General

VAT/GST registration

VAT/GST compliance

International Supplies of Goods and Services

VAT/GST recovery

Tax points

Invoices

Record-Keeping Requirements

Audits

Special Indirect tax rules

Rulings

Principal changes in latest Tax Reform

Types of indirect taxes (VAT/GST and other indirect taxes).

VAT (impuesto al valor agregado or IVA).

Are there other indirect taxes?

Special excise tax on production and services (impuestos especial sobre producción y servicios or IEPS).

What supplies are subject to VAT?

According to the Mexican Value-added Tax Law (IVA), 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
• temporary use or enjoyment of goods (leasing).

What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?

VAT

• 16 percent general rate. 
• 0 percent applicable to exports of goods and services and other transactions, such as the sale of:
      — food (with some exceptions) and patent medicines
      — books, newspapers and magazines
      — products for the development of primary sector
      — gold with content of 80 percent.

Exemptions apply to specific sale of goods, services and temporary use or enjoyment of goods.

IEPS

• 26.5 percent, 30 percent and 53 percent: alcoholic beverages tax and services related with them (the rates depend on the percentage of alcohol and the type of beverage).
• 30.4 percent and 160 percent: tobacco/cigarettes and related services tax (the rate depends on the tobacco product: 30.4 percent applies to handmade products only).
• 6 percent, 7 percent and 9 percent: pesticides. 
• 8 percent: food with a caloric density of 275 kilocalories (Kcal) or more per 100 grams.
• 30 percent: gambling and lotteries.
• 3 percent: rendering of telecommunications services through public networks, except for public and rural telephony and connection services between public networks and the internet. 

It is important to note that there is another tax rate for fuel and diesel that is determined by Petróleos Mexicanos (PEMEX).

Who is required to register for VAT/GST and other indirect taxes?

VAT

Individuals and legal entities that engage in the following activities within Mexican territory:

• transfer of goods 
• rendering of independent services 
• temporary use or enjoyment of goods 
• importation of goods or services. 

IEPS

Individuals and legal entities if engaged in the following activities:

• disposal and permanent import of the above-mentioned goods in Mexican territory 
• rendering of services related to the above-mentioned goods. 

Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?

No. In the past, it was possible to register for VAT purposes on a voluntary basis under a specific authorization granted by the Mexican tax authorities but such authorities were reluctant to grant that authorization and, hence, the process was fairly complex. Foreign entities with permanent establishment in Mexico must register for purposes of all taxes, not only VAT, and must comply with the obligations of all taxes.

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). Non-resident individuals or non-resident legal entities without a permanent establishment in Mexico are not considered taxpayers who must register for VAT, even when they engage in taxable transactions in Mexico. The Mexican taxpayer to which the supply of goods is made or who acquires the right to use or enjoy the goods in Mexico is responsible for withholding tax from payments made to the non-resident supplier to meet the latter’s payment obligations. Non-resident suppliers do not have a tax ID. It is known that a supplier is not a resident of Mexico when it does not have a tax ID for tax purposes. There is an obligation to withhold tax when it falls on the assumptions that mark the Law, as can be the case of the supply of services, or the use and enjoyment of property received from residents in Mexico by a foreign resident.

Likewise, a Mexican taxpayer is obliged to account for reverse charge VAT on the importation of intangible goods or services from a non-resident individual or entity (i.e. the non-resident is not required to register for VAT in Mexico in respect of the supply of services). There are no other categories of businesses or activity exempt from VAT registration.

Does an overseas company need to appoint a fiscal representative? 

Not applicable.

Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations? 

Not applicable.

Is grouping* for VAT/GST and other indirect taxes possible?

No.

How frequently are VAT/GST and other indirect tax returns submitted?

Monthly (in some particular cases bimonthly or quarterly).

What are the exchange rate rules in your country?

