Francisco Cabrales Romero- Sr FI CO Consultant. SAP Consulting July 26th, 2013

Mexican Localization Eagle industry Co.,Ltd.

Topics

�Localizations �History �Financials �Sales & Distribution �Materials Mangement �Tools �Accounting Records on

possible scenarios in your Mexican operation.

Localization México

� SAP has localized the system to fulfill the main legal and business requirements in

Mexico. Whenever a change in the law or business practice affects any of this functionality already available, SAP is responsible to do the modifications to fulfill the new requirements (i.e change in the law, new report format, new certificate format, new bank format, etc…).

� The localization covers requirements in the Financials module (FI), the Sales and

Distribution module (SD) and the Material management module (MM), Human Resources (HR).

History

Supposed SAP Solution Value prototyping  with  ‘SAP  Best  Practices  for  subsidiary  integration in one client’  and  Automotive  solution  for  parts  supplier.

Name Eagle Industry Co., Ltd. Established October 1, 1964 Representative Tetsuji Tsuru; Representative Director, President Offices EKK Eagle Industry Mexico S.A. de C.V. URL http://www.ekk.co.jp/eng/ Business Year From April 1 to March 31 of the following year Number of Employees 4,844

Business Outline Manufacturing and marketing of mechanical seals, special valves, plant devices, marine-related products, bellows devices; and related installation work

Main Banks Sumitomo Mitsui Banking Corporation The Bank of Tokyo-Mitsubishi UFJ, Ltd. Mizuho Corporate Bank, Ltd. The Chugoku Bank, Limited

Public Auditing Firm Nihombashi Corporation Certified Public Accountants

Financials Mexico Localizacion

� Chart of Accounts � Taxes:

� VAT (IVA) � IEPS � Income Tax (ISR) � IETU � Deferred Tax � Withholding Taxes

� Fixed Assets � Inflation Calculation � “ISR”  Depreciation

� Reports (System Information) � Standard Legal Information System � Third  Party  Operation’s  Tax  Declaration  (Formato A-29 - DIOT) � Income  and  Expenses  Reports  to  determine  the  IETU’s  Base  Amount � Predetermined bank payment formats for payment program

� Master Data Vendor/Customer

.

Financials ML: Chart of Accounts

Chart of Accounts

� It is possible to define the Chart of Account with the accounts required in Mexico. � In Mexico all company codes are obliged to register the Fiscal Net Income in a specific

account which will be added or deducted by the following concepts:

¾ Fiscal Net Income amount of the Previous Fiscal Year ¾ Incomes, dividends or investments made in foreign territories with tax

preferment rates. ¾ Dividends received from company codes located in Mexico ¾ Dividends or net incomes according to article 89th of the LISR (Ley del Income

Tax).

� There’s  no  legal  restriction  in  the  mexican legislation regarding the length in digits in the standard ERP system.

Financials ML: TAXES

VAT (IVA) � In Mexico Company Codes are obliged to pay the corresponding V.A.T. in the terms

described in article 1° of the Mexican V.A.T. law (LIVA - Ley del Impuesto al Valor Agregado). � Every company code with a fiscal address in Mexico must register, report and pay the VAT

when:

� sell or buy goods � sell or buy services (intangible goods) � Provide temporary goods or services usage � Goods and Service Imports

� V.A.T. Rates in Mexico � 16% - general tax rate � 11% - tax rate � 0% - tax rate

Input VAT

Tax code Tax rate (%) V0 0 %

V1 11 %

V2 16 %

Tax code Tax rate (%) A0 0 %

A1 11 %

A2

16 %

Output VAT

SAP Tax Code Configuration

Financials ML: TAXES

IEPS Not applicable for EAGLE � Excise duty, in the form of a special tax on production and services ( Impuesto Especial Sobre

Producción y Servicios ), is levied at each stage in the production of alcoholic drinks, tobacco products, and oil products. There are different rates of excise duty for different products. It is applied in addition to VAT, but is calculated on the basis of the net price.

� All alcoholic beverages sold in Mexico are subject to Mexico’s 16% value added tax (VAT). In addition, alcoholic beverages, tobacco, and denatured alcohol are also subject to the Impuesto Especial de Productos y Servicios or IEPS (Special Tax on Products and Services). See below for tax rates.

