Mexico: Taxation of digital services, enactment expected for January 2021 effective date
Mexico: Taxation of digital services
The Mexican Chamber of Deputies on 5 November 2020 approved modifications and additions to the income tax and value added tax (VAT) laws regarding the taxation of digital services in Mexico.
With this action, the legislation (as approved) will need to be signed by the president and published in the official gazette for the measures to be effective 1 January 2021.
Summary of changes approved during legislative process
The digital services tax measures were included in proposals presented in September 2020—read TaxNewsFlash—and were approved by the lower chamber but with certain minor changes.
The approved measures include a stricter sanctions mechanism that temporary blocks the ability of foreign digital services providers to offer digital services in Mexico if these providers have not complied with certain obligations including registration, the appointment of legal representative, and implementing an electronic signature. The sanctions mechanism will also apply if the foreign digital services provider fails to file three consecutive monthly VAT and income tax returns or two quarterly informative returns.
As a simplification procedure for digital intermediation platforms, the lower chamber approved a provision to replace the current gradual income tax withholding rates with a fixed rate for each activity, this fixed rate applies with regard to individuals and is based on the total income net of VAT obtained through such platform.
|Activity||Income tax withholding rate|
|Passenger land-transport services and delivery of goods||2.1%|
|Transfer of goods and services||1%|
Original proposals adopted without changes
The proposals that were approved (but without changes by Mexican Congress) include the following:
- Intermediation services will be subject to VAT when a sale of used personal property is involved.
- Digital intermediation platforms that process payments must withhold 100% of the amount of VAT collected when foreign residents provide digital services into Mexico. Through this mechanism, foreign digital service providers are released from registration and compliance rules established in the VAT law. When requested, intermediation platforms must issue a tax invoice of these transactions. This treatment will also apply when the service is provided through digital intermediation platforms that are residents in Mexico.
- Digital intermediation platform can display the price of the goods or services including the amount of tax with the legend "VAT included".
For more information, contact a tax professional with the KPMG member firm in Mexico:
Antonio Zuazua | +52 81 8122-1938 | email@example.com
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