In Colombia, a pre-clearance VAT invoice regime with a phased implementation approach was introduced in 2019. On 1st November 2020, new rules for Colombian B2B E-Invoicing will enter into force. These regulations are issued by the DIAN (Dirección de Impuestos y Aduanas Nacionales, Colombia’s National Tax and Customs Authority) and specify the types of business obliged to issue e-invoices, the required content and format of e-invoices, and the implementation deadlines.
In this blog post, I explain the new Colombian B2B E-Invoicing requirements in detail and provide more information on the SAP Document Compliance solution to achieve compliance with the Colombian E-Invoicing rules in SAP ECC and SAP S/4HANA.
E-Invoicing in Colombia – New rules in 2020
Since 1st January 2019, large companies in Colombia have been required to comply with mandatory e-invoicing and therefore need to issue and submit invoices in an electronic format.
With Articles 20 and 26 of Law 2010 of 2019, Article 616-1 of the Tax Statute and Decree 358 of 5th March 2020, Colombia has recently announced the expansion of their B2B e-invoicing rules. As from 1st November 2020, E-Invoicing will be mandatory for all Colombian companies (regardless of their size). With this E-Invoicing regulation, the DIAN tax authority has implemented a clearance model that can be compared to E-Invoicing regulations in other Latin American (LATAM) countries such as Brazil and Mexico.
Until mid-2019, the Colombian reporting model required large taxpayers to submit e-invoices to DIAN within 24 hours for their issuance. Under the new e-invoicing model, all customer invoices (both domestic and export) need to be issued and submitted in XML format, including your company’s digital signature and an e-invoice unique code (CUFE). Before being sent to the end-customer, these e-invoices need to be transmitted to and validated by the Colombian tax authority (DIAN). Until this approval is granted, which is done live, the e-invoice is not valid for settlement or tax declarations, and goods may not be shipped. After the DIAN approval is granted, the goods shipment can start, and the invoice can be forwarded to the customer who needs to accept or reject the e-invoice.
Just as for Mexico and other LATAM countries, the large VAT gap in Colombia was the trigger to introduce mandatory E-Invoicing. This initiative should reduce tax evasion rates, modernize tax compliance, and increase savings for both the public and private sectors.
Penalties for non-compliance with the E-Invoicing rules in Colombia
In case you use SAP ECC or SAP S/4HANA to manage and integrate your Colombian invoicing processes, it is crucial to make the necessary SAP adaptions to ensure compliance with the Colombian B2B E-Invoicing regulations. Penalties for non-compliance can be up to 15.000 UVT (Unidad de Valor Tributario, Tax Value Unity), set based on the following criteria:
- 5% of the invoice amount for which the required information was not provided
- 4% of the invoice amount for information submitted in the wrong format
- 3% of the invoice amount for late submissions
With the adjusted Tax Value Unity for 2019 valued at COP 34.270 per UVT, that means penalties can rise up to COP 514.050.000, which is approximately EUR 115.000.
Why E-Invoicing? 3 Benefits of E-Invoicing for your Business
Although the new E-Invoicing rules, that are imposed by the Colombian DIAN tax authority, cause some additional work and investments to adapt your SAP system accordingly, they also bring quite a few benefits for your business:
- All invoices will be easy to track throughout the entire process flow.
- It will reduce the risk of losing physical documents.
- It will help you reduce the paper printing and storing, which is cost-effective and environmentally friendly.
Since many other countries are currently also defining their own e-invoicing rules, we recommend defining your own clear and future-proof E-Invoicing Strategy. More information on why and how you can do this, can be found in our blog post “Why you need a long-term e-invoicing strategy for your SAP system”.
Technical and process-related challenges with mandatory B2B E-Invoicing in Colombia
In your own Colombian compliance project, you will face the following technical and process-related challenges that need to be covered by your SAP system:
- The first challenge is the technical nature of E-Invoicing. You need to enable your ERP system to generate the required XML file from an SAP SD or SAP FI billing document, digitally sign it and submit the XML file for approval to the portal of the Colombian tax authorities (DIAN).
- After the DIAN system has approved the XML file, you must provide your customer with the E-Invoice. In case you have a large customer base in Colombia, it is difficult to create a direct interface with them. Because of that, this is mostly done by e-mailing the approved invoice. Without an automated solution, this is a time-consuming and error-prone task.
- After your customer has received your e-invoice, they need to provide feedback (approval/ rejection). In accordance with the Colombian rules, you are required to store these responses. In case you would do this by e-mail and don’t have an automated solution, it is very difficult to keep track of this and this would also create a lot of manual work.
- You are only allowed to physically deliver your goods to your customer after the DIAN authorities have received and approved your e-invoice. This means that the promised delivery times are at risk if your system is not stable.
- In case you choose not to implement an SAP solution that ensures compliance, you run the big risk not to comply with the Colombian rules for E-Invoicing. This means that you will not be allowed to deliver your goods and that you need to pay severe penalties.
With SAP Document Compliance, we provide a strategic, integrated SAP solution that ensures compliance with the Colombian e-invoicing regulations on the long run. This SAP solution covers the entire e-invoicing process end-to-end in an automated way and therefore enables you to easily master all these technical and process-related challenges. Please click on the button below or leave a comment in the Comments section below to request a web-meeting and learn how we can help you with your Colombian compliance project.
