Presenting a live 110‐minute teleconference with interactive Q&A
Mexico's IVA Tax: VAT Fundamentals for U S Companies
VAT Fundamentals for U.S. Companies
Obtaining Deductions and Refunds, Complying With VAT Withholding, and Meeting Other Challenges
THURSDAY, JULY 26, 2012
1pm Eastern
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12pm Central | 11am Mountain
|
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Today’s faculty features:
Gabriel Andrade,, Partner,, International Tax Services,, KPMG,, Monterrey,
y, Mexico
Scott Sneckenberger, Partner, Plante Moran, Auburn Hills, Mich.
Luis Carbajo-Martinez, Principal, Baker & McKenzie, Juarez, Mexico
Juan Carlos Valles Zavala, Attorney, Baker & McKenzie, Juarez, Mexico
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Mexico’s IVA Tax: VAT Fundamentals for M
i ’ IVA T VAT F d
t l f U.S. Companies Seminar
July 26, 2012
Gabriel Andrade, KPMG
[email protected]
Scott Sneckenberger, Plante Moran
[email protected]
Luis Carbajo-Martinez, Baker & McKenzie
[email protected]
Juan Carlos Valles Zavala, Baker & McKenzie
[email protected]
Today’s Program
IVA Overview
[Gabriel Andrade]
Slide 7 – Slide 72
Exempt And 0%-Rated Transactions
[Scott Sneckenberger]
Slide 73 – Slide 76
IMMEX/Maquiladora Program, And Potential IVA Benefits
[Scott Sneckenberger]
Slide 77 – Slide 83
IVA And Importations By Non-Mexican
Non Mexican Companies
[Scott Sneckenberger]
Slide 84 – Slide 86
Impact Of Elections On IVA Policy
[Luis Carbajo-Martinez and Juan Carlos Valles Zavala]
Slide 87 – Slide 89
Hot IVA Topics, From A Legal Perspective
[Luis Carbajo-Martinez and Juan Carlos Valles Zavala]
Slide 90 – Slide 101
Handling IVA Refunds
[Gabriel Andrade]
Slide 102 – Slide 104
Gabriel Andrade, KPMG
IVA OVERVIEW
Characteristics
1. It is an indirect tax
2. Federal tax
3. Value added Tax (VAT) is levied on consumption and it is present along all
economic
i activities’
ti iti ’ production
d ti
and
d commercialization
i li ti
chains.
h i
VAT is
i
applicable to goods and services acquired or received, respectively,
within the national territory, as well as imports
4. It is an efficient tax collection instrument.
5. Reduces tax evasion
6. Its application is merely inter‐territorial
7. It is inflationary.
8
GeneralProvisions
(Articles1Through7oftheMexicanVATLaw(VATL)
Elements of the VAT
• Subject and object to this tax:
GeneralTaxRate16%
 Individuals
I di id l
 Legal entities
• That carry out,
out in Mexican territory,
territory any of the following activities:
 Sale of goods
 Rendering of independent services
 Grant temporary use or enjoyment of goods
 Imports goods or services
9
TransferOfTheVAT
• The VAT shall be explicitly transferred to the buyer and separately
presented from the price.
price
• The seller or service provider must charge the tax whenever an
individual or an entity:
y
 Acquires or, uses or enjoys temporarily goods
 Receives a service
• This is mandatory even when the VATL establishes that the
corresponding tax is to be withheld by the buyer.
10
WithholdingOfVAT
• The VATL establishes that the following persons are obliged to withhold the
tax that is transferred to them by the suppliers or service providers:
 Financial institutions that receive goods in lieu of payments or acquire
goods
d by
b legal
l l resolutions
l i
or trusts
 Legal entities that:
‐ Receive independent personal services from individuals, or
temporarily use or enjoy good property of individuals. The
withholding will be performed for 2/3 of the corresponding VAT.
