What you need to know about VAT in Mexico
It is rare these days to find a person who has never heard of VAT. There is hardly a country in which this system is not used in one way or another. For the sake of clarity, VAT levied on imports and domestic purchases is referred to as input VAT, while VAT related to sales is referred to as output VAT. These two values cancel each other out when filing a VAT return. If input VAT is exceeded, VAT refund is not made. Instead, balances are carried over to the next month. However, the situation may be different if the tax rate is reduced or the goods or services are completely exempt from taxation.
VAT rate in Mexico
Mexico introduced a value added tax system in 1980. Known locally as Impuesto al valor agregado (IVA). It is administered by the Ministry of Finance and Credit.
VAT Mexico has different VAT rates, including:
- the standard VAT rate is 16%.
- a reduced tax rate of 11% was reduced in 2014 at the border.
- zero-rate goods: food, water, agricultural goods, books and magazines.
- duty-free goods with VAT: real estate, land, financial services, insurance, cultural exhibitions and events, imported goods
Do I need to register for VAT Mexico?
Businesses that provide taxable services or goods must be registered for VAT in Mexico. This also includes foreign companies with permanent establishments. Foreign companies without a permanent establishment cannot register as non-residents and cannot claim Mexican VAT.
Mexico VAT return
VAT Mexico returns detailing sales and purchases must be submitted monthly. You must file and pay taxes by that date by the 17th of the month following the reporting period. Returns are submitted electronically only in Mexico. VAT credits can be carried forward to future months, but can also be deducted. An annual report is also required. In addition, you must provide a monthly shopping list (Declaración Informativa de Operaciones con terceros.
Mexico VAT invoice requirements
As in many South American countries, Mexican businesses are required to issue invoices based on formally prepared and approved invoices. However, since 2011, e-invoicing can be used for large businesses and requires a special digital certificate. When issuing invoices, businesses must include the following information on the invoice:
- Supplier name, address and tax identification number
- Date of issue/Place of issue
- Product or service description (including quantization)
- Information for buyers
- Import client document details
- Price and VAT Mexico Information
- Bank of Mexico exchange rate to foreign currency
- The credit note for reversing the accrued VAT must contain all the same information.
When you are going to start your career or own buisness in Mexico, you should remember those informations.