Changes to Mexican VAT law in 2022

January 25, 2022

Javier Sabate, Tax & Audit Partner at Kreston FLS, Mexico, writes about upcoming changes to Mexican VAT law.

When will the new Mexican VAT law come in to effect?

The new 2022 Revenue Law in Mexico is on track to being approved, only awaiting the Senate´s decision. This initiative under which the Mexican government estimates that it will be attaining just over $7 billion pesos, of which $3.9 billion will allegedly come directly from tax collections.

The Mexican authorities observe the following fiscal and tax matters in this Initiative:

  • This Initiative does not consider new taxes
  • Legal certainty will be granted to taxpayers
  • The payment of contributions should be simple and accessible.
  • The amount collected should be greater than the cost of its collection
  • Contributions should be stable for public finances

The Initiative presented seeks to reform, add and repeal various provisions of the Income Tax Law (LISR*), the Value Added Tax Law (VATL), the Production and Services Tax Law, the Federal Law on New Car Tax, the Tax Code of the Federation and other ordinances, presented last September 8, 2021 by the Mexican President before its Congress.

What are the key changes to VAT in Mexico?

The VAT changes contained in this proposed economic package for 2022 are:

  • Feminine hygiene products are added to those Taxed at the 0% Rate.
  • It is also clarified that the 0% Rate applies both to products intended for human consumption and for animals.
  • For VAT to be credited in Import Operations, the claim must be in the Taxpayer’s Name. This is important because it may result in increased costs and time for resident taxpayers and overseas businesses choosing to use a third party/agent to import. Advice on alternative supply arrangements may be required.
  • Non-accreditation of VAT when carrying out activities that are not considered carried out in Mexican territory. It is proposed to specify the non-accreditation in any case of the VAT transferred to the taxpayer for expenses incurred to carry out activities that are not subject to the tax.
  • It is clarified that the temporary use or enjoyment of goods in Mexico is subject to VAT, regardless of the place the goods are ultimately destined for, whether in Mexico or abroad. Currently leasing transactions are subject to VAT in Mexico only when leased goods are delivered within the Mexican territory.
  • Non Mexican Resident digital service providers without a permanent establishment in Mexico,supplying digital services to Mexican resident customers, will have an obligation to file monthly instead of quarterly statistical VAT return information to the Tax Administration Service (SAT).  Importantly, the SAT will penalize foreign suppliers who fail to file these information returns and pay their taxes for three or more consecutive months.
  • The Regime so called “Regime of fiscal incorporation” is repealed relating to the incorporation of a new tax regime for individuals, for the purposes of the Income Tax Law (LISR). References to the incorporation regime are eliminated from the VAT Law.

As we witness the legitimate interest and effort of the Mexican authorities in continuing to facilitate the understanding and accessibility of tax payments and reporting to the general tax paying population, these efforts continue in many cases to inadvertently increase legal responsibility and administrative burden for all Taxpayers.

What advice is there for businesses who supply goods in Mexico?

For these upcoming years, we strongly encourage businesses that supply goods or services to or within Mexico to pay special attention to their corporate governance, organizational structures and reporting.  This will be vital in order to adequately navigate the increasing requirements for greater transparency and more accountability in the Mexican and LATAM economies.