Mexico to introduce VAT on digital services in June 2020

As of 1st June 2020, Mexico will introduce VAT on Digital Services. This obligation will apply to all online services that serve Mexican customers, including global giants such as Amazon, or local giant Mercado Libre.

What will be the subject of taxation?

The taxable services are the ones provided through applications, over the Internet or another network and for which the end-customer paid a fee. Some of the services included are:

  • paid audio and video production, online games, gambling, downloading images and paid statistics
  • digital intermediation services (services conducted by third parties)
  • paid online learning courses, tests and online clubs

Which digital service providers are obligated to pay for this type of tax?

The rule will apply to all suppliers, business-to-business (B2B) and business-to-customer (B2C) suppliers, with a bit stronger focus on B2C transactions.

What should digital service providers do in order to be compliant?

Before all, foreign digital service providers must obtain a tax identification number for VAT purposes by Mexican tax authorities. Also, they must:

  1. appoint a tax representative in Mexico – tax representative will be responsible for filing and reporting obligations
  2. provide a Mexican tax address
  3. collect the VAT on the price of the digital services

The VAT rate on Digital services in Mexico will be 16%.