Mexico City GMT
Ernst & Young Mancera Antara Polanco
Av. Ejercito Nacional 843 B 3-A Floor Col. Granada 11520 Mexico City Mexico
Indirect tax contacts
Jesus Montaño
Teresa Rodríguez
Mayra Espejel
+(686) 568 4555 Ext. 6201 jesus.montano@mx.ey.com
+52 (55) 5283-1372 teresa.rodriguez@mx.ey.com
+52 (55) 5283-8625 mayra.espejel@mx.ey.com
Monica Montes de Oca +52 (55) 5283-7428 monica.montesdeoca@mx.ey.com
Liliana Salomón +52 (55) 5283-1300 liliana.salomon@mx.ey.com
Sandra I López +52 (55) 5283-1300 sandra.i.lopez@mx.ey.com
A. At a glance
Name of the tax
Value-added tax (VAT)
Local name Impuesto al Valor Agregado (IVA)
Date introduced 1 January 1980
Trading bloc membership United States-Mexico-Canada Agreement (USMCA)
Administered by Mexican Administration Tax Service (Servicio de Administración Tributaria, or SAT) Ministry of Finance and Public Credit (http://www.sat.gob.mx)
VAT rates
Standard 16%
Reduced 8%
Other Zero-rated (0%) and exempt
VAT number format Tax ID (RFC) number for a company is 12 alphanumerical characters, XXX-######-XXX RFC number for an individual is 13 alphanumerical characters, XXX-#######-XXX or (X=letters; #=numbers)
VAT return periods
Thresholds
Monthly
Registration None
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the following transactions:
• Supply of goods and independent services provided in Mexico
• Importation of services (subject to the reverse charge, see Section C)
• Grant of temporary use or exploitation of goods
• Importations of goods, regardless of the status of the importer
• Supply of digital services provided by foreign residents
C. Who is liable
Any business entity or individual that carries out, in Mexican territory, any of the taxable transac tions described above, as provided in the VAT law.
A taxable person that receives a supply must withhold the VAT due from the supplier and must pay the corresponding VAT. It applies to a variety of transactions, including the following:
• Fees paid by companies to individuals
• Acquisitions of scrap material
• Ground transportation (freights) of goods
• Commissions paid by companies to individuals
• Lease or acquisition of tangible goods from residents abroad
• Companies that receive outsourcing services
Digital service intermediaries that collect the price and the VAT on behalf of digital service pro viders, that are foreign residents without a permanent establishment in Mexico, will be required to withhold 100% of the VAT collected from Mexican users (individuals or legal entities).
Exemption from registration. The VAT law in Mexico does not contain any provision for exemption from registration.
Note that a VAT registration on its own would not be possible in Mexico. In case an entity would start taxable activities in Mexico, it would need to establish a local entity or a permanent estab lishment, which would be subject to all the different taxes in Mexico.
The only exception for creating a permanent establishment is for provision of digital services. If foreign companies carry out other business activities in Mexico, such as selling goods on an ordinary basis, they may create a permanent establishment and as such be subject to complying to the VAT rules in the same way as any other Mexican company.
Voluntary registration and small businesses. The VAT law in Mexico does not contain any provi sion for voluntary VAT registration, nor special VAT registration rules for small business. This is because there is no registration threshold (i.e., all entities that make taxable supplies are obliged to register for VAT).
Group registration. Group VAT registration is not allowed in Mexico.
Non-established businesses. VAT registration is only required for non-established businesses that carry out taxable activities in Mexico.
A foreign legal entity with an establishment in Mexico must submit an application for all fed eral tax purposes such as corporate income tax and VAT. For VAT purposes, it must file monthly VAT returns and issue electronic invoices and file electronic accounting like any other Mexican resident. In addition, when applicable, income tax obligations must be fulfilled.
Tax representatives. Powers of attorney can be granted by the taxable person and they must be for general administrative purposes.
A tax registration applies for all taxes. To incorporate a company in Mexico or in the case of the creation of a permanent establishment it is necessary to appoint a legal representative. VAT reg istration alone is only allowed for foreign residents providing digital services in Mexico, and it is the only case when a foreign entity without a permanent establishment needs to appoint a legal representative. See the Digital economy subsection below.
