Mexico: Digital Economy 2021 - Tax Reform Proposal

On September 8th, 2020, the Executive Branch introduced the Economic Package for 2021 fiscal year, discussed by the Chamber of Deputies; the approval of the Mexican Congress is pending for October 31st, 2020.

In our perspective, the following amendments are the most relevant for digital economy in connection with the Value Added Tax (“VAT”):

• VAT exemption applicable to the sale of second-hand goods made through digital platforms is repealed.

• Regarding digital platforms:

o When collecting the price and VAT on behalf of the sellers, service providers or lessors (foreign residents) without permanent establishment («PE») in Mexico, intermediary platforms shall withhold 100% of VAT. In such case, the platforms will be released from informing the tax authorities in quarterly tax returns of the transactions held with said foreign residents.

o When requested by final users to prove a service was provided, intermediary platforms are required to issue a tax invoice with the VAT duly expressly and separated.

o Alternatively, the platform is given the option to not publish on the platform expressly and separated the VAT if the legend «VAT included» is added.

o Block access to digital telecommunications services (internet) to foreign digital platforms if such platforms fail to comply with the following requirements:

 Register before the Federal Taxpayers Registry (“RFC”).

 Appoint a legal representative and a domicile in Mexico.

 Request their e-signature.

 Fail to pay VAT, make a tax withholding, or file monthly and/or quarterly informative tax returns. In such case, additionally, the registration in the RFC will be canceled and the company will be removed from the digital service providers list published on the Tax Administration Service’s website and on the Federal Official Gazette.

o A hearing procedure is proposed before internet access is blocked.

o A $500,000.00 MXN to $1’000,000.00 MXN fine will be imposed on telecom companies for each month of non-complying with the order to block internet access.

Please note the abovementioned amendments are subject to modifications due to the legislative process; therefore, these are not the final modifications. We will keep you timely informed concerning any update or modifications that may arise from the review of the Mexican Congress.