Commodity IEPS (Special Tax)

Beverage with alcohol content up to 14% 25%

Beverage with alcohol content above 14% and up to 20% 30%

Beverage with alcohol content above 20% 50%

Denatured alcohol 50%

Cigarettes 160%

Cigars and other tobacco 160%

Handmade cigars and other such tobacco 30.4%

Financials ML: TAXES

ISR � The Income Tax (ISR) in Mexico is a direct tax on income. The current law on income tax came into

force on 1 January 2002 , repealing the law had been in force since 1 January 1981 . � The tax is caused by exercise and make provisional monthly payments on account of annual tax

returns must submit monthly interim payments made, and an annual statement, which must occur three or four months after the fiscal year end as question of moral or physical person.

� For the wages earned by providing a background service.

� Professional activities. � For the lease or use of property. � In the interest you get. � For the prizes you get. � For the dividends and profits to divide other corporations. � For the sale or purchase of goods

Financials ML: TAXES

IETU � According with article #1 of the “Ley  del  impuesto empresarial a Tasa Vigente” , all the physical

people with enterprise activity or intermediate regime, and the companies in national territory, as well as the residents abroad with permanent establishment in the country by the income that they obtain, are forced to the payment of the enterprise tax to unique rate, by the accomplishment of the following activities: � Disposition of property � Benefit of independent services � Granting of the use or temporary enjoyment of goods and services

� Rate � 2008 – 16.5% � 2009 – 17% � 2010 and forward – 17.5

� IETU amount, will be the amount that we obtained as income (gain by sale of or or service), the less the deductions, and that is according to right, giving a result that will multiply by 0.175.

� Sap develops 2 standard reports that we will review later, to obtained the amounts for incomes and expenses to determine IETU´s base amount

Financials ML: TAXES

Deferred Tax � According to the Mexican tax legislation 2002, VAT/IEPS taxes are not reported to the tax office when

the invoice is received; instead, they are reported at the moment of the payment. Hence, it is possible that the tax calculated in a document is posted to an offsetting account. With standard program RFUMSV25 the tax amount is transfered automaticaly to the final account.

� In order to be able to cover this requirement, it is counted on the functionality of the DEFERRED TAXES This functionality requires of: � Codes of normal as well as deferred taxes. � Accounts of taxes as much for the normal ones as for differed that uses accounts bridge � Import and clearing of the Banking Statement of account, in case it is wanted to make the

validation at the time of the payment in cash � Execution of the Program of Transfer of Taxes in order month.

� SAP Notes & Programs � For Customers up to 4.7, the RFUMSV25 is available for this requirement. � For customers on ERP 2005 of higher, the RFUMSV50 should be used instead. � OSS NOTE 487616 VAT tax handling Mexico 1.1.2002 (IVA pago efectivo) � OSS NOTE 729636 RFUMSV25: Check bank clearing for Mexico � OSS NOTE 507679 RFUMSV25 and additional Tax

Financials ML: TAXES Posting Deferred Tax 1-. Invoice Creation 2-. Enter Payment: NOTHING changes here 3-. Transfer Deferred Tax Program is executed: A posting document is created The tax reported to the Tax Authorities is the one that you have in the "Normal" Tax Account at the

end of the month

Acc. payable Expenses Deferred Tax

1150

1000 150

Acc. payable Bank Account

1150

1150

1150

Deferred Tax Target Tax Account

150 150 150

Financials ML: TAXES

Witholding Taxes � Withholding taxes were developed in Mexico as a tool for the tax authorities to fight against tax

evasion � In some countries like Mexico, the law provides that invoice or payment recipients must withhold a

certain portion of the invoice amount and pay this as withholding tax on behalf of the vendor or customer.

� In Mexico, withholding tax is needed to be posted and reported to the tax authorities at regular intervals for certain vendors and customers, such as self-employed people.

� The way in which withholding tax is calculated depends on type of service. Transactions may: � Have a variable base for tax/SI contributions � Have different tax rates � Not be withholding tax-relevant

� Rates Tax

Withholding VAT Withholding Income tax Description TAXRATE Description TAXRATE Fees and leasing 10.0% Fees and leasing 10.0% Freights retention 4.0% Royalties 15.0%

Financials ML: TAXES Example of Witholding Taxes Freelancer’s  invoice:

1,000 Gross Amount

150 VAT tax (15%)

---------

1,150 Total Amount of the invoice.

