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