The Executive Branch of Mexico’s federal government filed last September 8th, the 2020 Budget to the Congress. Among the relevant changes included in the Budget 2020 are those related to the Value Added Tax Law (VATL).

As of April 2020 (if approved) nonresident entities that provide digital services would be subject to 16% VAT rate if the recipient is located within Mexico, and the service is provided through applications or digital content, over the internet, and the process is primarily automatized. Such VAT will be determined upon the payment of the service rendered.

This provision specifically includes certain services such as the downloading of images, movies, text, videos, games, data storage, online training, as well as the mediation between unrelated parties for the acquisition of goods or services.

The recipient would be considered as located within Mexico if; i) an address located within national territory is declared, ii) the payment is done through a national intermediary (bank), or iii) if the IP address used in the electronic devise receiving the services is located within Mexico.

The residents abroad Mexico need to comply with the following requirements:

• Registry into the Mexican Federal Tax Payers Registry before the SAT, for VAT purposes.
• Provide an address located within Mexican territory for notification and verification purposes.
• Name a legal representative
• Offer and collect within the price of their services, the amount of corresponding VAT that must be clearly disclosed.
• Maintain a registry of the recipients located within Mexico.
• File a monthly report with the tax authorities including the number of operations conducted in Mexico, classifying the type of services and their price.
• Estimate and pay the corresponding VAT under a monthly basis.
• Upon request, provide to the recipient, a payment receipt with the VAT properly disclosed, electronically.

Residents abroad who render digital services subject to VAT, may be suspended from using the public telecommunication network in Mexico if they fail to registry with the SAT for VAT purposes, name a legal representative, and/or to declare an address within Mexico. This may be also true when there is a lack of VAT payment, or withholding of it when referring to third party intermediary digital services in Mexico, or when not filing certain notices with the Mexican Authority.

Additionally, the dealerships of the public telecommunication network that do not suspend the services rendered to the residents abroad upon the official request above mentioned, will be subject to pay a fine that can go from $500,000 MXP to $1’000,000 MXP per month, until the use of the telecommunication network is suspended.

For mor Information on how this might impact your business, please contact:

Ivan Jaso, Customs and Indirect Tax Partner, PwC Mexico
Office: +5255 52638535
Mobile: +52155 54058384
E-Mail: ivan.jaso@pwc.com

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