We are immersed in a process of digitization at all levels, and this implies that new obligations are coming for entrepreneurs and professionals, such as using electronic invoices, called the factura electronica. This new system can seem foreign to Expats, as many “first world” – countries lack behind in that regard or simply have different needs or reasoning. In Panama and Costa Rica, the use of electronic invoices has become mandatory in light of extreme tax evasion, corruption and lack of public resources.
Through this system, it is intended to expedite payments, but also to improve the supervisory capacity that the Tax Agency has over the movements of money made by legal entities and individuals (self-employed workers) in their economic activities, in order to avoid fraud.
The obligation to use electronic invoices has existed in our country some time, but it was more of an exception to the general rule, as only entrepreneurs and professionals had to resort to it when providing services or delivering products to a public administration. Now things have changed in the last 24 months. The law establishes the obligation to use electronic invoices in all transactions between companies and professionals.
What is an electronic invoice or commonly called factura electronica?
An invoice is a commercial document that records the sale of goods or the provision of a service. It is issued by the seller and serves as proof that the transaction has taken place, as a valid document to demand payment from the customer, and also as an instrument for the latter to enforce the warranty. Panama and Costa Rica offer a system from the tax authority for free for the creating of those invoices. As well there are some third-party systems with added functionality.
To be valid from a legal point of view, invoices must generally contain a series of data:
- Invoice number
- Serves to identify the invoice within the issuer’s accounting, so each number must be unique.
- Date of invoice issuance
- Tax data of the issuer and the recipient
- This element is not only absolutely necessary in all invoices, but it also constitutes one of the main differences between an invoice and a ticket. The data that must appear with respect to the issuer and the recipient are:
- Name and surname, company name or full name.
- Concept, amount, totals and taxes (possible tax excemptions)
- The invoice must detail exactly what is being invoiced through it, defining it and indicating the number of units. For example, “repair of 3 faucets” or “25 units of packages of 500 sheets of 500 sheets”. There is also a catalogue of products and services containing defining numbers for each product / service category which is already obligatory in Costa Rica.
The numbering format is free, but the legislation requires that the number be consecutive and continuous. Thus, if we have just issued invoice number 15, the next one must be 16, and so on.
There should be no gaps in the numbering, but this may be admissible in an inspection if the reason for the gap can be justified.
Now that we are clear about what an invoice is and how it should be, we can clarify that an electronic invoice is exactly the same as a paper invoice in terms of its structure and legal effects. The only difference is that it is issued and received through electronic means. The issuance happens through the tax authority themselves.
Why have Costa Rica and Panama switched to electronic invoicing?
With factura electronica, the obligation was created for entrepreneurs and professionals to use electronic invoicing in order to give greater transparency and efficiency to the management of public resources.
This obligation has been extended over time to other types of businesses and activities, and new laws have established the obligation to use electronic invoicing in all commercial relations between companies and professionals, as well as in those between companies and consumers, although in this latter case with some exceptions.
The regulation of electronic invoicing is aimed at achieving the following objectives:
- Reduce the administrative burden on companies and professionals.
- Improve the efficiency of tax administration.
- Reduce the risk of fraud and tax evasion.
- Promote the development of the digital economy.
Who is obliged to use electronic invoicing – Factura electrónica?
Electronic invoicing has become an essential element for legal entities to be able to carry out commercial operations.
The relatively new law focuses on avoiding late payments in the commercial environment, using electronic invoicing as a tool for control and transparency in commercial relations. Therefore, the law regulates the obligation of electronic invoicing establishing the following cases:
- Companies (legal entities). For all legal entities (limited companies, public limited companies, etc.) that issue invoices
- Self-employed workers and companies that invoice other professionals
- Companies that sell to consumers. Companies that sell to final customers, i.e., to consumers of products and services, are not obliged to use electronic invoicing as one needs to be registered with the tax authority to receive those. Here another tool comes into account, the electronic Ticket. The electronic ticket serves the same purpose in terms of declaring income before the tax authorities, but does not act as an invoice that is tax deductable by another commercial entity.
Obligations of the issuer of an electronic invoice
In electronic invoicing, both the issuer and the recipient must comply with a series of requirements and obligations. Let’s see what are the obligations that the issuer of this type of digital invoice / factura electronica must comply with:
- Prepare the electronic invoice using computer software that meets the minimum requirements established for this type of document.
- Ensure the legibility of the invoice, i.e., that the recipient can access all its elements and identify them unequivocally (date, invoice number, company details, taxes, etc.).
- Guarantee access to invoices, allowing their viewing, selective search, copying, downloading, and printing. To do this, it is important to use valid file formats that can be accessed from any device (such as the standard PDF format, for example, or electronic formats such as XML). Some existing systems like GTI in Costa Rica, have this functionality included.
- Keep the invoice data over time (it is not actually necessary to keep the invoice itself, but the database that generates it). The metadata of the electronic invoice plays a fundamental role in this section, as it records essential identification and authenticity data of the invoice.
- Perform the corresponding accounting of the electronic invoice in compliance with the current accounting regulations.
- Ensure the authenticity, integrity, and legibility of the invoices issued or kept by means of the usual controls for the management of the business or professional activity. These controls must allow the creation of a reliable audit trail that links the invoice with the delivery of goods or the provision of services.
- Validate the invoice using a valid electronic signature system (the usual thing is to use a digital certificate and compatible signature tools, provided by the tax institution).
It is important to note that the recipient of the electronic invoice must also comply with some requirements, such as having the technical aspects to allow the receipt of the electronic invoice, keeping it in its original format (not modifying it), and guaranteeing its legibility and accessibility over time.
Advantages for companies and professionals
- Reduction of administrative costs: Electronic invoicing eliminates the need to print, distribute, and store paper invoices.
- Increased efficiency: Electronic invoicing automates many tasks related to invoicing, such as invoice generation, sending, and tracking.
- Improved customer service: Electronic invoicing allows companies to send invoices to their customers more quickly and easily.
- Reduced fraud risk: Electronic invoicing makes it more difficult to alter or counterfeit invoices.
- Improved environmental impact: Electronic invoicing reduces the use of paper and other resources.
Advantages for consumers, including Expats
Electronic invoicing can be a tool to verifiy the legidity of a company or service provider, since it requires to be registred properly before the tax authorities. Expats can ask the legal information like tax registration numbers before conducting any business with them or even ask for an electronic invoice or ticket to be sent to them if it doesn’t happen automatically. Read our article on how to vet a company.
- Increased convenience: Consumers can receive and view their invoices electronically, which is more convenient than receiving paper invoices.
- Improved security: Electronic invoices are more secure than paper invoices, which are more vulnerable to loss or theft.
- Easier record keeping: Consumers can easily store and organize their electronic invoices.
- Reduced environmental impact: Electronic invoicing reduces the use of paper and other resources.
Advantages for the tax administration
- Improved efficiency: Electronic invoicing makes it easier for the tax administration to collect taxes and to detect fraud.
- Reduced costs: Electronic invoicing reduces the costs incurred by the tax administration in processing tax returns and conducting audits.
- Improved transparency: Electronic invoicing makes it easier for the tax administration to monitor the tax compliance of businesses and individuals.
Conclusion Factura Electronica
Electronic invoicing is a modern and efficient way to invoice for goods and services. It offers a number of advantages for both companies and professionals, as well as for consumers and the tax administration.
The pertaining laws have established the obligation to use electronic invoicing in all commercial relations between companies and professionals, as well as in those between companies and consumers, although in this latter case with some exceptions.
If you are not already using electronic invoicing, I recommend that you consider adopting it. It is a change that will benefit your business in many ways.