Reverse charge. Taxable persons who import intangible goods or services are subject to VAT at 16% rate, which can be credited in the same monthly return pursuant to the VAT law.
It is important to point out that although the invoice issued by the nonresident business would not include the VAT amount, the customer (business) has to reflect it in its accounting records and in the VAT returns submitted, otherwise tax authorities may challenge the VAT credit and request the tax.
Domestic reverse charge. There are no domestic reverse charges in Mexico.
Digital economy. The supply of certain digital services are taxable at the 16% VAT rate, when they are provided by foreign residents to Mexican users. The rules entered into force on 1 June 2020. The tax reform does not distinguish between business-to-business (B2B) and business-to-consumer (B2C) transactions. Therefore, the rule would apply to all suppliers. However, the provi sions appear to focus on B2C transactions. Outlined below are the categories of taxable persons the rules apply to:
• Category 1: Those that provide for the download/access to images, movies, music, text, infor mation, video, gaming, ring tones, news online, traffic, weather, online clubs, dating sites and other multimedia content, online learning, tests and exercises
• Category 2: Those that perform intermediation services between potential sellers and buyers of products and services that collect payments on behalf of suppliers
Providers of financial services, payment services, data storage and the use or sale of certain standardized software would not be subject to the new requirements.
Nonresidents providing electronically supplied services for both B2B and B2C supplies, need to register for VAT.
Nonresidents proving intermediary services through an online platform for e-commerce to Mexican sellers should comply with the rules of digital service providers.
Importers of goods will continue paying VAT upon importation, which needs to be carried out by an authorized Mexican importer (IOR).
Digital services are deemed to be rendered in Mexico when the recipient of the services:
• Has declared a domicile in Mexico
• The consideration of the digital services is paid through an intermediary (for instance, a finan cial institution) located in Mexico
• The IP address used corresponds to Mexico Or
• Has provided a phone number with a Mexican country code
Obligations of foreign entities providing digital services in Mexico are as follows:
• Register in the Mexican Federal Taxpayers Registry (RFC)
• Break down VAT from the prices of digital services offered
• Keep records of digital services provided monthly and report them to the MTA on a monthly basis, through the VAT return
• Compute monthly VAT collected for digital services and submit the VAT return through the MTA’s website
• Issue and deliver the corresponding invoices (simplified invoices)
• Appoint a legal representative and provide a tax domicile in Mexico
• Obtain the electronic signature from the MTA
The fulfillment of these requirements does not constitute the creation of a permanent establish ment (PE) in Mexico. The recipients of services will be entitled to credit the VAT paid in terms of the VAT law.
Noncompliance with obligations to register, appointment of a legal representative and tax domi ciles, or else failure to file three returns will grant the tax authorities the right to block the inter net webpage.
Non-Mexican residents acting as intermediaries will be also obliged to:
1. Publish on their website, application, platform or in any other similar media the applicable VAT on goods and services offered by them as intermediaries
2. When the intermediary makes collections on behalf of third parties, they should:
(i) Withhold from individuals 50% of the VAT collected (100% if no RFC is provided)
(ii) Withhold from foreign individuals or entities without a permanent establishment in Mexico, 100% of the VAT collected
(iii) Issue and deliver the corresponding invoices (simplified invoices) on the name of the foreign resident
(iv) Pay withholding by the 17th day of the following month
(v) Issue formal withholding VAT e-invoices within the following five days
(iv) Register in the RFC as a withholding agent
3. Report to the MTA information about clients, no later than on the 10th day of the following month. This obligation will be removed just for the services provided to foreign residents for which the VAT withholding were performed in terms of subsection (ii).
Online marketplaces and platforms. See detail above under the Digital economy subsection.
Registration procedures. The taxable person must request a tax identification number (federal taxable persons registry) from the tax authorities (SAT). The registration is done electronically, through the SAT’s website (www.sat.gob.mx). In addition, the taxable person must visit in person to the SAT office to complete the registration with the following information (originals accepted only):
• Bylaws of the entity
• Proof of the tax address in Mexico
• Notarized power of attorney granted to the legal representative
• Identification card of the legal representative
In addition, the entity is obligated to obtain the Mexican electronic signature for tax purposes (known as e.firma) through its legal representative. This procedure takes place in the SAT’s office.
