International VAT Guides – Mexico

VAT rates in Mexico 

How much is VAT in Mexico? 

Mexico’s indirect tax legislation system has put different VAT rates in place. The standard VAT rate is 16%. The reduced VAT rate of 8% is levied on some goods and services supplied by the border municipalities of Mexico. Some of these areas are Mexicali, Tecate, and Tijuana in Baja California; Altar, Caborca in Sonora; Coyame del Sotol, Guadalupe, and Juárez in Chihuahua.

There are supplies of goods and provisions of services on which the zero VAT rate is applied or the ones being treated as VAT exempt. 

Mexico’s VAT tax landscape specifically calculates VAT and other levies imposed on most taxable transactions. The national tax system is very complex. Besides the differentiation of the VAT rates, depending on the place of supply rules within the country, there are many additional challenges for foreign providers of digital services. 

Some of those challenges concern withholding tax systems for intermediaries, issuing e-invoices, and digital reporting of transactions. 

VAT threshold in Mexico 

The VAT Mexico Law and Circular Notes define the types of VAT threshold in Mexico and the conditions under which taxable persons can leverage them. 

VAT registration threshold for resident businesses: No threshold.

VAT registration threshold for non-resident businesses: No threshold.

VAT registration threshold for foreign providers of digital services: No threshold.

VAT Taxable Activities in Mexico

Types of taxable activities that mandate the VAT registration:

• Supply of goods and services for consideration;
• Exports;
• Imports of goods and services; 
• Supply of defined digital services. 

Tax Representative in Mexico 

Foreign providers of digital services should appoint a tax representative for VAT compliance activities.

Tax registration 

Standard Registration 

Domestic and foreign businesses with a place of business in the country should follow the steps designed by the VAT law concerning standard registration procedures.

Simplified tax registration 

Non-resident digital services supplies should be registered using the simplified tax registration scheme. The application should be submitted within thirty days from the first provision of digital services.

The registration is handled online, using the services of the Mexico Revenue Authority. 

VAT on Electronically Supplied Services in Mexico 

Digital Services

Foreign providers of digital services without a permanent establishment in the country that provide digital services to recipients based in Mexico are obliged to register in the Federal Taxpayers Registry(RFC) and designate a tax representative based in Mexico for any possible inquiries by tax authorities.  

The registration of the non-resident could be conducted online via a simplified procedure put in place by the Mexican tax authorities. However, for any direct inquiries related to registration by tax officials, a local tax representative is necessary. 

A local tax representative is also necessary for obtaining a digital certificate(eSignature), an essential instrument for signing electronic invoices that the taxpayer could be mandated to issue for digital services. 

Non-resident suppliers of digital services should charge VAT for both B2C and B2B transactions. 

How much is VAT in Mexico for Electronically Supplied Services?

VAT rate Mexico: The Mexico VAT rate for digital goods and services supply is usually 16%. 

Taxable Digital Services in Mexico

The following types of digital services trigger mandatory VAT registration of non-resident providers:

• Downloading or accessing images, films, text, information, video, audio, music, games, gambling, and other multimedia content, multiplayer environments, obtaining mobile phone ring tones, viewing online news, traffic information, weather forecasts, and statistics.
• Intermediation between third parties offering goods or services and those seeking them.
• Online clubs and dating sites.
• Distance learning or teaching.

Marketplace and Digital Platform Operators Rules

The non-resident operator of a digital marketplace or platform(foreign intermediary) that intermediates in the distant supply of goods or taxable digital services is mandated to register for Mexican TAX ID when the place of supply is in Mexico. 

The registration requirement for non-resident intermediaries isn’t dependable on the residency or legal status of the supplier or provider of services. The scope of transactions covers both B2C and B2B. 

Requirements of Foreign Digital Platforms 

The reform of the Mexico VAT landscape by adopting the amendments to the Mexican VAT Law that came into effect on July 1, 2020, introduced entirely new reporting requirements for foreign providers of digital services and foreign digital marketplaces and platforms. 

