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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Mexico: VAT essentials 

Essential information regarding VAT as it applies in Mexico.


Scope and Rates

What supplies are liable to VAT?


According to the Mexican Value-added Tax Law (LIVA), VAT is due on the following activities carried out in the Mexican territory:


  • supplies of goods
  • provision of independent services
  • imports of goods or services
  • leasing

What is the standard rate of VAT?


The standard rate of VAT is 16 percent.


Are there any reduced rates, zero rates, or exemptions?


Yes. VATable activities or acts performed by residents of the border region (defined as the land comprised between northern and southern international borders of Mexico and a parallel line 20 kilometers inland , as well as all the territory of the states of Baja California, Baja California Sur, Quintana Roo, the municipalities of Caborca, Cananea, Sonora, and additionally some parts of the state of Sonora) are subject to a reduced rate of 11 percent if the delivery of the goods or supply of services effectively take place in this region.


There is a zero-percent VAT rate applicable on exports (see Section International Supplies of Goods and Services) and for the sale of certain goods, generally including:


  • non-industrialized animals and vegetables, except rubber
  • patent medicines and products intended for food, except the following:

    • beverages other than milk
    • syrups or concentrates for preparation of beverages
    • caviar, smoked salmon, and baby eels
    • flavoring agents, microcapsules, and food additives

  • ice and non-gaseous and non-compounded water, except if bottled in less than 10-liter recipients
  • ixtle, palm and wild lettuce
  • tractors for operating farm equipment
  • fertilizers, pesticides, herbicides, and fungicides used in agriculture or cattle breeding activities
  • hydroponic greenhouses and equipment integrated thereto
  • gold, jewelry, gold metalwork, artistic, and ornamental pieces, and ingots (80 percent content) when traded as wholesales.
  • books, magazines, and newspapers published by the taxpayer.

The rendering of the following independent services are zero-rated:


  • services rendered directly to farmers and cattle breeders
  • corn or wheat milling or grinding
  • milk pasteurization
  • services rendered in hydroponic greenhouses
  • cotton ginning
  • slaughter of cattle or poultry
  • reinsurance
  • supplies of water for domestic use.

Also, the temporary use or enjoyment of the following equipment or machinery:


  • tractors for operating farm equipment
  • hydroponic greenhouses and its integrated equipment

The export of certain goods or services is also taxed at a 0 percent VAT rate.


Exempt activities include the following, amongst others.


Supplies of goods


  • land
  • residential real property constructions
  • books, newspapers, and magazines under certain conditions
  • used personal property, unless transferred by enterprises
  • lotteries and raffles tickets
  • currency, gold and silver pieces that formerly were currency and troy ounces
  • partnership interests, documents pending collection, and negotiable instruments, if some requirements are met
  • gold ingots with a minimum gold content of 99 percent
  • transfer of goods between foreign residents, or by a foreign resident to a legal entity having an authorized “Maquila” program or transactions made within Foreign Trade Zones, under certain conditions

Services


  • mortgage commissions
  • commissions charged by managers of retirement funds
  • services rendered for free
  • teaching services for authorized private or government establishments
  • public land transport of persons, except by railway
  • international maritime transport of goods
  • certain insurance coverage
  • certain granting of loans and financing
  • operations in derivatives
  • services rendered to their members as normal compensation for their quotas, provided that such services relate exclusively to purposes appropriate for political parties, labor unions, etc.
  • public shows. This does not include shows in restaurants, bars, cabarets, dinner, ballrooms, or nightclubs
  • professional medical services
  • exploitation of some intellectual property.

Leasing


  • residential property
  • properties used for agricultural or animal breeding purposes
  • tangible goods which use or enjoyment is granted by foreign residents for which tax was paid upon importation.

Imports


  • temporary imports as defined by the customs law
  • baggage and household goods referred to in the customs law
  • goods donated by foreign residents to the federal government
  • imports of goods or services whose domestic supply is exempt of VAT or zero-rated
  • certain works of art
  • gold, containing at least 80 percent of such material.
  • vehicles in compliance with some conditions and requirements

What are the other local indirect taxes beside VAT?


Special Excise tax on production and services (Impuestos Especial Sobre Producción y Servicios or IEPS for its Spanish Acronym)

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Registration

Who is required to register for Mexican VAT?


Mexican Entities


All individuals and entities engaging in Mexico in acts or activities consisting of alienation of assets, rendering of independent services, granting of temporary use, or advantage of assets and import of goods or services must register for VAT purposes.