VAT
‐ Acquire scrap to be used as raw material in industry or for its
performed for the entire
commercialization. The withholdingg will be p
corresponding VAT.
11
Continued
WithholdingOfVAT(Cont.)
 Legal entities that:
‐ Receive freight services from individuals or legal entities. The
withholding will amount to 4% of the price.
‐ Receive services from commission agents that are individuals.
The withholding will be performed for 2/3 of the corresponding
VAT.
VAT
 Individuals or legal entities that acquire goods, or temporarily use
or enjoy goods,
goods from foreign residents with no permanent
establishment in Mexico.
p
trade attributions authorized by
y the Ministry
y
 Entities with special
of Economy when they acquire products related with the special
trade attributions from Mexican suppliers
12
WithholdingOfVAT(Cont.)
• All VAT withholdings will apply and must be performed at the moment of
the payment carried out in favor of the seller or service provider, and only
for the amount that was effectively paid.
13
EffectivelyPaid
For VAT purposes, Mexican tax provisions establish that a transaction is
considered effectively
yp
paid when:
 The price is received in cash.
 Goods or services are received in lieu of the payment, even if they are
received as advances or deposits.
 The
Th interest
i t
t off the
th seller
ll is
i fulfilled
f lfill d by
b any means off satisfaction
ti f ti
off
obligations.
When the agreed price is paid by check,
check it can be considered that the value of
the transaction is effectively paid at the date of collection, or when the check is
endorsed in favor of other individual or entity.
14
MeansOfSatisfyingObligations
• Offset: Takes place when two persons have, reciprocally, accounts payable
and accounts receivable from the other. The offset consists in canceling the
debts between each other insofar as the amount of the smallest.
• Right confusion: The obligation is satisfied when the same person is the
b
beneficiary
fi i
and
d the
th debtor
d bt off the
th debt.
d bt
• Debt remission: Any person can renounce his right on a debt, even if it
renounces partially,
partially except on those cases that it is prohibited by law.
law
• Renewal of debt: Takes place when the first obligation is substituted by a
new obligation
15
EffectivelyPaid(Cont.)
• In case of documents receivable derived from financial factoring, the
transaction will be considered effectively paid at the moment in which
those documents are transferred.
• In connection with the foregoing,
foregoing taxpayers may consider the transaction
derived from financial factoring effectively paid when the document is
paid, as long as the following requirements are fulfilled:
 This option is expressly stated in the contract.
 The person transferring the document must pay the corresponding VAT.
 The bank statements that reflect the p
payment
y
are delivered to the
transferees within the first 10 days of the month following the
transaction.
16
VATRateForBorderRegion
• VAT will be calculated at a rate of 11% in the following scenarios:
 Activities subject to VAT performed by residents of the region close to
the border with neighboring countries, as long as the goods or
services are delivered or rendered, respectively, within such region
• The region close to the border covers 20 kilometers in a parallel line with
the border. Additionally, this region also includes the states of Baja
C lif i and
California
d Quintana
Q i t
R
Roo,
and
d some municipalities
i i liti in
i Sonora
S
among
others.
• In case of imports,
imports the tax rate applicable would be 11%,
11% as long as the
imported goods or services are alienated or rendered within the region
close to the border.
• Notwithstanding the foregoing, in case of alienation of real state, the
applicable tax rate would remain at a 16%.
17
VATRateAt0%
VAT will be calculated applying a rate of 0% for the following activities (certain
particularities or exceptions may apply), among others:
• Sale of:
 Non‐industrialized animals and vegetables
 Medicine
d
and
d products
d
oriented
d to nourishment
h
 Ice, fresh water
 Machinery for the first sector
 Materials and products destined to be used in the first sector
 Hydroponic greenhouse equipment
 Gold, jjewelry
y and artistic p
pieces
 Books, newspapers or magazines edited by the taxpayer
18
VATRateAt0%(Cont.)
