How to Calculate Brazil Nota Fiscal Compliance Costs
We recently examined the complexities involved in calculating all of the costs associated with compliance in Latin America. It’s not just a matter of implementing a set-it-and-forget-it technology; avoiding the fines, penalties and operational disruptions that result from compliance errors requires changes to operational processes, continual updates and complex validations to avoid potential issues. When it comes to managing compliance in Brazil – the most complex regulatory environment in the world – even further considerations are required when evaluating compliance costs and solutions.
To understand the cost of compliance in Brazil, its first important to understand the pace of legislativechange in this country. In 2008, Brazil first announced e-invoicing requirements. In 2010, it released version 2 of its e-invoicing mandate, adding significant detail and process requirements to its compliance measures. In 2014, another large-scale update in the form of version 3.1 was released, requiring new documents and form fields. And these are just changes to Nota Fiscal (NFe) requirements. Brazil also has SPED e-accounting mandates, new HR legislation going into effect, and releases smaller scale changes even more frequently – at least yearly.
Each change requires technology updates, process changes, testing and regular maintenance – it’s not just one full-time job, but requires up to eight FTEs! With significant new requirements starting soon, enterprises doing business in Brazil need to take a hard look at their compliance costs and risks to ensure they are maximizing their investments while protecting against audits, fines, penalties and operational shut downs.
In addition to annual support, staffing and change management costs, companies operating in Brazil need to consider:
- Cost to store/archive 5 years of XML and/or the risk of fines for missing records ($200 USD for each missing document).
- Cost to update and manage new inventory reporting processes mandated by Block K. This is not just a technology cost – since many companies currently do not itemize their tax reporting in the manner required, a shift in internal processes is needed as well.
- Cost to update and manage new personnel and HR processes mandated by eSocial. Again – there are both technological, staffing and ongoing process management costs associated with this requirement.
- Annual costs for orders to cash (accounts receivable staff) focused on sending NFe to divisions and customers.
- Annual costs for procure to pay (accounts payable staff) focused on processing inbound NFe.
- Annual cost for manual data entry of goods at the warehouse versus automating the process.
- Cost of constant changes in local requirements on the SAP maintenance and global upgrade strategy.
- Additional software fees (for example, SAP charges separately for outbound NFe vs. inbound NFe).
- Cost of translating Portuguese legislation into global SAP system requirements. New SPED requirements alone include 1,300 pages of documentation.
Through its Nota Fiscal e-invoicing and SPED financial reporting requirements, Brazil has increased tax revenues by $58 billion USD, so we anticipate these measures and associated costs to only increase as the country continues to crack down on tax fraud.