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Mexico's New Value-Added Tax On Digital Services

Author:Ms Hanna Mialik

Mexico has officially joined the growing list of countries imposing some sort of digital tax. Mexico's Congress of the Union passed an amendment to the Value-Added Tax Law that will allow for the taxation of online sales made to customers based in Mexico, regardless of whether the supplier has a physical presence in-country. The new rules will take effect on 1 June 2020.

VATL amendment overview

Mexico's Value-Added Tax Law (VATL) amendment calls for the collection of value-added tax (VAT) at a standard rate of 16 percent on certain digital services rendered by foreign suppliers to customers located in Mexico. In order for suppliers to fall under the digital services tax, no taxable presence in Mexico is needed.

The VATL provision does not differentiate between business-to-business (B2B) and business-to-consumer (B2C) transactions. As a result, all suppliers are subject to the new legislation, assuming their services are taxable and fit the VATL's definition of digital services.

Statutory examples of digital services include downloading and/or accessing images, movies, music, text, information, video, gaming (including gambling), ring tones, visualization of online news (but not eBooks or electronic versions of periodicals), traffic, weather, online clubs, dating sites and other multimedia content, distance learning, tests and exercises. Some real-life example of such services include Netflix, Tinder and the online learning platform Coursera. Financial services, payment services, data storage, and software sales and use are not subject to Mexico's new VATL provision.

Taxable digital services are typically automated (though some human intervention may be involved), provided online and subject to a fee paid by a local customer. Whether a customer is based in Mexico is determined at checkout by the following triggers:

A Mexico-based intermediary is used to make a payment; The customer's phone number or address is in Mexico; A Mexican IP address is used. It is not uncommon for taxable and non-taxable digital services to be provided together. In such cases, the 16 percent VAT is levied on the taxable portion only, provided that invoices clearly differentiate the services...

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