The VAT in Mexico (locally known as IVA – in Spanish, Impuesto al Valor Agregado) is payable at a general rate of 16% on the sales of products and services. The VAT also applies to lease payments and imports of products and services. In this article, our Mexico company formation agents make a brief overview of the VAT in Mexico.
|We offer VAT registration services
|Who needs VAT registration
|Local companies that supply goods and services in Mexico, as well as foreign companies that operate through a permanent establishment in Mexico.
|Time frame for registration
|VAT for real estate transactions
Charged at the standard rate of 16%. VAT in Mexico for real estate can also be charged at lower rates in certain situations (property lease in border regions).
For foodstuffs, agricultural supplies, books, magazines, insurance, land, cultural events.
|Period for filing
|On the 17th of the next month following the tax period end.
|VAT returns support
|Yes, VAT in Mexico can be refunded to both individuals and companies.
|Local tax agent required
|Who collects the VAT
|The Tax Administration Service
|Documents for VAT registration
|Certificate of incorporation, proof of business address, the power of attorney if the company has appointed a representative.
|VAT number format
|The VAT in Mexico is comprised of 12 characters – 3 letters, 6 digits, and 3 alphanumeric characters.
|VAT de-registration situations
What are the VAT obligations for foreign companies in Mexico?
Local and foreign entities that develop commercial operations are generally required to register for VAT. The VAT is payable in Mexico since 1980 and all legal matters related to it fall under the supervision of the Ministry of Public Finance and Credit.
The obligation to register for VAT purposes in Mexico is imposed to all companies that sell goods and products or supply services to Mexican clients.
Companies which have gone through the process of company incorporation in Mexico, meaning that they have their permanent seat in this country, are legally required to complete all the VAT formalities.
With regards to foreign companies, the obligation applies solely to those that operate in Mexico through a permanent establishment (such as branches).
All other foreign companies that do not operate through a permanent establishment do not need to register for VAT purposes. Of course, on the opposite side, they also can’t reclaim VAT input.
In the case of the latter situation, the main idea is that the foreign company will establish a business partnership with a Mexican incorporated business or with a foreign company that has a permanent establishment here.
From this, the Mexican authorities consider that the VAT will be payable by the companies with which the foreign company has entered into a contract with.
However, the tax legislation in Mexico has recently been amended regarding the provision of digital services by foreign tax residents (which includes companies that do not operate through a permanent establishment in Mexico) to local residents.
In this particular situation, the foreign company is legally required to apply for a VAT number in Mexico, as per the latest rules introduced in 2020.
When doing so, it will also be necessary to appoint a local tax representative; our team of consultants in company formation in Mexico can assist foreign entities in the procedure of appointing a tax representative.
Please mind that the provision of digital services is charged with the standard VAT rate of 16%. The tax rate applies to the majority of the products sold on the local market. Please know that the legislation imposes the payment of the VAT for the purchase of vehicles as well (for the purchase of new vehicles).
What are digital services/products?
Companies can be charged with the VAT in Mexico for the delivery of digital services and products. A digital service or product refers to a wide category of intangible goods that are stored, delivered and, later, used by the end consumer, in a digital format.
Digital goods can be any of the following:
- audio-visual products, such as movies, videos, e-books;
- audio products, such as music that can be either downloadable, either delivered through a streaming service;
- online storage services, such as any type of cloud based software;
- internet services providers, such as hosting services, website developers, etc.
When is a Mexican company liable to VAT?
The formalities to register for VAT in Mexico for a company that has been incorporated in this country apply in almost all scenarios. Investors who have set up a company in Mexico must register as per the rules of the Mexican Value Added Tax Law.
The obligation to register is applicable in the following basic situations:
- sale of goods;
- provision of services;
- providing the right to use on a temporary basis various services or goods;
- the import of services or goods.
Please mind that a Mexican company will generally not be taxed for the export of goods and services. The export of services is taxed at a VAT rate of 0% and the same can apply to the export of goods. The tax rate of 0% is applicable to other business transactions outside of those performed in export matters.
For instance, businesses developing commercial activities in 2024 will be taxed with a 0% VAT for the sale of books, newspapers, magazines, a certain category of foodstuffs, agricultural products and others.
However, the VAT can be charged at a rate of 16% for the export of goods in the situation in which the export is done through the assistance of a courier, because the courier does not make the respective export in the name of the courier company, but rather in the name of the company exporting the goods.