• Rendering independent services to the following:
 To
T first
fi t sector
t activities
ti iti
 Grain mill
 Milk pasteurizing
 To hydroponic greenhouses
 Reinsurance
 Domestic water supply
• Grant use or enjoyment of machinery oriented to the first sector
• Export of goods or services that are subject to VAT
19
CreditableVAT
• Taxpayers can subtract the creditable VAT against the VAT payable for the
month determined by the VATL.
• Creditable VAT refers to the VAT that has been transferred to the individual or
entity by its suppliers, and the VAT that was paid for the import of goods and
services, if any.
• The right over creditable VAT is personal and cannot be transferred by any
means other than merging. In the event of a spin‐off, the right remains with the
original entity.
entity
Concept
Amount
ActivitysubjecttoVAT
Activity subject to VAT
500,000
500,000
(x)
VATrate
16.00%
(=)
PayableVAT
80,000
(-)
CreditableVAT
Creditable VAT
55 000
55,000
(=)
VATincharge
25,000
20
RequirementsForCreditableVAT
In order to be under conditions to subtract the creditable VAT from the VAT payable,
taxpayers must fulfill the following requirements:
• It must correspond to goods or services strictly necessary for the activities
performed by the taxpayer.
• The expenses related to the creditable VAT must be deductible, for income tax
purposes.
• Where the Mexican tax law establishes partial deductions for income tax
purposes, the creditable VAT may be subtracted from the payable VAT in the
same proportion.
• Separately
l presented
d in the
h invoice
• Creditable VAT must be effectively paid.
• VAT withheld by suppliers can be considered creditable VAT in the month after
the withholding took place.
21
PartiallyCreditableVATForExemptActivities
In the event that a taxpayer carries out activities that are not subject to VAT,
creditable VAT related to those activities would not be subtracted from the
VAT payable.
bl
In case the creditable VAT is related to both activities, subject and not subject
to VAT,
VAT the creditable VAT may be subtracted proportionally.
proportionally
In order to determine the aforementioned proportion, refer to the following
slide:
22
CreditableTax:
ProcedureOfAccreditationWhenPerformingTaxableAndExemptActs
1. In the case of VAT disbursements that are used exclusively to taxed acts
(16%, 11% and 0%), VAT will be credited in full. VAT is paid on the
importation of goods or services.
y to acts exempt
p
2. In the case of VAT disbursements that are used exclusively
(not subjected for VAT), VAT will NOT be creditable. It includes the paid VAT
by the importation of goods or services.
3. In the case of VAT disbursements that are used interchangeably to perform
any taxed or exempted acts, VAT will be credited in proportion to the
taxable activities.
4. To determine the proportion above, it will be necessary to apply the
following formula:
23
CreditableTax:
FormulaToDetermineTheProportion
p
Concept
Totalvalueofthetaxableactivities,includingthe0%ofthemonthinquestion
Totalvalueoftheactivitiesofthemonthinquestion
(=)
TheproportionofcreditableVATonthemonthtocalculate
24
CreditingForInvestments:
(
(FixedAssets,DeferredChargesAndExpenses)
g
p
)
1. The VAT will be creditable, considering whether the investment is intended to
perform taxed or exempt acts. If you alter the destination of investment, a creditable
VAT adjustment will have to be performed, derived from the investment.
2. If the investment is used to do only taxed activities (16%, 11% or 0%), VAT will be
y creditable. It includes the p
paid VAT by
y the motive of the importations.
p
fully
3. If the investment is used for exempt activities, VAT of such investment will not be
creditable.
4. If the investments are destined to taxable and exempt activities, VAT will be
creditable on proportion to the activities that are taxed (16%, 11%, 0%), related
with the total of acts or activities (taxed plus exempt).
exempt)
5. If the investments described in 2 and 3 above change the normal fate of the income
taxed obtained or exempted, an adjustment must be made to creditable VAT of such
investments.
