Legal News: Applicability of the Electronic Invoicing Law.

The Electronic Billing Law ("Ley de Facturación Electrónica" or "LFE")

In El Salvador it was approved on August 30, 2022, together with the modification of the Tax Code, by way of incorporating 14 new articles with the main objective of establishing a regulation on the issuance, transmission, reception and invalidation of Tax Documents.

It is a legal reform initiative that enables electronic invoicing in El Salvador and the issuance of "Electronic Tax Documents" (DFE). DFEs are the different types of legal documents that can be issued electronically by Salvadoran taxpayers.

The LFE has several advantages and benefits for taxpayers, among them:

• Increased efficiency and productivity: e-invoicing can help companies save time and money by automating the invoicing process. This can free employees to focus on other tasks, such as customer service or sales.
• Improved accuracy and compliance: e-invoices are more accurate than paper invoices, as they are less likely to be lost or damaged. This can help companies avoid costly errors and penalties.
• Enhanced security: e-invoices are more secure than paper invoices because they are encrypted and transmitted over a secure network. This can help companies protect their sensitive data against fraud and theft.
• Increased transparency: e-invoices are more transparent than paper invoices, as they are easily accessible to both businesses and taxpayers. This can help improve tax compliance and reduce fraud.

In order to comply with the above advantages and objectives, the LFE establishes a new system that replaces the issuance of a physical invoice with a digital one. Tax documents included in this modernization process include:

• Tax credit vouchers
• Final consumer invoices
• Export invoices
• Credit notes
• Tax debit notes
• Withholding and settlement vouchers
• Remittance notes and settlement accounting document

The application of this innovative form of Invoicing is in coordination with the provisions of Article 113, first paragraph of the Tax Code, which states that the Tax Administration may provide or authorize the replacement of the physical document by electronic ones, provided that the security, compliance and accuracy of the taxes incurred are safeguarded and that the information corresponding to each transaction is transmitted online to the tax administration.

In view of the above, those electronic documents transmitted in the manner indicated by the LFE that do not comply with the control requirements to be carried out by the Tax Administration, will have to be corrected or remedied within the following three days of notification of the reason for rejection or observation. In the event that such documents are not corrected in a timely manner, they will not be considered as formally received by the Tax Administration (with the consequences of non-compliance with tax obligations that this entails for the Taxpayers).

The General Directorate of Internal Taxes (DGII) will carry out a series of inductions on the program to be used for the transmission of tax documents as regulated by the LFE and will send technological/functional information to taxpayers, in order to initiate the necessary computer modifications.

At Central Law we consider that the Electronic Invoicing Law is a positive development for the economy of El Salvador that can help to improve the efficiency, accuracy and security of its tax system. All of the above can undoubtedly lead to greater economic growth and prosperity for all Salvadorans and foreign investors who wish to establish their operations in our country.

For more information about the LFE or other aspects related to it, do not hesitate to contact Central Law El Salvador.