Mexico: Planned VAT reduction

On June 10, 2020, the Mexican Congress introduced a reform proposal temporarily reducing the VAT rate from 16% to 10% for the remaining of fiscal year 2020. Further reductions should apply for the North and South Border Region where a rate of 8% is planned. During the next weeks, this proposal will have to go through certain processes, discussions and modifications at the Mexican Congress before entering into force.

 

What is the scope of the reform proposal?

Due to the economic backlash caused by the COVID-19 pandemic, the VAT reduction is aimed at reactivating the internal market while avoiding the breakdown of productive and supply chains. Reducing the VAT rate should encourage demand, strengthen consumer expectations and offer liquidity to companies. Tax incentives also generate other economic benefits due to increased cash flow such as investment promotion, employment and business generation.

 

Why do border regions profit from a greater VAT reduction?

The 8% rate applicable in the North and South Border Region is supposed to maintain competitiveness and provide security to taxpayers. According to the reform proposal, the Border Region includes, in addition to the 20-kilometer border strip parallel to the international dividing lines in the north and south of the country, the entire territory of the states of:

  • Baja California
  • Baja California Sur and Quintana Roo
  • the municipalities of Caborca, Cananea, and Sonora

 

The Southern Border Region includes, in addition to the 20-kilometer border strip parallel to the international division found south of the country, the municipalities of :

  • Calakmul and Candelaria, Campeche
  • Amatenango de la Frontera, Benemerito de las Americas, Bejucal de Ocampo, Cacahoatan, Comitan de Dominguez, Frontera Comalapa, Frontera Hidalgo, La Independencia, La Trinitaria, Las Margaritas, Maravilla, Marques de Comillas, Mazapa de Madero, Motozintla, Ocosingo, Palenque , Suchiate, Tapachula, Tenejapa, Tuxtla Chico and Union Juarez, Chiapas
  • Balancan and Tenosique, Tabasco

 

These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!