25
CaseForPractice
Case for practice:
1. A business entity is dedicated in the sale of real estate and wants to
determine the creditable VAT for fixed assets of July 2010.
2. The company makes home sales (exempt) and locals commercial
(taxable).
3. The fixed asset data are as follows:
26
CaseForPractice(Cont.)
Investment
VAT investment
VATinvestment
Used
exclusively
l i l for
f
actstaxed
$ 200 000 00
$200,000.00
$ 32 000 00
$32,000.00
Used
exclusively for
actsexempted
$150,000.00
$24,000.00
$300,000.00
$48,000.00
Used
interchangeably with
acts taxed and
actstaxedand
exempt
27
CaseForPractice(Cont.)
Duringthemonth,thefollowingoperationswereperformed:
Actsoractivitiestaxableon16%
ActsoractivitiesexemptedonVAT
The total value of the acts or activities
Thetotalvalueoftheactsoractivities
$2’000,000.00
$1’850,000.00
$ 3’850
$3
850,000.00
000 00
Solution:
28
CaseForPractice(Cont.)
IVAtrasladadoal
contribuyente
Nivelde
acreditamiento
$32,000.00
AllcreditableVAT
All
creditable VAT
maybe
subtracted
Exclusivelyused
withactivities
subjecttoVAT
$24,000.00
Norighttosubtract
thecreditableVAT
Indistinctlyusedfor
bothkindof
activities
$48,000.00
Proportionally
Exclusivelyused
withactivities
ith ti iti
subjecttoVAT
29
PartiallyCreditableVATForExemptActivities
For the amount of $ 45,000.00, which corresponds to both activities, subject to and
exempt from VAT, the proportion factor would be applicable according to the following
investments:
Concept
Amount
Value of all activities subject to VAT (including 0%) of the
corresponding month
2’000,000
Value of all activities of the corresponding month (including not
subject to VAT)
3’850,000
(=)
ProportionapplicabletothecreditableVAT
(x)
100%
(=)
p
y
p y
ProportionofcreditableVATthanmaybesubtractedfrompayable
VAT
0.5195
100
51.95%
30
PartiallyCreditableVATFor
ExemptActivities(Cont.)
p
(
)
Creditable VAT that can be subtracted from the payable VAT:
Concept
Amount
VAT transferred by the supplier to the taxpayer
48,000
(x)
(=)
ProportionapplicabletothecreditableVAT
Creditable VAT that can be subtracted from the
payable VAT
51.95%
24,936
31
PartiallyCreditableVATFor
ExemptActivities(Cont.)
p
(
)
Total creditable VAT that can be subtracted from the payable VAT:
Concept
Amount
Creditable VAT subject to the proportion
24,936
Other creditable VAT
(+)
(=)
32,000
TotalcreditableVATthatcanbesubtractedfromthe
payableVAT
56,936
32
VATBalancesInFavor
When the VAT tax return results in a balance in favor, the taxpayer may:
‐ Offset
Off such
h balance
b l
i favor
in
f
against
i
VAT in
i charge
h
off the
h following
f ll i months
h
‐ Request the refund of the balance in favor before the tax authorities. It must
be for the total amount of the balance in favor.
favor
‐ Offset such balances in favor against other federal taxes in charge
33
Exemptions
Alienation
 Article9VATL
 Articles22and22RVAT
A ti l 22 d 22 RVAT
Renderingofindependentservices. Article15VATL
 Articles28to31RVATL
Articles 28 to 31 RVATL
Temporaryuseorenjoymentofgoods
 Article20VATL
 Article34RVATL
Article 34 RVATL
Importation
 Article25VATL
 Articles38and39RVATL
34
TaxRate0%AndExemptions
0%TaxRateExemptions
.
• It is expressed in support documentation.
• It is recorded as a expenditure.
• Allows acreditation
• Does not allow accreditation
• It is considered
d d in the
h VAT refund
f d request.
