Worldwide VAT, GST and Sales Tax Guide
Mexico
Mexico City GMT -6
EYS Equipo y Soluciones, SC
Antara Polanco
Av. Ejército Nacional 843 B 3-A Floor Col. Granada 11520 Mexico City
Mexico
Indirect tax contacts
Teresa Rodríguez +52 (55) 5283-1372 teresa.rodriguez@mx.ey.com
Javier Coppel +(52) 81 8152 1856 javier.coppel@mx.ey.com
Mayra Espejel +52 (55) 5283-8625 mayra.espejel@mx.ey.com
Liliana Salomón +52 (55) 5283-1300 liliana.salomon@mx.ey.com
Sandra I López +52 (55) 5283-1300 sandra.i.lopez@mx.ey.com
Jesus Escobedo +52 (55) 5283-1300 jesus.escobedo@mx.ey.com
A. At a glance
Name of the tax
Local name
Value-added tax (VAT)
Impuesto al Valor Agregado (IVA)
Date introduced 1 January 1980
Trading bloc membership
United States-Mexico-Canada Agreement (USMCA)
Administered by Mexican Administration Tax Service (Servicio de Administración Tributaria, or SAT) Ministry of Finance and Public Credit (http://www.sat.gob.mx)
VAT rates
Other
Zero-rated (0%) and exempt
VAT number format Tax ID (RFC) number for a company is 12 alphanumerical characters, XXX-######-XXX RFC number for an individual is 13 alphanumerical characters, XXX-#######-XXX or (X=letters; #=numbers)
VAT return periods Monthly
Thresholds
Registration None
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the following transactions:
• Supply of goods and independent services provided in Mexico
• Importation of services (subject to the reverse charge, see Section C)
• Grant of temporary use or exploitation of goods
• Importations of goods, regardless of the status of the importer
• Supply of digital services provided by foreign residents
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment rules” that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in that jurisdiction where it has customers that are not taxable persons. In Mexico, the “use and enjoyment” provisions only applies to services exported to be taxed at 0%, with the requirement to evidence effective use of the service, provided by Mexican tax residents. In addition, the temporary use of goods must occur within Mexican territory to be taxable.
Transfer of a going concern. Transfer of going concern rules do not apply in Mexico. As such, VAT applies to all sales of a business or part of a business capable of separate operation, including assets.
Transactions between related parties. In Mexico, for a transaction between related parties the value for VAT purposes is calculated on an arm’s-length basis. There is no difference between supplies of goods and services.
C. Who is liable
Any business entity or individual that carries out, in Mexican territory, any of the taxable transactions described above, as provided in the VAT law.
A taxable person that receives a supply must withhold the VAT due from the supplier and must pay the corresponding VAT. It applies to a variety of transactions, including the following:
• Fees paid by companies to individuals
• Acquisitions of scrap material
• Ground transportation (freights) of goods
• Commissions paid by companies to individuals
• Lease or acquisition of tangible goods from residents abroad
Digital service intermediaries that collect the price and the VAT on behalf of digital service providers, that are foreign residents without a permanent establishment in Mexico, will be required to withhold 100% of the VAT collected from Mexican users (individuals or legal entities).
Out of scope activities. Taxable activities executed outside the Mexican territory, as well as other activities not subject to VAT, executed within national territory, whenever taxpayers earn income and activities for which expenses and investments were made in which VAT was charged or paid upon importation thereof.
Exemption from registration. The VAT law in Mexico does not contain any provision for exemption from registration.
Note that a VAT registration on its own would not be possible in Mexico. If an entity starts taxable activities in Mexico, it needs to establish a local entity or a permanent establishment, which will be subject to all the different taxes in Mexico.
The only exception for creating a permanent establishment is for the provision of digital services. If foreign companies carry out other business activities in Mexico, such as selling goods on an
through the SAT’s website (www.sat.gob.mx). In addition, the taxable person must visit in person to the SAT office to complete the registration with the following information (originals accepted only):
• Bylaws of the entity
• Proof of the tax address in Mexico
• Notarized power of attorney granted to the legal representative
• Identification card of the legal representative
The entity is also obligated to obtain the Mexican electronic signature for tax purposes (known as e.firma) through its legal representative. This procedure takes place in the SAT’s office.
In Mexico, tax ID (known as RFC) number is the same for all tax purposes for Mexican residents. This tax identification type can be applied to companies and to individuals. An RFC number for a company is 12 characters, while an RFC number for an individual is 13 characters.