Non-Mexican Entities


Non-Mexican entities that have established a Mexican permanent establishment, for income tax purposes, have the obligation to register before the Mexican tax authorities. Consequently, they are compelled to comply with all Mexican tax obligations, including VAT obligations.


Are there penalties for not registering or late registration?


Failure to register for tax obligations will lead to a penalty ranging between USD 210 and USD 631 (considering an exchange rate of MXN 13.05 per dollar).


Please note that there is a penalty ranging from three months to three years of prison in the event of an omission to request the tax registration for more than one year from the date the registration should have been requested.


Is voluntary VAT registration possible for an overseas company?


There is a possibility to register for VAT purposes on a voluntary basis in Mexico under a specific authorization granted by the Mexican tax authorities. To do so, it is necessary to appoint a legal representative (see documentation requirements for more detail). Please note that in general the tax authorities are reluctant to grant such authorization and hence, the process is fairly complex. This type of registration does not create the possibility to request the refund of the VAT paid in Mexico.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


N/A (if no permanent establishment in Mexico).


Does an overseas company need to appoint a fiscal representative?


Yes for VAT registration purposes.

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VAT grouping

Is VAT grouping possible?


No.


Can an overseas company be included in a VAT group?


N/A.

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Returns

How frequently are VAT returns submitted?


Entities are required to submit VAT returns on a monthly basis (final returns).


Tax must be paid at the latest by the 17th day of the month following that in which the payment is due.


Are there any other returns that need to be submitted?


In addition to monthly VAT returns, taxpayers are obliged to submit an annual summary VAT return at the end of the year along with the annual income tax return.


It is also mandatory to file an information return on a monthly basis by the 17th day of the following month, supplying information on all persons from whom VAT was withheld in the preceding month. This information must be provided to the tax authorities through the electronic means and forms established by the Tax Administration Services.


Also, a monthly information return for operations with suppliers must be filed by the 17th day of the following month.


Please note that filing the monthly information reporting return for operations with suppliers (known as DIOT) exempts the taxpayer from having to submit the annual summary VAT return.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The exchange rate applied for VAT purposes is the daily rate applicable on the day the tax point of the transaction. The source of the FX rate is the Mexican Central Bank. The conversion tables are available on the Mexican tax authorities’ web page (www.sat.gob.mx).

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VAT/GST recovery

Can a business recover VAT if it is not registered?


No.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


No.


Are there any items that businesses cannot recover VAT on?


Entities that exclusively perform exempt activities are not entitled to recover input VAT.


In addition, certain types of import and certain types of supplies of goods and services listed in the VAT law do not entitle taxpayers to an input tax credit (see section Scope and Rates).

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International Supplies of Goods and Services

How are exports of goods and services treated?


Entities residing in Mexico shall compute the tax by applying the zero rate to the sale value of assets or services rendered, when they are exported.


For VAT law purposes, exports of goods or services include:


  • definitive exportations in terms of the customs law
  • the sale/allocation of intangible assets by a person residing in Mexico to a person residing abroad
  • the temporary use or benefit obtained in a foreign country of intangible assets furnished by a person residing in Mexico
  • use and enjoyment abroad of services rendered by a person residing in Mexico for the following services:

    • technical assistance, technical services related therewith, or information relative to industrial, commercial, or scientific experience
    • maquila and submaquila operations for export in terms of the customs legislation and of the Decree for the Fostering and Operation of the Maquiladora Industry for Export. For this purposes, the services shall be deemed as exported when the assets of such operations are exported by the maquiladora company
    • advertising
    • commissions and intermediations
    • insurance, reinsurance, bonding, and rebonding
    • financing operations
    • filming or recording
    • call center services for calls originating abroad, contracted and paid by a non-resident without a permanent establishment in Mexico

  • international transport services of goods rendered by persons residing in this country, and services of loading, unloading, lighter age, warehousing, custody, cargo handling, and port installations for the export of merchandise
  • aerial transport of residents of this country, deemed rendered outside Mexican territory
  • rendering of hotel and related services by hotel companies to foreign tourists entering this country for the sole purpose of participating in congresses, conventions, exhibitions, or fairs to be held in Mexico, provided that these individuals provide evidence of their country of residence according to the General Population Act and pay for such services with credit cards issued abroad, and that the contracting of such hotel and related services was performed by the organizers of the event.