The most notable changes have been introduced through amendments to the VAT Law and the issuance of Miscellaneous Tax Resolution published in the DOF on December 28, 2019, which established the ground rules for complying with the new reporting requirements. 

Withholding VAT 

A foreign digital platform or the marketplace acts as an intermediary between third-party suppliers and recipients. It collects the respectable consideration, and VAT is obliged to collect VAT and remit it to tax authorities. 

The withholding regime depends on the legal status of the service provider and its residence.

• When the supplier is an individual and resident in Mexico with validated RFC – the platform should withhold 50% of the VAT.
• If the supplier is a resident of Mexico without a valid RFC – the platform operator should withhold 100% of the VAT.
• If a supplier is based outside Mexico – the platform operator should withhold 100% of the VAT. 

The platform operator should submit the VAT declaration by the 17th of the month following the reporting period. 

Withholding Income Tax 

Alongside the obligation to withhold VAT for intermediation services facilitating supplies of goods or services between third-party providers and recipients, the platform operator must withhold income tax in specific scenarios. 

The following income tax withholding rates will be applied to the total amount of the monthly income obtained from the sale of goods, provision of services, or the temporary use or enjoyment of goods through the use of technological platforms: 

• Land transportation of passengers and delivery of goods  – 2.1%.
• Provision of accommodation services – 4%.
• Supply of goods and rendering of services – 1%.

Invoicing Rules

Mexico is among the countries that have mandated using an e-invoicing system for all types of transactions, including B2C, B2B, and B2G. The use of a certified software solution is mandatory. Foreign providers of digital services aren’t obliged to issue e-invoices or to report transactions digitally. Still, intermediate platform operators in the supply chain aren’t excluded from this obligation.

The VAT Mexico Law and Federal Tax Code define the mandatory content of the e-invoice, and it has been updated a few times in the last few years. 

Invoice Requirements in Mexico 

The pdf invoice should at least contain the following:

General information: 

• Date of invoice issuance;
• Date and time of supply;
• Unique invoice number from consecutive series.

Seller information:

• Company name;
• Full address (head office);
• Billing address if different from company address;
•  VAT number.

Customer information:

• Name; 
• Full address;
• VAT number (if applicable).

Fiscal Information:

• Tax amount for each type of goods or services supplied;
• The Tax Rate;
• Type of the transaction by reference to the categories indicated in the VAT Act; 
• Total tax amount; 
• Invoice Total tax exclusive;
• Rate of any discount;
• Total invoice amount.

If the services provider or supplier is obliged to issue an e-invoice, then different rules apply. These requirements will be more complex because they will not cover merely the content of the e-invoice but also a validation of the invoice, usage of certified software for issuance of the e-invoice, digital reporting of the invoice to the tax authorities, and other requisites. 

Foreign Currency Invoice in Mexico  

In most cases, the invoice should be issued in national currency. When it’s permitted to be issued in foreign currency, the VAT, total, and price of goods/services must be in local currency.  

Reporting is done in local currency.

VAT Return in Mexico 

Standard Return 

Domestic and foreign taxpayers with a permanent establishment in the country should follow the standard procedure for submitting and paying payable VAT. The deadline for submission of VAT declaration and tax remittance depends on the taxpayer’s RFC number. 

The tax payable should be paid within the prescribed period for the return submission.

Simplified Return 

Non-resident providers of digital services and digital platform operators should submit the simplified return by the 17th of the month following the reporting period.

VAT Mexico Simplified return

Penalties for late reporting and omitted declarations 

The VAT Act and Tax Procedures Act are the main points of reference regarding the definition of non-compliant behavior concerning the VAT framework. 

Fines and penalties according to VAT Mexico:

Any tax 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. No fines are imposed if the taxable person corrects the error voluntarily or if the late payment is due to factors beyond the taxable person’s control. However, the surcharge and inflation restatement apply. Interest is assessed on late tax payments at a monthly rate of 1.47%.

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