In Mexico, tax ID (known as RFC) number is the same for all tax purposes for Mexican resi dents. This tax identification type can be applied to companies and to individuals. An RFC number for a company is 12 characters, while an RFC number for an individual is 13 characters. The format of the tax ID is XXX-######-XXX or XXX-#######-XXX (X=letters; #=numbers).
For foreign residents who provide digital services, an RFC is assigned just for VAT purposes. For such purposes the foreign service provider must perform the following registration process:
• Appoint a legal representative in Mexico. The legal representative should have their own RFC, electronic signature and a tax domicile in Mexico
• Fill out the pre-registration form through the Mexican tax authorities’ website (www.sat.gob. mx)
• Register and obtain the electronic signature at the tax authorities offices. This should be person ally carried out by the legal representative in Mexico by obtaining an appointment at the tax authorities’ facilities
The list of necessary documentation to complete the process described in 1/PLT and 2/PLT registration forms is:
• Power of attorney (POA) duly apostilled, translated into Spanish by an official translator and notarized in Mexico
• Pre-registration form completed on the tax authorities’ website
• Bylaws of incorporation duly apostilled and notarized in the country of origin. Such document should be translated into Spanish by an authorized translator
• Taxable persons’ registration number granted by the foreign tax authority duly apostilled. This document should be translated into Spanish by an authorized translator
• Original proof of tax domicile in Mexico; in general, a lease or service agreement or bills for public services such as water, electricity, gas, among others would be acceptable proof of address
• Official identification of the appointed legal representative
• Official form (FE) – “Request of the certificate of e-firma” (this is for the process required in form 2/PLT)
Deregistration. Through a liquidation process, the taxable persons can cancel the tax identification provided by the tax authorities.
Changes to VAT registration details. Taxable persons are obliged to submit notices to the Federal Tax Registry when there is a change in its tax domicile, tax obligations (additions or removals), openings or closing of offices, warehouses, plants or branches. Such notifications must be filed via the tax authorities’ website with the electronic signature.
Some notifications must be performed by the individual or legal representative physically in person at the tax authorities’ offices. This would be required for such changes as name denomina tion change, cancelation of the tax registry, change in the equity legal regime, change of tax residency.
Taxable persons must notify such changes during the following month the change took place.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.
The VAT rates are:
• Standard rate: 16%
• Reduced rate: 8%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for a reduced rate, the zero-rate or an exemption.
All temporary importations made by companies who operate under the IMMEX program are subject to VAT at the standard rate. However, a 100% credit of VAT is applicable over the temporary importations for those entities that obtain a certification for VAT/excise tax purposes. “IMMEX” is a Spanish acronym for Manufacturing, Maquiladora and Export Services Industry (Industria Manufacturera, Maquiladora y de Servicios de Exportación). The IMMEX program allows foreign manufacturers to import raw materials and components into Mexico, tax and duty free, under the condition that 100% of all finished goods will be exported out of Mexico within a government mandated time frame and several conditions are fulfilled.
• Exported goods
Examples of goods and services taxable at 0%
• Certain exported services
• Unprocessed food and milk
• Patented medicines
• Feminine hygiene products
Examples of goods and services taxable at 8%
• Supply of goods and services, use or enjoyment of goods in locals or establishments located in the cross-border zones, both in the Northern and Southern regions.
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT. Exempt supplies do not give rise to a right of input tax deduction.
Examples of exempt supplies of goods and services
• Books, newspapers and magazines
• Constructions used for residential purposes
• Transfer of copyright by authors
• Education
• Public transport of passengers by land
• Transport of goods by sea for nonresidents
• Local and foreign currency and credit instruments (including shares)
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Mexico.
E. Time of supply
The time when VAT becomes due is called the “time of supply” or “tax point.” The basic tax point for supplies of goods and services is when the customer effectively pays the consideration. As a result, VAT is determined on a cash-flow basis.
The cash-flow mechanism applies in Mexico, and therefore VAT is triggered when the payment of taxable activities is received, or in the specific case of importation of tangible goods, when those goods are imported within Mexican territory, even when it is a temporary importation.
On the other hand, if a taxable person receives the return of transferred goods, grants discounts or rebates or refunds the advance payments or deposits previously received, for the purpose of engaging in activities taxed under this law, the taxable person will deduct the amount of said items from the value of the activities for which the tax is payable, in the tax returns or returns following the corresponding calendar month, provided that it is expressly stated that the charged value added tax was refunded.
