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11 September 2020
Various countries have been exploring how to tax the digital economy with digital services taxes having been adopted or under consideration by a number of European, Asian and Latin American countries. Further, the Office of the United States Trade Representative recently announced an investigation into potentially unfair or discriminatory foreign digital services taxes with regard to US technology companies. Such tax laws are often broad enough to cover all virtual services provided within a country by foreign providers.
Mexico is no exception in this regard and a new set of rules for the collection of the applicable 16% in value added tax (VAT) for digital services entered into force in June 2020. This article provides a general summary of the new tax rules.
Under the new tax rules, digital services performed through digital content or applications via the Internet or any other network which is fundamentally automated and are not available free of charge, are subject to specific VAT rules if the user of the service is located in Mexico.
The law covers the following digital services:
The law considers users of such services to be located in Mexico if:
Foreign entities without a permanent establishment in Mexico for tax purposes and which provide digital services in Mexico must:
The law provides that complying with the abovementioned rules will not trigger a taxable permanent establishment in Mexico for the foreign entity.
In July 2020 the Tax Administration Service published in the Federal Official Gazette a list of non-resident entities without permanent establishment in Mexico that provide digital services to users in Mexico and which recently registered as part of the new regime. These digital companies have been implementing the above changes and have started collecting VAT from Mexican consumers.
There is no clear guidance or interpretation from the tax authorities and the courts regarding Mexico's new digital service tax rules. However, it is expected that new and additional digital economy taxes will be discussed and implemented in Mexico in the future.
For further information on this topic please contact Federico Hernández Arroyo at Hogan Lovells BSTL by telephone (+52 55 5091 0000) or email (email@example.com). The Hogan Lovells website can be accessed at www.hoganlovells.com.
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Federico Hernández Arroyo