The company who pays the freelancer have to withhold:

� 10% of income tax (calculated on the gross amount)

� 2/3 of the VAT amount (of the invoice)

The amount to be paid is:

1,150 Invoice Total

- 100 ( 10% Income tax of 1,000)

- 100 ( 2/3 of the VAT amount 150)

-----------

1,095 Amount to be paid to the freelancer

Financials ML: TAXES

OSS for Witholding Taxes � Income and/or VAT taxes can be withheld (ISR and IVA) at the payment time as required in

Mexico – Program RFIDYYWT � The  “Constancia  de  Retención”  is  generated  according  to  the  37A  format  

– OSS note: 896677 � 384150 Mexico: RFKQST00 withholding tax ISR and VAT(IVA) � 99666 ISR withholding tax for Mexico

Format “Constancia de Retención” 37A format

Financials ML: Fixed Assets

Fixed Assets Depreciation: � It is possible to define the different depreciation methods required for accounting and fiscal

depreciation calculations.

� Principally 5 depreciation areas cover the Mexican legislation; the others are used for information of historical value

Area Name

01 Book Value 03 B-10 15 Tax 16 ISR 18 IMPAC

Financials ML: Fixed Assets

Inflation Managment: � The system counts on the functionality that allows to realize the calculations of inflation according to

the defined thing in the B-10 Bolletin � As of January 2008, is no longer required to realize the calculation of the inflation, the functionality

follows available, in case one becomes to activate this requirement � The functionality consists on:

� Global customizing � Inflation indexes definition for Mexico � Inflation Indexes values � It is only supported for the legal requirements for certain countries � It has to be customized for FI-GL and FI-AA modules � Revaluation in G/L accounts and fixed asset accounts is carried out with their specific standard

programs

Financials ML: Fixed Assets

ISR Depreciation: �Depreciation calculation is according to the Income Tax (ISR) rules in the Asset

Accounting module (FI-AA) � In the OSS note: 1034582 there is a program that realizes calculation of the Update

of depreciation for the I.S.R. The program calculates the amounts according to the rules defined in the law of the I.S.R.

�The calculated values are entered in the aid of Fixed Assets in an area of specific

depreciation for the I.S.R. If it is desired, also it is possible to enter the amounts calculated in statistical accounts in the accounting module.

Financials ML: Reports (System Information) � Standard Legal Information System:

� The system includes the Financial Statements (Balance Sheet and Profit and Loss), VAT and Withholdings reports, Tax Certificates (Deferred Tax and Withheld Tax), Top customers and Top vendors reports ( formulario 42)

� Third  Party  Operation’s  Tax  Declaration  (Formato  A-29 - DIOT): � This report is available in OSS Note: 1082441. It allows generating the output file with the

required format defined by the Tax authorities. � OSS Note 1833840 DIOT report: Issue with user-exit

� Income  and  Expenses  Reports  to  determine  the  IETU’s  Base  Amount: � Note 1109979 New Flat Tax (reffered to as "IETU") in Mexico . � Both reports display all the payments and their details within a period so the company can

determine  the  transactions  that  have  to  be  included  in  the  IETU’s  base  amount.  The  Income  Tax  Report is available in OSS 1131178 and the Expenses Tax Report in OSS 1136244.

� Predetermined bank payment formats for payment program: � Payroll format for Santander � Vendors  Payments  and  Payroll  formats  for  “BANK”  (Formato  C),  last  version  in  OSS  note  657360. � SAPs scrpit- F110_MX_CHEQUE

Financials ML: Master Data Vendor & Customer

Tax Number in Customers and Vendors: � There are two tax numbers in Mexico that are relevant to the SAP System, the RFC number and the

CURP number. � RFC number (Registro Federal de Contribuyentes): A tax number, in Mexico, assigned to legal persons.

All legal persons must have an RFC number that identifies them for legal tasks. � The structure of this number is different between each type of person.

� Companies: 12 character � Person: 13 character. � It contains its first letterof it´s name, last name, its birthday date and 3 character that it is call

“homoclave”   � CURP number (Cédula de Identificación Fiscal con Clave Única de Registro de Población): A tax

number, in Mexico, assigned to natural persons. Customizing Maintain your own RFC numbers in Customizing Financial Accounting (FI) Financial Accounting Global Settings ÆCompany Code Æ Enter Global Parameters.