For foreign residents who provide digital services, an RFC is assigned just for VAT purposes. For such purposes the foreign service provider must perform the following registration process:
• Appoint a legal representative in Mexico. The legal representative should have their own RFC, electronic signature and a tax domicile in Mexico.
• Fill out the pre-registration form through the Mexican tax authorities’ website (www.sat.gob. mx).
• Register and obtain the electronic signature at the tax authorities offices. This should be personally carried out by the legal representative in Mexico by obtaining an appointment at the tax authorities’ facilities
The list of necessary documentation to complete the registration process described in 1/Plataformas Tecnológicas (PLT) and 2/PLT (PLT refers to digital platforms, and the code is the procedure number that is listed in the tax authorities’ guide on tax procedures, specifically for digital platforms) are as follows:
• Power of attorney (POA) duly apostilled, translated into Spanish by an official translator and notarized in Mexico
• Pre-registration form completed on the tax authorities’ website
• Bylaws of incorporation duly apostilled and notarized in the country of origin and in Mexico; such document should be translated into Spanish by an authorized translator
• Taxable persons’ registration number granted by the foreign tax authority duly apostilled and notarized in the country of origin and in Mexico; this document should be translated into Spanish by an authorized translator
• Original proof of tax domicile in Mexico; in general, a lease or service agreement or bills for public services such as water, electricity, gas, among others, would be proof of address
• Official identification of the appointed legal representative
• Official form (FE) – “Request of the certificate of e-firma” (this is for the process required in Form 2/PLT) Deregistration. Through a liquidation process, the taxable persons can cancel the tax identification provided by the tax authorities.
Changes to VAT registration details. Taxable persons are obliged to submit notices to the Federal Tax Registry when there is a change in its tax domicile, tax obligations (additions or removals), openings or closing of offices, warehouses, plants or branches. Notifications must be filed via the tax authorities’ website with the electronic signature.
Some notifications must be performed by the individual or legal representative physically in person at the tax authorities’ offices. This would be required for such changes as name denomination change, cancelation of tax registry, change in equity legal regime, change of tax residency.
Taxable persons must notify such changes during the following month the change took place.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.
The VAT rates are:
• Standard rate: 16%
• Reduced rate: 8% (valid until 2024 – pending renewal decree)
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for a reduced rate, the zero-rate or an exemption.
All temporary importations made by companies who operate under the IMMEX program are subject to VAT at the standard rate. However, a 100% credit of VAT is applicable over the temporary importations for entities that obtain a certification for VAT/excise tax purposes. “IMMEX” is a Spanish acronym for Manufacturing, Maquiladora and Export Services Industry (Industria Manufacturera, Maquiladora y de Servicios de Exportación). The IMMEX program allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100% of all finished goods will be exported out of Mexico within a government mandated time frame and several conditions are fulfilled.
• Exported goods
Examples of goods and services taxable at 0%
• Certain exported services
• Unprocessed food and milk
• Patented medicines
• Feminine hygiene products
Examples of goods and services taxable at 8%
• Supply of goods and services, use or enjoyment of goods in locals or establishments located in the cross-border zones, both in the Northern and Southern regions.
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT. Exempt supplies do not give rise to a right of input tax deduction.
The municipalities that are part of the northern border region of Mexico include: Tijuana and Mexicali in Baja California; Nogales, San Luis Río Colorado, Agua Prieta and Caborca in Sonora; Ciudad Juárez in Chihuahua; Piedras Negras in Coahuila; Anáhuac in Nuevo León; and Laredo, Matamoros, Reynosa and Valle Hermoso in Tamaulipas.
In the south, the following municipalities are mentioned in Chiapas: Palenque, Ocosingo, Benemérito de las Américas, Marqués de Comillas, Maravilla Tenejapa, Las Margaritas, La Trinitaria, Frontera Comalapa, Amatenango de la Frontera, Mazapa de Madero, Motozintla, Tapachula, Cacahoatán, Unión Juárez, Tuxtla Chico, Metapa, Frontera Hidalgo and Suchiate; in Campeche: Calakmul and Candelaria; in Tabasco: Balancán and Tenosique; and Quintana Roo: Othón.
Examples of exempt supplies of goods and services
• Books, newspapers and magazines
• Constructions used for residential purposes
• Transfer of copyright by authors
• Education
• Public transport of passengers by land
• Transport of goods by sea for nonresidents
• Local and foreign currency and credit instruments (including shares)
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Mexico.