In addition, tax provisions set forth that in case of returns, discounts and rebates, taxable persons shall issue a digital tax invoice, which must fulfill the same requirements as invoices in accor dance with federal tax code and its regulations.
Deposits and prepayments. There are no special time of supply rules in Mexico for deposits and prepayments. This is because the cash-flow mechanism applies in Mexico, and therefore VAT is triggered when a payment (i.e., deposit or prepayment) is received.
Continuous supplies of services. There are no special time of supply rules for continuous sup plies. This is because the cash-flow mechanism applies in Mexico, and therefore the VAT is trig gered when payment is received (i.e., the service is paid for by the customer).
Goods sent on approval for sale or return. There are no special time of supply rules in Mexico for supplies of goods sent on approval or for sale or return. This is because the cash-flow mechanism applies in Mexico, and therefore VAT is triggered when a payment is received.
Reverse-charge services. The reverse-charge mechanism in Mexico only applies in cases of:
• Purchasing of services from a supplier in another country
• Importation of intangible assets
Only in these two scenarios the reverse charge would apply and be subject to the fulfillment of tax requirements. The reverse charge has to be recognized at the time that the consideration is effectively paid (cash-flow basis).
Leased assets. There are no special time of supply rules in Mexico for supplies of leased assets. This is because the cash-flow mechanism applies in Mexico, and therefore VAT is triggered when the service is (periodically) paid for.
Imported goods. The time of supply for imported goods is when the goods clear all customs procedures.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax (also known as credit VAT), which is VAT charged on goods and services acquired for business purposes. A taxable person generally recovers input tax by deducting it from output tax (also known as debit VAT), which is VAT charged to customers. Input tax includes VAT charged on goods and services supplied in Mexico, granting of temporary use of goods, VAT paid on imports of goods and VAT withheld on reverse-charge goods and services.
To be deductible, input tax must relate to the acquisition of goods and services that qualify as deductible expenses for income tax purposes. If an item of expenditure is only partly deductible for income tax purposes, input tax may be credited only with respect to the deductible portion of the expense.
A valid digital tax invoice, the valid digital tax payment invoice (received at the time payment is made to the supplier) or customs document must generally support a claim for input tax.
The VAT credit on importation of goods only applies if the import documentation (pedimento) is issued in the name of the taxable person claiming the credit.
The time limit for a taxable person to reclaim input tax in Mexico is five years. Input tax should be claimed in the same month as it is incurred. However, where input tax is higher than output tax, the result is a positive VAT balance for refund. This balance can be offset or claimed in refund for a period of five years.
Nondeductible input tax. When taxable persons carry out activities that are not related to their business or when such activities are not subject to VAT (exempt activities), the input tax gener ated for these transactions is not recoverable.
Likewise, when the transaction does not comply with the creditable requirements set forth in the VAT law, the input tax is not recoverable. In general terms, such requirements are the following:
• Strictly indispensable expenses for engaging in taxable activities
• That the VAT has been expressly notified to the taxable person and verified separately in the tax receipts
• That the VAT charged to the taxable person is effectively paid in the month in question
• That in the case of charged VAT, withheld pursuant to article 1-A of this law, such withholding is paid over on the terms and within the periods established therein
For purposes of calculating the amount of credits that may be taken for input tax recovery, taxable persons are required to allocate it between taxable and nontaxable activities, including activities performed outside of Mexico, eliminating the ability of taxable persons to credit any VAT paid on the acquisition of goods, services, imports, etc., related to those activities.
• Business gifts
Examples of items for which input tax is nondeductible
• Entertainment of employees
Examples of items for which input tax is deductible (if fully related to a taxable business use)
• Business entertainment
• Accommodation
• Purchase of a vehicle, up to MXN175,000
• Lodging, up to MXN3,850 per day
• Meals, disbursed in Mexico, up to MXN750 per day, and disbursed in foreign countries, up to MXN1,500 per day
• Lease of a vehicle, up to MXN850 per day
• Mobile phones
• Travel expenses
Partial exemption. Input tax directly related to carrying out exempt or nontaxable activities is generally not recoverable. If a taxable person carries out exempt or nontaxable activities, as well as makes taxable supplies, it may not recover input tax in full.