• VAT refund request is not allowed
• Although it is a virtual tax, takes tax implications
• Does not have tax implications
35
Alienation
(Articles 8 Through 13 Of The Mexican VAT Law (VATL)
(Articles8Through13OfTheMexicanVATLaw(VATL)
For purposes of this law, the concept of alienation includes, in addition to the
provisions of the Federal Fiscal Code, missing items a decrease in the
company’s
’ inventories.
i
t i In
I the
th latter
l tt case, this
thi presumption
ti admits
d it evidence
id
t
to
the contrary.
The transfer of goods by death or by donation is not taxable,
taxable unless such
donation is made by a company for which the donation is not deductible for
income tax purposes.
If the transfer of goods is not effectively made, the corresponding value added
tax may be refunded, provided that the requirements of the first and second
paragraphs
g
of Article 7 hereto are satisfied. If tax has been withheld pursuant
to Articles 1‐A and 3, third paragraph of this law, the tax is not refundable and
the provisions of Article 7, third paragraph of this law will apply.
36
ExemptedAlienations
((Article9OftheMexicanVATLaw,VATL)
,
)
VATwillnotbepaidonthetransferofthefollowinggoods:
• Land
• Constructions attached to land, either intended or used for residential purposes
• Books, newspapers
p p
and magazines,
g
as well as the author’s right
g to use or exploit
p
a work
• Used personal property, unless transferred by enterprises
• Tickets and other receipts
p that p
permit p
participation
p
in lotteries, raffles, drawings
g or ggames of
chance and contests of any kind; as well as the respective prizes, as established in the Income
Tax Law
• National and foreign
g currency,
y as well as ggold or silver p
pieces that had been regarded
g
as
currency and those pieces known as “troy ounces”
• Partnership interests, documents pending collection and negotiable instruments
• Gold ingots with a minimum gold content of 99%, provided that the transfer is made by retail
sales to the general public
37
ExemptedAlienations
((Article9OfTheMexicanVATLawVATL),Cont.
),
VATwillnotbepaidonthetransferofthefollowinggoods:
•T
Transfer
f off goods
d between
b t
f i residents,
foreign
id t or by
b a foreign
f i resident
id t to
t a
legal entity having an authorized program under the Decree for
Implementation of Temporary Import Programs to Produce Export Items or
the Decree for Development and Operation of Export In‐Bond
In Bond Corporations
(Maquiladoras), or under a similar tax regime on the terms of the Customs
Law; or companies in the terminal automotive, auto transportation vehicle,
or auto parts manufacturing industries for placement into a bonded
manufacturing warehouse, provided that the goods have been exported or
introduced into national territory under a program authorized by such
decrees or similar tax regime
g
in accordance with the Customs Law …
38
AlienationInMexicanTerritory
((Article10OfTheMexicanVATLawVATL))
 For purposes of this law, transfers are understood to be made in national
territory
y if the ggoods are located therein at the moment of shipping
pp g the
goods to the transferee and, in the absence of shipment, physical delivery of
the goods is made in the country by the transferor.
 Transfers or alienation of goods subject to Mexican matriculation or
registration are considered made within Mexican territory once
matriculated or registered, even though the goods are physically outside
M i and
Mexico,
d provided
id d that
th t the
th transferor
t
f
i a resident
is
id t off Mexico
M i or a foreign
f i
resident’s establishment in the country.
 In the case of intangible goods,
goods the transfer is considered to take place in
national territory if the transferee and the transferor are residents therein.
39
MomentOfAlienation
((Article11OfTheMexicanVATLawVATL))
 Transfers of goods are made at the moment the consideration is effectively
collected, and on the amount of each one of such considerations.