Partial exemption. Input tax directly related to carrying out exempt or out-of-scope activities not recoverable. If a taxable person carries out exempt or out-of-scope activities, as well as makes taxable supplies, it may not recover input tax in full.
A taxable person must calculate its input tax credit based on a “credit factor.” The credit factor is determined based on the percentage of taxable turnover compared with total turnover (including taxable, exempt and out-of-scope activities) in the month of the payment.
Approval from the tax authorities is not required to use the partial exemption standard method (i.e., the credit factor) in Mexico. Special methods are not allowed in Mexico.
Capital goods. There are no special rules for the recovery of input tax incurred on the acquisition of capital goods.
Refunds. If the amount of input tax (credit VAT) in a month exceeds the amount of output tax (debit VAT), the excess credit may be carried forward to crediting output tax in the following tax periods, or it may be refunded upon request. The tax authorities refund a VAT credit by depositing the refundable amount into the taxable person’s bank account. By law, refunds must be made within 40 business days after the date on which the refund request is filed. In addition, there are special VAT recovery schemes for certain sectors, speeding up the refund process (see Special schemes subsection under Section I below).
Mexican taxable persons who want to deduct or credit taxes based on the receipt issued by nonestablished businesses can use such receipts, as long as the receipts contain the following pieces of information:
• Name or business name, address of the issuer
• City, country and date in which it is issued
• Tax registration key of the issuer
• RFC (tax ID number of the recipient)
• Price or value of the consideration for each service
• Concept or description of the service
• Regarding sale of goods or the granting of their temporary use or enjoyment, the amount of the taxes withheld, as well as the taxes transferred, split down by each one of the corresponding tax rates
Alternatively to the list of requisites stated above, a taxable person may attach to the receipt issued by the foreign resident without permanent establishment in Mexico the e-invoice issued by the taxable person for the withholdings performed to mentioned foreign residents.
Pre-registration costs. Input tax incurred on pre-registration costs in Mexico is not recoverable.
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) cannot be recovered in Mexico. This is because the cash-flow mechanism applies in Mexico, and therefore VAT is triggered when the service is (periodically) paid for.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Mexico.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Mexico is not recoverable.
H. Invoicing
VAT invoices. A taxable person must provide an electronic tax invoice for all taxable supplies made and for all collections regarding such supplies made at the time of the deposit, including
exports. The VAT must be expressly notified to the taxable person and verified separately in the digital tax invoice.
Valid digital tax invoices are required to support a claim for input tax deduction. Such invoices are the valid digital tax invoice of the purchase or goods and services, and the valid digital payment tax invoice received at the time payment is made to the supplier.
Credit notes. A VAT credit note may be used to reduce VAT charged and claimed on the supply of goods and services through an expense invoice, which must contain the same information and fulfill the same requirements as a VAT invoice.
Electronic invoicing. Electronic invoicing is mandatory in Mexico for all taxable persons.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is mandatory for all taxable persons in Mexico. There is no threshold beyond which taxable persons are required to adopt electronic invoicing in Mexico.
The use of electronic invoicing is subject to registration before the tax authorities. It is mandatory to issue digital tax invoices regarding taxable persons’ activities or income, or payments made, or the tax withholdings they carry out, and those invoices must be issued through the tax administration service’s webpage. Invoices must be kept for at least five years.
To increase visibility on payments performed for the delivery of goods/provision of services when consideration is not paid in a lump sum, a digital tax invoice shall be issued through the internet for the full amount of the relevant transaction at the time in which it is executed; and a digital tax invoice shall be issued through the internet for each payment received thereafter (payment complements/complementos de pago). This is particularly relevant, as the VAT system in Mexico is based on a cash-flow basis, meaning that VAT only becomes due when payment is performed.
All mandatory complements to invoices should be issued as applicable, such as payments complements (complementos de pago) and transportation complements (carta porte).
