Mexico: Taxation of digital services, legislative update

Mexico: Taxation of digital services, update

Mexico’s Chamber of Deputies on 20 October 2020 approved legislation that would modify the income tax and value added tax (VAT) laws regarding the taxation of digital services.

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In general, the changes as originally proposed were approved, except for a provision relating to the excise tax on automotive fuels. Read a description of the measures as proposed: TaxNewsFlash

The Chamber of Deputies agreed to a measure that would temporarily block access in Mexico to digital services for those digital service providers that do not comply with certain obligations such as registration, a legal representative, tax payments and returns, among others. The blocking sanction would apply also for a failure to withhold tax for transactions with Mexican individuals for three consecutive months (and not only with regard to VAT).

As a simplification procedure for digital intermediation platforms, the current withholding tax rates would be increased for each activity, and would apply with regard to transactions with individuals and based on the total income (net of VAT) obtained through such platform.

Activity

Withholding rate

Passenger land transport services and delivery of goods

2.8%

Hosting services

5%

Transfer of goods and services

2.4%


Other proposals that were approved without change include:

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

This legislation now proceeds to the Chamber of the Senate, with final approval expected on or before 31 October 2020.

Read an October 2020 report (Spanish) prepared by the KPMG member firm in Mexico


For more information, contact a tax professional with the KPMG member firm in Mexico:

Antonio Zuazua | +52 81 8122-1938 | azuazua@kpmg.com.mx

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