A taxable person must calculate its input tax credit based on a “credit factor.” The credit factor is determined based on the percentage of taxable turnover compared with total turnover (including taxable and exempt or nontaxable supplies) in the month of the payment.
Approval from the tax authorities is not required to use the partial exemption standard method (i.e., the credit factor) in Mexico. Special methods are not allowed in Mexico.
Capital goods. There are no special rules for the recovery of input tax incurred on the acquisition of capital goods.
Refunds. If the amount of input tax (credit VAT) in a month exceeds the amount of output tax (debit VAT), the excess credit may be carried forward to crediting output tax in the following tax periods, or it may be refunded upon request. The tax authorities refund a VAT credit by deposit ing the refundable amount into the taxable person’s bank account. By law, refunds must be made within 40 business days after the date on which the refund request is filed. In addition, there are special VAT recovery schemes for certain sectors, speeding up the refund process (see Special schemes subsection under Section I below).
Mexican taxable persons who want to deduct or credit taxes based on the receipt issued by nonestablished businesses can use such receipts, as long as the receipts contain the following pieces of information:
• Name or business name, address of the issuer
• City, country and date in which it is issued
• Tax registration key of the issuer
• RFC (tax ID number of the recipient)
• Price or value of the consideration for each service
• Concept or description of the service
• Regarding sale of goods or the granting of their temporary use or enjoyment, the amount of the taxes withheld, as well as the taxes transferred, split down by each one of the corresponding tax rates
Or attach to the receipt issued by the foreign resident without permanent establishment in Mexico the e-invoice issued by the taxable person for the withholdings performed to mentioned foreign residents.
Pre-registration costs. Input tax incurred on pre-registration costs in Mexico is not recoverable.
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., a bad debt) cannot be recovered in Mexico. This is because the cash-flow mechanism applies in Mexico, and therefore VAT is triggered when the service is (periodically) paid for.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Mexico.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses in Mexico is not recoverable.
H. Invoicing
VAT invoices. A taxable person must provide an electronic tax invoice for all taxable supplies made and for all collections regarding such supplies made at the time of the deposit, including exports. The VAT must be expressly notified to the taxable person and verified separately in the digital tax invoice.
Valid digital tax invoices are required to support a claim for input tax deduction. Such invoices are the valid digital tax invoice of the purchase or goods and services and the valid digital pay ment tax invoice received at the time payment is made to the supplier.
Credit notes. A VAT credit note may be used to reduce VAT charged and reclaimed on the supply of goods and services through an expense invoice, which must contain the same information and fulfill the same requirements as a VAT invoice.
Electronic invoicing. Electronic invoicing is mandatory in Mexico. It is mandatory to issue digital tax invoices regarding the taxable persons’ activities or income, or payments made, or the tax withholdings they carry out, and those invoices must be issued through the tax administration service’s webpage. Invoices must be kept for at least five years.
To increase visibility on payments performed for the delivery of goods/provision of services when consideration is not paid in a lump sum, a digital tax invoice shall be issued through the internet for the full amount of the relevant transaction at the time in which it is executed; and a digital tax invoice shall be issued through the internet for each payment received thereafter (pay ment complements/complementos de pago).
This is particularly relevant, as the VAT system in Mexico is based on a cash-flow basis, meaning that VAT only becomes due when payment is performed.
All mandatory complements to invoices should be issued as applicable, such as payments com plements (complementos de pago) and transportation complements (carta porte).
Simplified VAT invoices. Simplified invoicing is permitted by the VAT law for those issued by foreign entities (i.e., non-established businesses).
Non-established digital service providers can issue invoices in PDF format instead of standard electronic invoices, the minimal requirements for those invoices are:
• Name or corporate name of the issuer
• City and country in which it is issued
• Tax ID registration number of the issuer
• Price or value of the consideration for the service, excluding VAT
• VAT charged
• Concept or description of the service
• Date of issuance and period that covers the consideration
• Tax ID of the recipient
Self-billing. Self-billing is not allowed in Mexico.
Proof of exports. Mexican VAT is charged at the 0% rate on exported goods. However, to qualify, exports must be supported by evidence that proves that the goods have left Mexico. Suitable proof includes customs export documentation for the transaction.
