June of 2020: Mexico’s Digital Taxation

February 27, 2020

On the 11th of February 2020, Mexico’s Congress approved a bill that will impose Value Added Tax (VAT) on all digital services supplied by foreign businesses. It will take effect on the 1st of June 2020; therefore, foreign service providers should be aware of the new requirement to collect this tax on the sale of certain digital goods in Mexico. Foreign businesses will be required to be VAT registered through appropriate VAT registration services, appoint a local Fiscal Representative and have a Mexican address.


Providers are subject to the new requirements

The rule applies to all foreign suppliers as the reform doesn’t distinguish between business-to-business (B2B) and business-to-consumer (B2C) transactions. Although the provisions require two types of B2C providers to be responsible for the collection, reporting and payment of VAT:

  • Category 1. Those that provide access to or allow for the download of various types of media and content. This includes images, video, music, movies, information, text, games, online news, dating sites, traffic, weather and other multimedia content.
  • Category 2. Those that act as service intermediates between the buyers and potential sellers.

These kinds of foreign businesses will have to follow the new rules. For those that need guidance, 1StopVAT can assist with the setup and compliance through our VAT registration services.


Highlights of the new rules

There are some additional points that digital service providers should be aware of. Namely, these are:

  • 16% VAT will be applied to the sale of the before mentioned digital services;
  • During the VAT registration process, an e. signature will be required;
  • VAT returns will be monthly, so a local tax representative is needed;
  • Electronic invoices in PDF format must be provided to all Mexican customers that ask for it.

Under the new tax reform, digital platforms must apply for VAT in Mexico, which can be done through VAT registration services. They also must withhold the respective amount of income tax and keep accounting records. A customer will be deemed based in Mexico, if the following things are picked up in the checkout process:

  • Their home or IP address is in Mexico;
  • Payment is made using a Mexico-based intermediary;
  • Their telephone number has Mexico’s country code.

Mexico’s previous VAT laws were non-efficient. This new VAT reform switches the burden of collection and remittance of VAT to non-resident digital service suppliers. These businesses should prepare for the upcoming changes and check if they’re compliant. For those that need advice we can help you prepare with our VAT registration services.