Mexican VAT Guide for Businesses
Mexican VAT authorities have not established a VAT threshold, as such before performing an activity falling under Mexico VAT tax regulations registration for VAT purposes is required regardless of value of goods and services involved. However, it is important to remember that only entities with permanent establishments in Mexico may register – at the same time they are expected to fulfil all tax obligations resulting from Mexican tax law. Nevertheless, Mexico will not be recognized as your tax domicile, unless it is a centre of your professional activities or your income from Mexican sources exceeds 50% of the total in the calendar year. Likewise, foreign residents will be expected to fulfil their tax obligations should they establish home in Mexico regardless of nationality. Transactions in different currencies are subject to exchange rate, source of which is the Mexican Central Bank. For entrepreneurs interested in temporary imports in Mexico it is important to remember that tax ID is required to apply for temporary import permit, which lasts up to 6 months.
What is the Standard VAT (IVA) Rate
Number of returns per year: 13
In Mexico standard VAT rate stands at 16%, with reduced rate for the northern and southern border regions being 8%. Certain goods and services such as exports, medicine, agricultural services and basic food products belong to the 0% VAT rate, while into category of VAT exempt transactions fall sale of land, medical services, education, etc. Temporary use or enjoyment (leasing) falls under standard rate according to the tax authority.
VAT returns are to be submitted on a monthly basis during the year before the 17th day of the following month. It is required to file them electronically only.
Requirement to Register for VAT
In order to acquire tax ID in Mexico it is necessary to follow the instructions on the government site. Due to great emphasis on digitalization of the processes in Mexico it should not cause much trouble, as long as requirements to register for the VAT purposes are fulfilled. Keep in mind that according to Tax Authorities registered company requires a local legal representative in Mexico.
Businesses which supply taxable services or goods must register for Mexican VAT. This includes foreign companies with a permanent establishment. Foreign companies without a permanent establishment may not register as a non-resident trader, and cannot reclaim Mexican 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.
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.
VAT Filing Return Frequency
VAT returns, detailing sales and purchases, must be submitted on a monthly basis. The should be filed by the 17th of the month following the period end, and any tax due paid by this date too. Returns are filed electronically only.
VAT credits may be rolled over into future months, but may also be credited back.
Annual returns are also due. In addition, monthly purchase listings must be submitted (Declaración Informativa de Operaciones con terceros)
Whenever the business supplies standard-rated or reduced-rated goods or services it must issue a VAT invoice. However, there is no need to issue a VAT invoice if the customer is not VAT registered, for zero-rated supplies, if the customer operates self-billing arrangements or for gift of goods on which VAT is due.
Like a number of countries in South America, Mexican businesses are required to issue invoices on officially produced and endorsed invoices. Although since 2011, electronic invoices may be used for larger businesses, and special digital certificates must be obtained. When issuing invoices, companies must include the following information on any invoice:
Since 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.
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