Sales & Distribution ML: Number range in S&D documents

Legal Number Documents

There are 2 different types of legal documents in Sales and Distribution module: 1. Invoice 2. Credit Memos

This documents can be

� Pre-numbered forms: (OSS Note 643681): It the company is not self-printer it is possible to control  the  external  “folio”  number  for  the  official  documents  (invoices,  Credit  Memos)  automatically in SAP.

� Digital Invoices and Credit Memos: The functionality to issue the Electronic Invoices according to

the  rules  defined  in  the  “Anexo  20”  of  the  law.  Please  refer  to  OSS  notes:  1280467  and  1303712

� Each type of document has it own range of number.

Sales & Distribution ML: Digital Invoices &Credit Memos

Digital Invoices & Credit Memos � From January 1th 2011 all invoices with amount greater than $2,000.00MXP must be issued digitally

according with the requirements of Comprobantes Fiscales Digitales (CFD) a.k.a. Digital Invoices. � Types of issue authorized by SAT (legal entity)

� Contributors that issue Digital Invoices using an Authorized Third Party Systems � Contributors that issue Digital Invoices using their own Systems

� Obligations of Issue and Reception of Digital Invoices ISSUE

� Report monthly to SAT all the information about the Digital Invoices issued � Keep in electronics medias all the Digital Invoices and provide to the authorities a way to consults

its. � Issue Global Digital Invoices to the General Public Sales operations (using the Generic RFC

XAXX010101000) � Issue Digital Invoices to foreign citizens using the Generic RFC XAXX010101000

RECEPTION � Keep in electronics medias the received Digital Invoices and provide to the authorities a way to

consults its. � Check the digital seal of every Digital Invoice received (using the SAT methods for this).

Sales & Distribution ML: Digital Invoices &Credit Memos

� Requisite for Digital Invoices

� Obtain the FIEL (FirmaElectrónicaAvanzada) � Obtain the Digital Seal from SAT (LegalAuthority) � Request at least one numbering series and prefix. � Ful fill the technologic standard provided by SAT to create the XMLfile, according to Annex 20 of

the Resolución Miscelanea Fiscal of 2009. � Create and send the monthly report to SAT

� SAP Notes

� SAP Note 1318342 -Digital Invoice Mexico: IDoc basic type INVOIC02 Extension � SAP Note 1711011 -Digital Invoice Mexico: CFD 2.2 � SAP Note 1321680 -Digital Invoice Mexico: IDoc basic type FIDCCP02 Extension

Sales & Distribution ML: Digital Invoices &Credit Memos Conceptual Design of the solution

SCOPE of Functionality

Asignation of PreFix and series Number into the SD / FI Documents

� Scope of functionallity: ISSUE � Numbering control of PreFix and Series number provided by SAT at header level. � Creation of the Original Chain (Cadena Original) according to legal requirements. � Capacity of creation of Addendas and Complements. � Digital seal in every billing document issues from SD or FI module. � Digital Invoices available in the system for internal or external audit processes. � Information in the system for print or re-print each documents. � Month report according with the SAT requirements. � Creation of XML file from PI according to the SAT requirements. � Creation of the PDF file (image of the Billing document) � Commercial Addendas and complements

Asignation of PreFix and series Number into the SD / FI Documents

Example of XML The XML file is Generated from SAP PI.

Billing Printed

Monthly Report

Materials Management

� Inflation calculation (OSS note: 953106 and 787680):

� According  to  the  “B-10”  definition,  it  is  possible  to  calculate  the  inflation  for  the Stock and the Goods Issues in the Material Management module.

Tools for generating different government formats

Tools for generating different government formats: �Data Medium Exchange Engine = DMEE:

� This is a standard tool that allows generate output files with any format required. It is generally used to generate bank payment transfer files, bank account statements import and could be also used for taxes purposes too.

�Data Retention Tool = DART (standard): � This tool allows transfer to data medium for tax audit purposes

Accounting Records on possible scenarios in your Mexican operation. (Example)

Accounting Records on possible scenarios in your Mexican operation.(Example)