 In the case of transfer of negotiable instruments that evidence real property
rights to the delivery and disposition of goods, the goods covered by such
negotiable instruments are deemed transferred at the time of payment for
transfer of the negotiable instrument. If no transfer is made, transfer occurs
when the goods covered by such instruments are physically delivered to a
person other
th than
th the
th issuer
i
off the
th negotiable
ti bl instrument.
i t
t
 In the case of participating real estate trust certificates, the goods covered
by the certificate are deemed transferred when the certificate is transferred.
transferred
40
AlienationTaxableBase
((Article12OfTheMexicanVATLawVATL))
 In order to compute the tax on transfers, the value is the price or agreed
upon
p
consideration, as well as the additional amounts charged
g
to or
collected from the transferee for other taxes, fees, ordinary or late interest,
contractual penalty or any other amounts.
41
RenderingOfServices
((Articles14Through18OfTheMexicanVATLawVATL)
g
)
Thefollowingaredefinedasrenderingindependentservices,forVAT
purposes:
• A
An affirmative
ffi
ti covenantt by
b one person to
t perform
f
i favor
in
f
off another
th person,
regardless of the act from which such covenants arises and the name or classification
given to said act by other laws
• Transportation of persons or goods
• Insurance, bonding and re‐bonding
• Agency, commission, mediation, representation, brokerage, consignment and
distribution
• Technical assistance and technology transfer
• All affirmative covenants to give, or negative covenants to not do or allow
undertaken by one person in favor of another,
another provided that such obligations or
covenants are not defined hereunder as a transfer or temporary use or enjoyment of
goods
42
RenderingOfServices
 The rendering of independent services does not include the rendering of
dependant services for remuneration or the rendering of services for
i
income
which
hi h the
th Income
I
T Law
Tax
L defines
d fi
as similar
i il to
t said
id remuneration.
ti
 The rendering of independent services is deemed personal if the services
are activities described under this article as not having the characteristics of
business activities.
43
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL))
Value added tax is not paid on the rendering of the following services:
• Commissions and other consideration paid by the debtor to the creditor on account of
mortgage loans given for the purchase, enlargement, construction or repair of residential real
property, except for those resulting after the authorization of said loan or which are payable to
third parties by the debtor
• Commissions collected by retirement fund managers or, if applicable, by banking institutions
from employees for the management of their funds derived from the retirement savings
systems and services related to said management, as established in the Law for the Retirement
Savings System (SAR) and the Law of the State Workers Social Security and Services Institute,
Institute
as well as in all other provisions derived therefrom
• Services rendered free of charge, unless the beneficiaries of the services are members, partners
or associates of the legal entity rendering the service
• Educational services rendered by the Federal Government, the Federal District, the States, the
Municipalities and their decentralized agencies, and by private establishments with official
authorization or official validation of studies pursuant to the General Education Law,
Law as well as
preschool educational services
• Public land transportation of persons, except by railroad
44
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL),Cont.
),
Value added tax is not paid on the rendering of the following services:
• International maritime transportation of goods rendered by foreign residents
without a permanent establishment in the country. In no case will the provisions of
this section apply in the case of coastal navigation services within national territory.
• Insurance against agribusiness risks, housing loan insurance covering debtor default
risk on mortgages loans or loans secured by fiduciary guarantee for the purchase,
enlargement, construction or repair of residential real property; financial guaranty
insurance covering the risk of issuer default on securities, negotiable instruments or
documents which are the subject of public offerings or stock exchange
intermediation, provided that the funds derived from the placement of such
securities, negotiable instruments or documents are used to finance mortgage loans
or secured
d by
b fiduciary
fid i
guarantee for
f the
h purchase,
h
enlargement,
l
construction
i or
repair of residential real property, and life insurance whether it covers the risk of
death or grants annuities or pensions, as well as the agent's commissions on said
insurance.
45
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL),Cont.