In general terms, the aforementioned are considered exported when they are hired and paid for by a foreign resident without a permanent establishment in Mexico. Some additional requirements may apply.


How are goods dealt with on importation?


When goods are imported into Mexico, import VAT and customs duty may be due. These have to be paid or secured before the goods can be released from customs’ control.


Following the importation of tangible goods, the taxpayer has the right to credit the VAT paid on the import of the aforementioned goods in the tax return of the same period.


How are services which are brought in from abroad treated for VAT purposes?


If a company purchases services from outside Mexico, this will be considered as services importation and will be subject to VAT through a mechanism similar to reverse-charge mechanism (called ‘IVA Virtual’) only if the services are rendered by a non-resident entity. It is important to mention that if the taxpayer is fully entitled to deduct its input VAT an input VAT deduction equivalent to the self-assessed VAT is granted in the same monthly return and hence, no cash flow effects should be triggered unless this service cannot be allocated to a taxable activity of the taxpayer (if the latter carries out taxable and exempt activities).


International transportation is not considered in the importation of a service.


The acquisition of intangible assets by persons residing in Mexico from non-resident suppliers and the temporary use or benefit taken in national territory of intangible assets supplied by non-resident shall be considered as an importation and will also be subject to VAT thorough the reverse-charge mechanism seen above .

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Invoices

Is a business required to issue tax invoices?


Yes


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • supplier tax identification number
  • a sequential invoice number
  • date and place of issuance
  • customer tax identification number
  • quantity and class of the merchandise or service description
  • the number of units delivered and the price per unit as well the amount of the taxes to be transferred
  • number and date of the custom documents, as well as the name of the custom in which the import was made
  • date of impression and identification number of the authorized printer
  • explicit and distinct reference to transferred VAT
  • reference to the payment, if it is made in one or several exhibitions
  • mean in which the payment has been made
  • reproduction of the tax identification document
  • the VAT rate should be expressed in the invoice.

Can businesses issue invoices electronically?


As of 1 January 2011 entrepreneurs with an annual turnover over MXN 4,000,000 are obliged to issue electronic invoices Please note that a digital stamp should be obtained by a third party (supplier of certification services) by electronic means from the Mexican tax authorities’ web page for each electronic invoice. The implementation of this electronic invoicing system requires the following pre-conditions to the taxpayers:


  1. having an advanced electronic signature and the related certificate
  2. having a certificate for digital stamping
  3. contracting with a third party supplier of certification services.

Is it possible to operate self-billing?


No. The rule that allowed self- billing (paper invoices) was abrogated. Taxpayers were able to bill by themselves up to April 2009.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, the business can issue invoices denominated in foreign currency.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


No.

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Options to Tax

Are there any options to tax transactions?


No.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


The transactions between head office and branch are treated as normal taxable operations between two independent entities that is subject to Mexican VAT.

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Bad Debt

Are businesses able to claim relief for bad debts?


No, Mexican legislation does not include VAT bad debts relief provision.


The Mexican VAT scheme recognizes the tax payable and deductible on a cash-flow basis. Consequently, bad debt reliefs are not applicable for VAT purposes in Mexico.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


No.

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Penalty Regime

What is the penalty and interest regime like?


There are certain penalties for failing to fulfill formal obligations. The penalties for failure to register or late registration have already been addressed above.


When the VAT payment is partial or totally omitted, the penalties applicable are as follows:


  • there are no penalties applicable if taxpayers pay spontaneously; meaning that they pay prior to the start date of an audit by the Mexican tax authorities
  • twenty percent of the omitted contributions, if the taxpayer pays the amount, along with inflation adjustments and interest surcharges, before being notified by the authorities of a final resolution but after audit has begun
  • thirty percent of the omitted contributions, if the taxpayer pays the amount, along with inflation adjustments and interest surcharges, after being notified by the authorities of the final resolution
  • fifty-five percent to seventy five percent of the omitted tax amount in other cases VAT taxpayers who fail to pay VAT due are obliged to pay interest accrued and recognition of inflation from the last day of the voluntary payment period until the day in which the payment is effectively made based on the published national consumer price index. The interest rate has been 1.13 percent per month since 2004.

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Tax Authorities

Tax audits


How often do tax audits take place?


There is no rule regarding audit frequency.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


No.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes, the tax point of the transactions for VAT purposes based on a cash flow (i.e. output VAT accrual when the payment of accounts receivable is received from clients and input VAT can be deducted once the payment of accounts payable is made to suppliers).


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


No.

 

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