Mexico's tax on foreign-supplied digital services: 110 digital businesses register

Mexico imposed a 16% VAT on digital services supplied by foreign businesses on June 1, 2020.

As of July 1, 2021, a total of 110 non-resident digital businesses were registered with Mexico's tax authority, Servicio de Administración Tributaria (SAT). This is up 9 from the previous publication of this list on April 30. The SAT is obliged by law to publish this list six times each year, thus publicly naming the foreign businesses that register in Mexico.

A key point about this law is that it simplifies existing rules in Mexico. The scope of Mexico’s plan includes online sales to customers based in Mexico. Both B2C and B2B supplies are in scope. Business customers are currently self-accounting for the VAT on their purchases.

A customer of the affected digital services should be deemed to be based in Mexico if any one of the following is picked up in the checkout process:

• The customer’s home address is in Mexico
• The payment is made using a Mexico-based intermediary
• The IP address used to access the digital service is located in Mexico

It will be interesting to see how this is going to be implemented in practice to avoid double taxation.

Mexico's Ministry of Finance and Public Credit (SHCP) revealed that MXN6908 million (circa USD347. 2 million at the time of writing) in VAT revenue was sourced from foreign digital businesses in 2020.

Mexico VAT registration obligations

As a result of this law change, non-resident businesses (foreign suppliers of digital services) are obliged to register for VAT in Mexico and remit the tax.

Registration is with the Federal Taxpayers Registry (or Registro Federal de Contribuyentes, known as the RFC). Provisions in the bill also cover the supply of services through digital platforms.

Additional highlights of new rules in Mexico include:

• 16% VAT applied to the sale of affected digital services
• VAT returns will be monthly and there is a need for a local tax representative
• Simplified invoicing rules may be introduced. The current bill does not state that domestic Mexican invoices (quite complex) will be used, opening the possibility of new invoicing requirements for non-resident digital businesses
• Each month affected non-resident businesses will also have to provide information on the number of services supplied and the number of transactions performed to Mexico’s SAT

There was a promise during the 2018 general election to not introduce new taxes during a certain period. However, this move is not a new tax to level the playing field with local companies. In Mexico, the VAT was already due at the place of consumption but the burden of the collection was on the customer. This was non-efficient and the plan is to switch the collection and remittance burden to the non-resident digital service suppliers.

Here at Taxamo, we will keep you up-to-date on developments in Mexico.

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