The SAP solution to achieve compliance with the DIAN E-Invoicing requirements in Colombia
In order to implement the Colombian DIAN legal requirements for E-Invoicing in SAP, I recommend using the SAP Document Compliance solution (formerly known as the SAP eDocument Solution). SAP Document Compliance is a strategic, integrated SAP solution that works with SAP ECC and SAP S/4HANA and that makes your e-invoicing process 100% legally compliant with the Colombian e-invoicing regulations. SAP has built this solution not only to comply with the Colombian e-invoicing requirements, but also to ensure compliance with many other country-specific legal requirements all over the world, such as SII Spain, SDI Italy, CFDI Mexico, RTIR and EKAER Hungary, etc. All the implemented country-specific legal requirements can be easily managed with the SAP eDocument Cockpit that takes a central role in SAP Document Compliance. With SAP Document Compliance, you have an end-to-end solution that automatically generates the required XML file based on source information from your SD or FI invoices and digitally signs the XML file. SAP Document Compliance can be connected with SAP CPI or with 3rd party EDI middleware systems to manage all data communication with the local tax authority systems.
An additional benefit of using SAP Document Compliance for electronic invoicing is its flexibility. There are several SAP BAdI’s (Business Add-Ins) available to change the standard XML and PDF mapping, to change the e-mail content and the recipients, to partially automate the customer feedback process, etc. We have already adapted SAP Document Compliance to many different customer-specific requirements. Please let me know if you have a certain business case that you want to implement in your e-invoicing process. I am happy to investigate how this can be integrated with SAP Document Compliance.
For Colombia, SAP has provided a solution for both outbound and inbound e-invoicing. As with most e-invoicing regulations, the focus is on the outbound process and therefore it also contains the most process steps. The following graphic illustrates the process steps that are implemented in SAP Document Compliance to achieve compliance with the Colombian DIAN requirements for Outbound E-Invoicing:
- In the first step, you create an SAP SD or SAP FI billing document in your SAP ECC or SAP S/4HANA system.
- The creation of this billing and related accounting document triggers an SAP eDocument in the built-in SAP eDocument Cockpit.
- Within your SAP system, the information from the eDocument is converted into the by the Colombian DIAN authorities required UBL 2.1 XML format.
- In a next step, the UBL 2.1 XML file is digitally signed by SAP CPI (SAP Cloud Platform Integration) or by a 3rd party EDI middleware system in case you don’t want to use SAP CPI for all data communication.
- The E-Invoice is now DIAN-compliant and will be automatically transmitted to the online portal of the Colombian DIAN tax authority.
- The DIAN authorities will accept or reject the e-invoice in an immediate response. This response flows back into SAP and is shown in the SAP eDocument Cockpit.
- After you have received the DIAN approval, you can initiate the goods movement and send the e-invoice to your customer. There is no mandatory channel to send the e-invoice to your customer, but e-mail will most likely be the easiest way. For sending this e-mail (including the XML and PDF file), the SAP eDocument Cockpit provides a button. This reduces the manual effort dramatically.
- Your customer needs to respond to the e-invoice within a defined period. This means that your customer has the opportunity to reject your invoice. In case the customer doesn´t respond within this defined period, the e-invoice is automatically considered accepted. In SAP, you have the option to maintain the customer reaction, received by e.g. e-mail.
The DIAN Inbound Invoicing Process in Colombia with SAP Document Compliance
With the Colombian inbound e-invoicing process, you need to accept or reject the e-invoice that comes from your Colombian vendors. That is why it is useful not only considering the SAP Document Compliance solution for outbound e-invoicing, but also grasp the opportunity to implement and automate the incoming e-invoicing process.
The following graphic illustrates the process steps that are implemented in SAP Document Compliance to achieve compliance with the Colombian DIAN requirements for Inbound E-Invoicing:
- Your vendor provides you with their e-invoice via e-mail or via another channel.
- You upload the e-invoice to your SAP system.
- This upload triggers the creation of an SAP eDocument in the built-in SAP eDocument Cockpit.
- You can verify the XML file and check whether all data is correct.
- You accept or reject the invoice.
- Your acceptance or rejection triggers sending out an automatic e-mail to your vendor with your feedback.
How PIKON can help you with your compliance project in Colombia
With our Competence Center for Legal Requirements, we are a strategic partner who ensures that your SAP system and business processes meet different country-specific legal requirements all over the world on the long run. We have a team of experts that combine SAP expertise and in-depth knowledge of the end-to-end legal process and technical requirements of the Colombian and many other E-Invoicing regulations. We have gathered this experience through our many SAP Document Compliance and local implementation projects all around the world, for example SDI in Italy, SII in Spain, CFDI and Complemento de Pago in Mexico, RTIR and EKAER in Hungary, XRechnung in Germany, the different legal requirements in Turkey, etc. We have also developed own compliance SAP Add-Ons for e.g. MTD VAT in the UK and the VAT Whitelist in Poland. Furthermore, we always keep an eye on new and changing legal requirements and inform our customers when action is needed. This ensures that your company doesn’t need to follow-up on all the legal requirements yourselves and you can concentrate on your daily business.
If you have any questions about Colombian E-Invoicing or about how we can help you achieve compliance in your SAP system, please ask me your questions in the Comments section below or feel free to request a web-meeting by clicking on the button earlier in this blog post. I am happy to help you.