The exchange rate applied for VAT purposes is the daily rate applicable on the day the tax point of the transaction was produced. The source of the foreign exchange rate is the Mexican Central Bank. The conversion tables are available on the Mexican tax authority’s website: www.sat.gob.mx.

Exports – Goods

How are exports of goods treated?

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

For VAT law purposes, exports of goods 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 enjoyment obtained in a foreign country of intangible assets furnished by a person residing in Mexico.

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.

Exports – Services

How are exports of services treated for VAT/GST purposes?

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

For VAT law purposes, exports of services include:

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 related to industrial, commercial, or scientific experience
• maquila and submaquila operations for export in terms of the customs legislation and the Decree for the Fostering and Operation of the Maquiladora Industry for Export. For this purpose, 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 rebounding
• financing operations
• filming or recording
• call center services for calls originating abroad, contracted and paid for by a non-resident without a permanent establishment in Mexico
• information technology services such as: development, integration and maintenance of computer applications or computer systems; processing; storage; information backups; the administration of databases; hosting computer applications; modernization and optimization of information security systems; and the continuity in the operation of the previous services (some requirements have to be comply)
• international transport services for goods rendered by persons residing in Mexico, and services of loading, unloading, warehousing, custody, cargo handling and port installations for the export of merchandise
• aerial transportation of people and goods, provided by residents of the country, for the part of the service that is not considered rendered in the country.

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.

Imports – Goods

How are goods dealt with on importation?

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

Imports of goods includes:

• the introduction of goods into the country
• the purchase by Mexican residents of intangible goods transferred by foreign residents
• the temporary use or enjoyment in Mexican territory of intangible goods provided by foreign residents
• the temporary use or enjoyment in Mexican territory of tangible goods of which physical delivery was made abroad (except goods for which VAT was paid for its introduction to the country)
• exemptions apply to certain goods.

Residents abroad who sell goods to residents or a permanent establishment in the country (which are the importers of goods) will not have to register for tax purposes. For these purposes, Mexican law considers that only residents in the country or those with permanent establishment in the country can carry out imports of goods.

The goods mentioned above are considered to be imported:

• at the moment the importer files the customs declaration for processing pursuant to the Customs Law (Ley Aduanera)
• in the case of temporary imports, when the import is made or converted to final
• in the case of the intangible goods, at the time the consideration is effectively paid.

Imports – Services

How services which are brought in from abroad are 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 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 an importation and will also be subject to VAT thorough the reverse-charge mechanism seen above.

The services mentioned above are considered to be imported in the case of utilization in Mexico of services rendered abroad, at the moment the consideration is effectively collected and on the amount of each such consideration.

Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?

No.

Are there any exemptions with the right to recover or deduct input VAT?

There is a zero-rate equal to this kind of exemption.

Are there any restrictions to the deduction of input VAT?

Entities that exclusively perform exempt activities are not entitled to recover input VAT. In addition, certain types of imports and certain types of supplies of goods and services listed in the VAT law do not entitle taxpayers to an input tax credit.

When is VAT/GST due on a supply of goods or services?

Payment of tax for rendering services is required at the moment the consideration is effectively collected and on the amount of each such consideration.

Is a business required to issue tax invoices?

Yes.

Is it possible/mandatory to issue invoices electronically?

Yes, as of 1 January 2014, all taxpayers who use the digital tax invoice scheme, Comprobante Fiscal Digital (CFD), should use the internet digital tax invoice scheme (CFDI) to issue electronic invoices. From 2014, taxpayers earning more than 250,000 Mexican pesos (MXN) a year must use the CFDI scheme for issuing electronic invoices.

Currently, an electronic invoice (CFDI) must be issued for all operations carried out. There a different types of CFDI such as: income, expenses, withholding and payroll.

Electronic invoicing requires:

• the advanced electronic signature
• processing a digital seal certificate
• using the free service invoice offered by the Tax Administration Service or choosing from any of the authorized certified providers found in the portal of the tax authority, which is constantly updated.

