Order, Progress and Indirect Tax Complexity in Brazil

Global companies seeking to enter South America’s largest economy should take a close look at Brazil’s unique math regarding indirect tax calculations. Here’s a good sample equation to begin with: comprehensive e-invoicing requirements (VAT, general ledger and income tax returns) + granular data-sharing obligations + 27 states with 27 Tax Authorities + 5,000 municipalities with their own e-invoicing template + fraud risks + high volume of changes on a daily basis = a complex market in which to comply.

Tax departments and indirect tax teams within multinational companies that establish operations in Brazil clearly have their hands full. As such, they should partner with experts who possess deep knowledge of Brazil’s tax system and its numerous requirements so that they understand:

• How the e-invoice system works; 
• How to validate invoices that have been issued to your company at both State and City levels; and
• How e-invoices are processed and stored following the Tax Authorities requirements as part of the country’s public system of digital bookkeeping – known as SPED, the acronym for Sistema Público de Escrituração Digital. 

Complying with these requirements means that companies must manage, authenticate, and store all accounts payable (A/P) e-invoice files. When invoices are received directly from the supplier, they should be in an electronic format. Sometimes, suppliers submit paper invoices; when that occurs, invoices must be converted via optical character recognition (OCR) tools so that the information can be saved and stored in the buyer’s enterprise resource planning (ERP) system. Buyers have an obligation to review invoices for goods and certify the accuracy of those invoices to relevant tax authorities within anywhere from 72 hours to 90 days. That response time – along with other e-invoicing rules – can vary significantly among the country’s 27 states and some cities with their own e-invoicing requirements (such as Sao Paulo).

These requirements pose a major challenge to buyers, which have to locate and download all invoices from the invoice registration platforms of 27 different states (and, again, some cities, which have their own formats). This information must be compared to the invoices received directly from suppliers via email. Next, the validated invoices must be archived for processing during the monthly electronic return process. By law, all invoices must be stored for five-plus years for auditing purposes.

To be clear, that is a simplified high-level summary of Brazil’s e-invoicing challenges. The crucial points to keep in mind are that this complex equation is prone to errors, and the right partnerships – and tax automation – will reduce complexity along with the risk of errors.