Foreign currency invoices. If a VAT invoice is issued in foreign currency, the values for VAT pur poses must be converted into the domestic currency, which is the Mexican peso (MXN). This should be calculated using the exchange rate that the Central Bank publishes in the Federal Register on the day before the contributions are incurred (date of payment).
Supplies to nontaxable persons. There are no special invoicing rules for supplies from taxable persons to private consumers. Full VAT invoices are required to be issued for all supplies.
Records. Accounting records for VAT purposes must comply with the requirements set forth in the Federal Tax Code (FTC). Such records that must be held include the books, accounting sys tems and records, working papers, account statements, special accounts, company books and records, inventory control and valuation methods, disks and ribbons or any other processable data storage medium, electronic tax registration equipment or systems and their respective records (in addition to the supporting documentation of the respective seats), as well as all documentation and information relating to compliance with the provisions of tax law that demonstrate income and deductions and compliance with other laws.
Accounting records can be held outside Mexico, as long as taxable persons keep accounting records at the disposal of the tax authorities and comply with general requirements of registry. Entries that comprise the accounting records shall be kept in electronic means, should be regis tered during the following five days of the transactions and must allow the identification of each transaction. Documentation supporting such entries shall be available at the taxable person’s tax domicile.
Record retention period. Accounting records and supporting documentation must be kept for a period of five years.
Electronic archiving. Electronic archiving is allowed in Mexico. Physical archiving (i.e., paper) is also allowed. Electronic invoices issued and received must be archived in electronical media in format (XML). There is not a mandatory system that should be utilized for such archiving.
I. Returns and payment
Periodic returns. VAT returns are filed electronically via the tax authority’s website and must be submitted monthly. VAT returns are due no later than the 17th day of the immediately following month. After filing the return, the tax authorities provide to the taxable person a reference (Linea de Captura) to proceed with the payment in the financial institutions.
In addition, monthly information of transactions with suppliers must be submitted electronically during the following month through an informative tax return known as DIOT.
Non-established businesses providing digital services in Mexico must submit monthly informa tive returns regarding the services provided in Mexico.
Periodic payments. Returns must be paid in Mexican pesos, through a wire transfer. Only nonestablished businesses providing digital services in Mexico can pay in a foreign currency from foreign bank accounts.
Electronic filing. Electronic filing is mandatory for all taxable persons in Mexico. VAT returns and all other tax returns must be filed electronically. VAT credits may be refunded on request through the SAT’s website (www.sat.gob.mx). The usual documentation necessary for filing with
the tax authorities is a formal letter explaining the taxable person’s motives for the return, along with the electronic format filed in the application FED “Formato Electrónico de Devoluciones” (including appendix A, 7 and 7-A, according to the type of VAT return), the corresponding paper work that shows the summary of the VAT transactions, the corresponding bank account of the person or entity (that does not exceed two months from the moment the return is requested), among others.
Taxable persons are obliged to file electronic accounting that includes a chart of accounts, trial balance and journal entries.
Payments on account. Payments on account are not required in Mexico.
Special schemes. VAT recovery. The Mexican tax authorities issue special schemes for VAT recov ery for certain sectors, such as taxable persons engaged in the production and distribution of food products, medicines and fixed asset investment projects. In these cases, taxable persons may obtain their refund claims within a maximum of 20 business days, pursuant to the fulfillment of certain requirements.
In addition, high exporters or importers taxable persons certified for VAT purposes may obtain their refund claims in the same period of 20 days as maximum.
Tax authorities provide administrative facilities to agricultural, farming, fishing and forestry sec tor to automatically recover favorable VAT for a maximum amount of MXN1 million. Some compliance requirements must be filled to access this benefit.
Annual returns. Annual returns and annual informative returns are not required in Mexico.
Supplementary filings. Monthly returns of transactions with third parties must be filed. Such returns must include information regarding the supplies and suppliers. In addition, intermediary digital service providers must also file returns. See the Digital economy subsection above.
Correcting errors in previous returns. Taxable persons can voluntarily correct any errors or omis sions from previous periods with an amended return that is submitted via the same platform of the regular returns through the website of the tax authorities. Where such a correction results in a payable return, the electronic amended return will compute recharges and interest and will issue the reference of payment (“Linea de Captura”) to be paid in the taxable person’s financial institution website.
