With its new tax law proposal from September 5th, 2019, Mexico is trying to get a hold of service providers abroad that offer digital platforms. In contrast to businesses that sell goods and services in fixed premises, digital service providers have so far enjoyed significant tax advantages. The new law proposal suggests changes to the value added tax law (LIVA) and the fiscal code.
The proposal abides by the standards set out by the OECD by suggesting using the principle of “destination”. This means that taxation is caused and collected in the jurisdiction where the consumption of goods and services occurs rather than where it has been produced.
What changes have been proposed to the LIVA?
Residents abroad without establishment in Mexico, who carry out the provision of services through digital platforms, will be obliged to accept the withholding of the tax or, alternatively, to pay the tax that corresponds to their business.
What is the difference between national and foreign digital platform providers?
If the foreigner accepts the withholding of the tax, this will be made on the total amount paid, which contains the commission for the service provided by the platform and also the price of the service or acquired.
The obligation of withholding the tax to individuals or legal entities that receive services through a digital platform from residents abroad without establishment in Mexico is established, unless the service provider chooses the option to pay the tax on his own.
The financial system will substitute, in all cases, the subjects obliged to withhold and pay the tax, for which the CFF is also modified in the relevant part.
How will the transition process be managed?
The law initiative does not propose a transition regime on operations carried out before its entry into force. Also, reasonable time must be allowed for financial system institutions to adapt their systems based on the rules issued by the tax authorities.
Since the tax reform initiatives will be discussed in the coming weeks in Mexican Congress it is likely to undergo various modifications until its final version.
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!