In all cases, an electronic invoice must include the following requirements:
• Federal taxpayer registry key of the issuer (RFC)
• Name or corporate name of the issuer
• Number of the folio
• Digital seal from the tax authorities
• Place and date of issuance
• Federal taxpayer registry key of the recipient (RFC) – when the RFC is not available, a generic RFC will be used, XAXX010101000 for Mexican residents and XEXX010101000 for foreign residents
• Postal code of the fiscal address of the person in whose favor it is issued
• Price or value of the consideration for the service, excluding VAT
• VAT charged
• Concept or description of the service – as established in the official catalog of the authority (sat. gob.mx/consultas/53693/catalogo-de-productos-y-servicios)
• Unit price stated in numbers
• Total amount specified in numbers or in words
• Explicit indication when the consideration is paid in single or multiple installments
• When applicable, the amount of transferred taxes shall be indicated, broken down by tax rate, and if applicable, the amount of taxes withheld
• Method of payment
Simplified VAT invoices. Simplified invoicing is permitted by the VAT law for those issued by foreign entities with non-established businesses. Non-established digital service providers can issue
J. Penalties
Penalties for late registration. The penalties related to late or extemporary registration include the following:
• Not submitting registration when it is obligatory and/or failure to submit a registration application in the name of a third party when legally bound or doing so extemporary – from MXN4,480 to MXN13,430
• Not submitting notices or extemporary – from MXN5,400 to MXN10,780.
• For digital services, noncompliance with obligations to register grants the authorities the right to block the internet webpage
Penalties for late payment and filings. Any amount of tax that is not paid by the due date must be adjusted for inflation. A monthly surcharge is also applied to the amount of tax owed at a rate of 1.47% per month. If the taxable person corrects the error voluntarily or if the late payment is due to factors beyond the taxable person’s control, no fines are imposed. However, the surcharge and inflation restatement apply. Interest is assessed on late payments of tax at a monthly rate of 1.47%.
Penalties for errors. There are penalties imposed on taxable persons if they do not submit returns on time or if submitted returns contain errors. Examples of errors include following:
• In VAT return, incorrect tax domicile, a penalty – from MXN1,340 to MXN4,480, per error
• In summary of clients and suppliers return, missing data or incorrect data, a penalty – from MXN30 to MXN120, per each one
• When taxable persons do not pay their taxes within the specified time frame – from MXN1,810 to MXN44,790, per omission
Failure to issue transportation complements could lead to deeming the merchandise being transported as illegal, subject to criminal sanctions.
The late notification or failure to notify tax authorities of changes to a taxable person’s VAT registration details may result in penalties from MXN1,810 to MXN44,790, unless notifications are filed voluntarily. For details, see the subsection Changes to VAT registration details above
Digital service providers. Access to digital telecommunication services will be blocked to a nonestablished digital service provider where it fails to comply with the following tax obligations:
• Registration in the federal taxable person registry, designation of a legal representative and tax address
• Processing of electronic signature, VAT payment, remittance of withholdings or filing monthly and/or quarterly information returns
The non-established digital service provider has the right to a hearing prior to the blocking of the digital services through which it may prove that it has fulfilled its tax obligations.
Concessionaires who fail to comply with the blocking instruction will be subject to a fine ranging from MXN578,700 to MXN1,157,400 million for each month it fails to comply with the instruction.
Penalties for fraud. Criminal offenses are punishable by fines, which may be a percentage of the tax lost or a specified amount. Tax crimes may also be penalized with a term of imprisonment of three months to nine years or longer, depending on the circumstances.
The purpose of the Federal Law against Organized Crime is to establish rules for the investigation, prosecution, punishment and penalties for crimes committed by a person who is part of organized crime. Its provisions are public order and applicable throughout the national territory.
The reform to the federal law against organized crime includes, as part of the activities considered as a crime, the following:
• Contraband
• Tax fraud
• When figures, quantity or value of the tax receipts that cover nonexistent operations, false or simulated legal acts exceed three times the amount established in the federal Tax Code, which is approximately MXN7.8 million
Personal liability for company officers. The person or persons, regardless of their title, who hold the position of general director, general manager or sole administrator of a legal entity can be held personally jointly and severally liable for contributions due or not withheld by said legal entity during their tenure, as well as for those contributions that should have been paid during said period. This shall apply to the portion of the fiscal debts not guaranteed by the assets of the legal entity that they manage.
Statute of limitations. The statute of limitations in Mexico is five years. The statute of limitations can be extended from five to 10 years to review any pending tax credits. The time limit the tax authorities can go back to review returns and identify errors is five years after the VAT return was filed. There is no time limit for taxable persons to voluntarily correct errors in previous returns. There is a limit of three amended returns to be filed if the tax is reduced or the favorable VAT balance is increased. There is no limit of amended returns to increase payable tax amount or reduce favorable VAT balances.