Flash: 2021 Indirect Taxes Reforms in Mexico

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What was changed regarding indirect taxes?

How will VAT work for foreign digital service providers?

On November 5^th 2020, the Mexican Congress approved reforms to several fiscal laws including those related to the value added tax law. In this document we comment those regarding indirect taxes. For further explanation of the original initiative please click here.

In summary, all proposed changes sent by the Executive on September 8^th 2020 were approved with some minor changes.

A sanction of temporary blocking access to the digital service in Mexico has been approved for foreign digital services providers that do not comply with certain obligations, such as registration, appointment of legal representative and obtaining an electronic signature. This mechanism will also apply when failing to file three consecutive monthly VAT and IT withholding returns or two quarterly informative returns.

As a simplification procedure for digital intermediation platforms, it was approved to replace the current gradual withholding IT rates to a fixed rate for each activity, this apply to individuals and is based on the total income net of VAT obtained through such platform.

The Executive's proposals that were approved without changes by Congress are as follows:

• Intermediation services will be subject to VAT when a sale of used personal property is involved
• Digital intermediation platforms that process payments should withhold the 100% of VAT collected to foreign residents providing digital services. Through this mechanism, foreign digital service providers are released from registration and compliance established in the VAT law. When requested, intermediation platforms must issue the tax invoice of the transaction. This treatment will also apply when the service is provided through digital intermediation platforms resident in Mexico
• Digital intermediation platform can display the price of the goods or services including the tax with the legend "VAT included"

These modifications should now pass to the President for its enactment and after its publication on the Mexican Official Gazette, it should be in force as of January 1^st 2021.