- Article
Comprehensive Guide to Mexico VAT: Everything You Need to Know
What is an RFC number, and why is it necessary for overseas businesses?
An RFC is a Federal Taxpayer Number – known locally as a Registro Federal de Contribuyentes. This number is issued for your business after you have successfully applied for VAT.
You will need to apply for VAT (and therefore receive an RFC number) if you meet the requirements for VAT registration as set out in the Regime for Residents Abroad Without Permanent Establishment in Mexico.
If you intend to import any inventory into Mexico, you will also need to provide an RFC number before you can appoint an Importer of Record to facilitate the shipment. You will therefore need to apply for VAT and receive an RFC number before arranging any imports.
Who must register for VAT in Mexico?
According to the Regime for Residents Abroad Without Permanent Establishment in Mexico (Régimen residentes en el Extranjero sin Establecimiento Permanente en México), any overseas business that intends to utilise a warehousing service in Mexico (e.g. Amazon FBA) must apply for VAT.
Additionally, if your business does not have a physical presence in Mexico, you must appoint a local representative to handle the registration process, as non-resident businesses are not permitted to apply directly.
Is there a registration threshold?
No, you must register for VAT if you are using local warehousing arrangements in Mexico (see 2. Who must register for VAT in Mexico) or are a provider of digital services (see 5. Are foreign digital service providers required to register for VAT?).
If your business does not fall into either category, you may not be required to register for RFC but may be subject to additional tax withholding regulations (e.g. marketplace facilitation rules as applied by online platforms), which may include paying additional income tax.
What is the VAT rate for goods and services in Mexico?
The standard rate of VAT (locally known as Impuesto al Valor Agregado, IVA) in Mexico is 16%, which applies to most goods and services.
A time-limited reduced rate of 8% applies to transactions that take place within the Northern and Southern border regions; this is a special rate which is in effect until the 31st December 2024.
Certain goods and services are also zero-rated (i.e. 0% VAT) as standard or are entirely exempt from VAT altogether.
Zero-rated goods and services include, but are not limited to:
- Residential lands and buildings
- Publications (e.g. books, newspapers, magazines)
- Lottery and gambling tickets
- Goods produced by officially recognised charitable organisations
- Educational services
- Transportation services
- Charitable services
- Medical services
VAT-exempt goods and services include, but are not limited to:
- Raw animals and vegetables
- Patented medication
- Food products for human and/or animal consumption (with exceptions)
- Ice
- Fertilisers
- Sanitary products
If you are unsure which rate your product(s) or service(s) fall under, please consult with your accountant/tax provider or the SAT.
Are foreign digital service providers required to register for VAT?
Yes. Since the 1st June 2020, overseas businesses providing taxable digital services to customers based in Mexico became liable to register for VAT.
Taxable digital services include:
- Multimedia streaming and/or downloading (e.g. music, films, TV shows etc.)
- Gaming
- Mobile applications
- Dating platforms
The (Servicio de Administración Tributaria) has published a list of businesses who are registered in Mexico as foreign digital service providers.
How often should VAT returns be filed?
VAT returns must be filed on a calendar monthly basis – the filing frequency cannot be changed.
It is also important to note that if your business does not have a physical entity in Mexico, both the initial registration and filing process must be completed by your nominated local representative – you will not be able to submit any VAT returns without a local representative.
What are the filing deadlines for VAT returns?
The filing deadline is on the 17th of the month following the return period. Any payments due must be made by the same day.
For example, the return for October must be completed by the 17th November, and the payment must also be completed by this date.
Payments must be made via approved banks or third-party payment platforms authorised by the tax administration service.
What are the consequences of non-compliance?
The tax administration service reserves the right to impose financial penalties or order the suspension of trading activities.
Under new marketplace facilitation rules, major online platforms providing retailing services to third-party sellers must also enforce certain regulations for both registered and non-registered sellers.
More information can be found in our previous publication here.
Is there a simplified VAT registration process for non-resident e-commerce businesses?
No, it is only possible to register for VAT as an overseas business by appointing a local representative to facilitate the process. The representative will then also assume responsibility for submitting your monthly VAT returns.
It is also important to be aware that your local representative also acts as a fiscal representative – this means that they also assume joint liability for any outstanding payments that your business may incur in the course of trading.
How does the VAT reclaim and refund process work in Mexico?
A reclaim request can be submitted as part of your standard monthly filing. You must provide sufficient evidence (e.g. import documents, or a valid electronic purchase invoice) to show that you are eligible for the reclaim.
Successful reclaims are held by the tax authority as credit towards future reclaims, unless a refund is explicitly requested. Refund requests may be subject to a compliance check.
What are the invoicing requirements for VAT in Mexico?
Mandatory electronic invoicing (‘e-invoicing’) was introduced in 2014, following the Comprobantes Fiscal Digital por Internet (CFDI) format.
If you conduct business with other registered businesses in Mexico, you must issue a valid electronic invoice for each transaction. Electronic invoices must be generated according to the specifications required by SAT and digitally certified.
Your accountant or tax provider will be able to provide the necessary software to generate the invoices.