Companies liable to the payment of the VAT in Mexico must know the following:
- the VAT reporting has to be done on a monthly basis, so in a year, there must be 12 VAT reports completed and submitted with the tax authorities;
- the VAT returns have to be submitted no later than the 17th day of the next month;
- the Mexican Fiscal Code imposes fees and penalties for not registering for VAT in Mexico or for not registering in due time – one can be charged with a fine of MXN 3,870-11,600;
- if the company did not submit the VAT return by the 17th day of the month, a penalty of MXN 1,560-38,700 can be charged.
The calculation of the monthly VAT in Mexico has to be done in accordance with the stipulations of the Article 5D of the Value Added Tax Law. Exemptions from this rule are granted as per the rules of the Articles 5E, 5F and Article 33.
You can find out more information on the exempted entities from our team of consultants in company registration in Mexico. We also invite you to watch a short video on VAT registration in Mexico:
Further details on the VAT in Mexico in 2024
Temporary imports under IMMEX (an incentive program from the local government for companies which are manufacturing in the country and exporting products) and similar programs are also subject to the general VAT rate.
Certain imports could qualify for a VAT exemption if they are able to obtain special certifications from the tax authorities in connection with the appropriate control of such imports.
This exemption comes in the form of an immediate VAT credit at the time when the products clear the customs, which implies that the temporary import is effectuated on a cashless basis.
Our company formation consultants in Mexico can offer further details related to this matter. We can also help you open a company in Mexico.
The VAT acquitted by businesses on their purchases and operations connected to VAT-taxable activities, such as operations which are subject to a 0% VAT rate in Mexico, can generally be credited against their liability for the VAT. This can be achieved for the VAT they gather from clients on their own sales, rendered services and so on.
The input VAT credit on products or services of a general nature of a business is calculated based on a VAT ratio proportional to the VATable versus VAT operations, be it taxable and exempt, effectuated by the taxpayer. The same applies for those which are not specially identified with taxable or exempt operations for VAT purposes.
Creditable VAT acquitted on the purchases and expenses in excess of VAT collected from clients is recoverable through either a refund, offset against other federal taxes or a credit against the following VAT liabilities.
What are the requirements for an invoice in Mexico?
All companies in Mexico are required to issue invoices for the sale of goods and the provision of services. The invoice is the document that shows what products/services are sold, and at what prices.
The price on the invoice is calculated including the VAT. In Mexico, companies can issue 2 types of invoices:
- paper invoices;
- digital invoices.
The 2nd category has been approved in Mexico since 2011 and it is generally applicable for the activities of large companies. However, it must be noted that companies that want to issue digital invoices have to apply for a digital certificate in order to have the right to issue this type of invoice.
Regardless of the type of invoice a company will issue, the document must contain the following compulsory elements:
- the tax identity number of the company that issues the invoice;
- the name of the company and the registered business address;
- the date and the place where the document is issued;
- the description of the products/services that make the object of the invoice;
- the quantity for each product included on the invoice;
- the details concerning the client;
- the price at which the goods are sold.
When computing the price, the invoice must clearly show the VAT in Mexico, the VAT rate charged to the respective product and the nominal value of the VAT calculated from the price of the goods sold.
If the goods are sold in a foreign currency, it must be presented the exchange rate of that currency for the day when the invoice is issued, according to the exchange rates established by the Central Bank of Mexico.
You must also be aware that the invoices issued by the company have to be maintained in accordance with the current law. These documents have to be stored for a period of 5 years.
It is also important to know that all the financial documents, including invoices, have to be maintained in the place where the company has its tax domicile.
Thus, those who will open a company in Mexico are required to maintain the company’s financial documents in Mexico.
Exemptions from VAT in Mexico in 2024
In Mexico, there are numerous goods and services which are exempt from VAT, such as:
- the sales of houses, except for the ones which are used for commercial purposes;
- the retail sales of books, newspapers and magazines;
- financial instruments;
- gold which is at least 99% pure;
- other goods and services – our Mexico company registration advisors can offer more details on these.
Please mind that the new tax laws applicable in Mexico starting with 1st of January 2022 prescribe new regulations for VAT as well. For instance, taxpayers are no longer able to claim credit input for VAT related activities outside Mexico.
Those who want to start a business here in 2024 must also know that they can enjoy from lower VAT rates, charged at 8% and 0%, in certain situations. The VAT rate of 8% is applicable only in the Northern border of the country and it is reduced to 8% due to a tax credit of 50%.
For more details about the sales tax rate in Mexico, or for assistance in setting up a company in Mexico, please contact our friendly staff.
Calculating the VAT due and any other types of taxes charged on the Mexican territory falls under the responsibility of accountants in Mexico.
Thus, if you will need accounting services, you are welcome to hire our team. Please mind that all accountants must have a college degree (120 semester hours of college credit), this being the minimum requirement in order to be hired as an accountant.