An authorized certified provider is someone authorized by the Tax Administration Service to validate the CFDIs generated by the taxpayers, assign the folio and incorporate a digital seal from the Tax Administration Service. They are also obligated to send a copy of the CFDI validation by their customers to the tax authority.

Additionally, the electronic invoice (CFDI) shall contain, if applicable, the required Complement to incorporate specific tax information of the operation.

Is it possible for the vendor to issue an invoice, (i.e. self-billing)? 

No, except in very specific transactions in which small farmers act as suppliers.

How long must records and invoices be retained?

The general rule is to keep records and invoices for 5 years, as of the date on which the returns related to them were or should have been filed.

Can the invoices be stored abroad?

Invoices and records must be stored in the tax domicile of the taxpayer in Mexico. The records must be kept electronically according the established by tax authorities.

Do tax audits take place on a regular basis?

Yes, tax audits may take place on a regular basis but there is no rule regarding frequency.

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

No, audits are done in person by tax authorities; however, authorities can perform electronic reviews based on information in their possession regarding a specific transaction.

What penalties can arise from non-compliance?

There are certain penalties for failing to fulfill formal obligations.

Failure to register or late registration will lead to a penalty ranging between 16 US dollars (USD) and USD300 (with an exchange rate of MXN18.00 per USD).

When the VAT payment is partially or completely omitted, the penalties applicable are as follows:

• there are no penalties applicable if taxpayers pay prior to the start date of an audit by Mexican tax authorities 
• 20 percent of the omitted VAT amount 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 an audit has begun 
• 30 percent of the omitted VAT amount if the taxpayer pays the amount along with inflation adjustments and interest surcharges after being notified by the authorities of the final resolution 
• 55 to 75 percent of the omitted tax amount in other cases.

VAT taxpayers who fail to pay VAT due are obliged to pay accrued interest. As of January 2018, the interest rate is 1.47 percent per month. Penalties are also incurred for late filings of a VAT return and late payment of VAT and insufficiency or omission of a VAT return. Fines range from USD70 to USD1,710 (considering an exchange rate of MXN18 per USD).

Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?

No.

Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?

Yes, the tax point of the transactions for VAT purposes is based on a cash basis system find (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).

Does a reverse-charge mechanism apply for goods or services?

Yes, for importation of services (administrative, professional or any services rendered abroad) and intangible goods supplied by foreign residents.

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

No.

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

No.

Changes in the VAT Tax Reform 2017

The most important changes are:

• outsourcing schemes can credit the VAT paid but must comply with some requirements (i.e. taxpayer shall obtain a copy of the corresponding VAT return and payment receipt from the contractor, as well as the information filed to the tax authorities on the payment of such VAT)
• pre-operating expenses. Taxpayers who want credit on VAT could do the following: complete the VAT credit in the first monthly tax return, in proportion to the value of the taxable activities, with respect to all the activities; or request the favorable balance
• as mentioned above, export of information technology services are being included as services subject to the 0 percent VAT rate under the exportation article of the VAT Law. These services include: development, integration and maintenance of computer applications or computer systems; processing; storage; information backups; the administration of databases; hosting computer applications; modernization and optimization of information security systems; and continuity in the operation of the previous services.

IEPS rules

In addition to the above, it is important to note that for IEPS purposes, the transfer of fuel and gasoline shall be added with the corresponding quota amounts. In the case of fossil fuels, the quota amount is as follows: 

• less than 92 octanes: MXN4.16 per liter 
• equal or higher than 92 octanes: MXN3.52 per liter 
• diesel: MXN4.58 per liter.

In the case of other fuels, the quota amount shall be added with MXN3.52 per liter. The amounts are revised on a yearly basis.
 

David Ricardez
Tax Partner and GCMS & GITS Leader
KPMG in Mexico
T: +52 55 5246 8658
E: ricardez.jesus@kpmg.com.mx