Digital tax administration. Mexico has an almost 100% electronic tax compliance environment that includes electronic filing of returns and tax payments. Taxable persons have to issue their invoices electronically. These invoices must include a specific code provided by certain suppliers who are authorized by the Mexican tax authorities. Accounting records (e.g., journal entries, trial balance, accounting records) must be generated in an xml format and be submitted to the Mexican tax authorities’ website.
J. Penalties
Penalties for late registration. The penalties related to late or extemporary registration include the following:
• Not submitting registration when it is obligatory and/or failure to submit a registration applica tion in the name of a third party when legally bound or doing so extemporary – from MXN3,870 to MXN11,600
• Not submitting notices or extemporary – from MXN4,200 to MXN8,390
• In case of digital services, noncompliance with obligations to register grants the authorities the right to block the internet webpage
Penalties for late payment and filings. Any amount of tax that is not paid by the due date must be adjusted for inflation. A monthly surcharge is also applied to the amount of tax owed at a rate of 1.47% per month. If the taxable person corrects the error voluntarily or if the late payment is due to factors beyond the taxable person’s control, no fines are imposed. However, the surcharge and inflation restatement apply. Interest is assessed on late payments of tax at a monthly rate of 1.47%.
Penalties for errors. There are penalties imposed on taxable persons if they do not submit returns on time or if submitted returns contain errors. Examples of errors include following:
• In VAT return, incorrect tax domicile, a penalty – from MXN1,560 to MXN29,680, per error
• In summary of clients and suppliers return, missing data or incorrect data, a penalty – from MXN30 to MXN100, per each one
• When taxable persons do not pay their taxes within the specified time frame – from MXN1,560 to MXN38,700, per omission
Failure to issue transportation complements could lead to deeming the merchandise being transported as illegal, subject to criminal sanctions.
Failure to notify the tax authorities, or late notification regarding changes to a taxable person’s VAT registration details, may result in penalties from MXN1,560 to MXN38,700, unless notifi cations are filed voluntarily. For further details, see the subsection above Changes to VAT regis tration details.
Digital service providers. Access to digital telecommunication services will be blocked to a nonestablished digital service provider where it fails to comply with the following tax obligations:
• Registration in the federal taxable person registry, designation of a legal representative and tax address
• Processing of electronic signature, VAT payment, remittance of withholdings or filing of monthly and/or quarterly information returns
The non-established digital service provider has the right to a hearing prior to the blocking of the digital services through which it may prove that it has fulfilled its tax obligations.
Concessionaires who fail to comply with the blocking instruction will be subject to a fine ranging from MXN500,000 to MXN1 million for each month it fails to comply with the instruction.
Penalties for fraud. Criminal offenses are punishable by fines, which may be a percentage of the tax lost or a specified amount. Tax crimes may also be penalized with a term of imprisonment of three months to nine years or longer, depending on the circumstances.
The purpose of the Federal Law against Organized Crime is to establish rules for the investiga tion, prosecution, punishment and penalties for crimes committed by a person who is part of organized crime. Its provisions are public order and applicable throughout the national territory.
The reform to the federal law against organized crime includes, as part of the activities consid ered as a crime, the following:
• Contraband
• Tax fraud
• When figures, quantity or value of the tax receipts that cover nonexistent operations, false or simulated legal acts exceed three times the amount established in the federal Tax Code, which is approximately MXN7.8 million
Personal liability for company officers. The person or persons, regardless of their title, who hold the position of general director, general manager or sole administrator of a legal entity can be held personally jointly and severally liable for contributions due or not withheld by said legal entity during their tenure, as well as for those contributions that should have been paid during
said period. This shall apply to the portion of the fiscal debts not guaranteed by the assets of the legal entity that they manage.
Statute of limitations. The statute of limitations in Mexico is five years. The statute of limitations can be extended from 5 to 10 years to review any pending tax credits. The time limit the tax authorities can go back to review returns and identify errors is five years after the VAT return was filed. There is no time limit for taxable persons to voluntarily correct errors in previous returns. There is a limit of three amended returns to be filed if the tax is reduced or the favorable VAT balance is increased. There is no limit of amended returns to increase payable tax amount or reduce favourable VAT balances.