Mexico is a specific country for entrepreneurs. It is distinguished by its geographical location and unusual rules related to taxation. This may encourage you to make investments in Mexico and expand your business reach. Therefore, it is worthwhile to follow a quick Mexico VAT guide. What is worth knowing about the country’s tax system?
Registration for VAT
There is no threshold set for VAT in Mexico, so registration for VAT purposes is mandatory before carrying out any taxable activity. The value of the goods and services involved in the transaction does not matter. Registration can only be done by entities that have a permanent establishment in Mexico. However, if the company’s income from all Mexican sources does not exceed 50% in a calendar year, the taxpayer will not be considered to have a seat in Mexico. Transactions carried out in different currencies are subject to an exchange rate that is set by the Mexican Central Bank. In the case of temporary importation of goods, it is required to apply for a permit, which may be valid for a maximum of six months.
Settlement of foreign transactions
If the transactions are carried out by a non-resident entity in Mexico, reverse taxation rules apply. This means that the Mexican taxpayer must account for the VAT, and if the tax is paid before the foreign company, it is not possible to account for or recover the VAT. The VAT charged can be deducted after the payment is made to the supply, while VAT should be charged after the payment is received from the customer. In this way, the possibility to recover the VAT paid on purchases is a form of encouraging company registration for VAT purposes in Mexico. In addition, it is possible to benefit from a pre-operational credit on the first VAT return in the month in which the entity carries out taxable activities.
Various VAT rates in Mexico
To obtain a tax number in Mexico, follow the instructions available on the government website. Most activities are done digitally. The standard rate of VAT in Mexico is 16%. Border regions located in the north and south of the country can benefit from a reduced rate of 8%. Some goods and services are also zero-rated. This includes, among others, agricultural services and basic food products. Transactions such as land sales, medical and education-related services are also exempt from VAT. Special rules cover digital services. Foreign operations involving such a category of services or products result in the need to register for VAT with a standard tax rate of 16%.
Digital settlement obligation
In Mexico, the use of digital invoices is mandatory. The system is subject to strict rules and dynamic changes. VAT declarations must be submitted monthly, by the 17th of each following month, also exclusively by electronic means. Failure to comply with current requirements may result not only in penalties, but also delays in receiving payments. Therefore, it is advisable to cooperate with a tax consultancy firm before starting your business. One recommended office is INTERTAX, whose offer, along with a Mexico VAT guide, can be found on the website at https://polishtax.com/mexico-vat-guide/ . This is the best way to start selling goods and services in Mexico.