in the same format they were issued. Taxpayers must guarantee the integrity, authenticity, privacy, legibility, confidentiality, preservation and availability of the XML files during the entire archiving process. In addition, storage facilities must have the appropriate controls, audits and fail-safes in place to avoid data loss or data breaches.
Finally, taxpayers engaged in e-invoicing will need to keep purchase and sales information ledgers in electronic form. Such information consists of all the invoice data gathered per document plus summary information of all documents generated once a month in XML format.
Francisco de la Colina, Legal Counsel, TrustWeaver