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VAT rules in Mexico: what is changing?

What is being reviewed, who will be impacted and how to be ready. PrimeiroPay will help you understand the new scenario

Starting in June 2020, there will be new VAT rules in Mexico for international companies providing services for clients in Mexican territory. You might have heard about the subject or even that your company might be charged a new extra tax.   

Let us help you with clarifying some points. The first is that this is not a new tax created by the Mexican government. Merchants selling in Mexico have collected VAT from their shoppers for years. The latest amendment shifts the responsibility of tax obligations from the en-consumer to the international players.

Until 2019, when an end-customer shopped for digital good or service from a foreign company, they were – themselves – responsible for collecting and paying the Value Added Tax – VAT in connection to their purchases.

The local authorities, on the other hand, faced challenges in making sure the amount was paid by shoppers. That is the rationale behind the changes in VAT rules in Mexico. According to these new provisions, foreign merchants selling digital goods or services will now be the responsible party to collect, withhold and report the VAT to the local administration.

What services will be impacted?

In general terms, most businesses providing digital services for end-users who will now be paying the tax. Mexican Law Firm Von Wobeser Y Sierra, explains that a few criteria are recurrent in impacted providers. “The services are delivered through web applications or content in digital format through the internet or other networks; are mainly automated and may or may not require minimal human intervention”, says Associate Lawyer at VWYS, Jorge Díaz.

According to Díaz, here are specific examples of industries under the new provision: 

  • Download and streaming of online multimedia content (except e-books, newspapers and magazines;
  • Intermediation services between third parties (except the sale of used movable property);
  • Online clubs and dating sites and apps; and
  • E-learning and online tests and exercises.

As stated by the new regulations, a shopper is considered to be in Mexico if they provide a Mexican address at the checkout; if the payment is made through an intermediary located in the country; if the IP address corresponds to Mexico; and if a local phone number is provided.

Even though these obligations are similar to those practised by national companies, complying with them does not imply the constitution of a permanent establishment in Mexico.

What are the merchant’s future responsibilities and how to be ready?

Here is a list of obligations expected from international merchants from June 2020:

  • Display the price of products and VAT separately for every purchase (which is 16%);
  • Withhold, pay and report the Value Added Tax to the Mexican tax authority;
  • Appoint a local representative; 
  • Provide tax authorities with VAT information; and
  • Include VAT information on shopper’s invoice;

Although the established deadline is the month of June, there are matters to be clarified by the Mexican government still pending. For now, this is a scenario of legal uncertainty. We will keep our readers updated (watch our recent webinar discussing the new provisions).

Get ready. We advise companies to implement necessary operational measures to: fulfil tax obligations, review amendments to agreements, make technical adjustments to their website and platform, notify clients and send newsletters, and to evaluate whether there are implications in terms of data protection and consumer protection.

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