),
Value added tax is not paid on the rendering of the following services:
•
Those resultingg in interest:
a) Derived from transactions in which the transferor, the service provider or the grantor of the
temporary use or enjoyment of goods provides financing related to activities on which the
payment
p
y
of this tax is not required
q
or levied at the rate of 0%
b) Received or paid by banking institutions, credit unions, limited purpose financial corporations,
savings and loan corporations and financial factoring corporations in financing transactions for
which authorization is required
q
and under the concept
p of discount on documents p
pendingg
collection; interest received and paid by multiple purpose financial corporations that for
income tax purposes are part of the financial system, due to the granting of loans, factoring or
discounting on documents pending collection; received by general deposit warehouses for
loans ggiven and secured by
y p
pledge
g bonds; as well as the commissions for agents
g
and
correspondents of credit institutions for said transactions
c) Received by bonding, insurance and mutual insurance corporations, in financing transactions,
excepting the case of loans granted to individuals who are not entitled to the exemption set
forth in (b) above
46
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL),Cont.
),
Value added tax is not paid on the rendering of the following services:
•
Those resultingg in interest:
d) Derived from mortgage loans or loans secured by fiduciary guarantee for the purchase,
enlargement, construction or repair of residential real property
e) Derived from employees' saving banks and from savings funds establish by businesses, provided
that the deductibility requirements under the Income Tax Law are satisfied
f) Derived from notes issued in accordance with the provisions of the General Law of Negotiable
Instruments and Credit Operations
g) Received or paid by public institutions that issue bonds and manage savings plans with the
unconditional payment guarantee of the Federal Government in accordance with the Law
h) Derived from securities payable by the Federal Government and listed in the National Registry of
Securities and Intermediaries
i) Derived from negotiable instruments placed with the large investing public in accordance with the
applicable general rules issued by the Ministry of Finance and Public Credit, or from transactions
involving the loan of negotiable instruments, securities and other fungible goods referred to in
47
(III), Article l4‐A of the Federal Fiscal Code
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL),Cont.
),
Value added tax is not paid on the rendering of the following services:
•
DerivedfromfinancialderivativetransactionsmentionedinArticle16‐AoftheFederalFiscal
Code
• Providedtomembersasordinaryconsiderationforduesandprovidedthattheservices
renderedaresolelyrelatedtotheparticularpurposesoftheentity,inthecaseof:
a)Legallyrecognizedpoliticalparties,associations,coalitionsandfronts
b) Laborunionsandconfederations
c) Chambersofcommerceandindustry,agricultural,stockbreeding,fishingorforestrygroups,
aswellastheirfederations
d) Employerassociationsandprofessionalassociations
e) Civillawassociationsorpartnershipsorganizedforscientific,political,religiousand
culturalpurposes,exceptforthosethatprovideserviceswithsportsfacilitieswhenthe
valueofthelatterrepresentsmorethan25%ofthetotalvalueofthefacilities
48
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL),Cont.
),
Value added tax is not paid on the rendering of the following services:
• Derived from the entry ticket for public events, except for theater and circus events,
if the
h agreement entered
d into
i
with
i h the
h State
S
or the
h Department
D
off the
h Federal
F d l
District in which the event takes place does not fall into the provisions of Article 41,
(VI) of VATL. The exemption established in this section is inapplicable to the entry
ticket for cinema functions.
Eventspresentedinrestaurants,bars,lounges,partyordancehallsandnightclubs
arenotconsideredpublicevents
• Professionalmedicalservicesiftherenderingthereofrequiresamedicaldegree
underlaw,providedsuchservicesarerenderedbyindividuals,whetherindividually
orthroughanycivilassociation
•
Professional medical, hospital, radiology, laboratory services and clinical tests
rendered by the decentralized agencies of the Federal Public Administration, the
Federal District,
District the state or municipal public administrations
49
VAT‐ExemptServices
((Article15OfTheMexicanVATLawVATL),Cont.
),
Value added tax is not paid on the rendering of the following services:
• For those on which authors receive consideration in the following cases:
a) For authorizing third parties to publish written works of their creation in newspapers and
magazines, provided that the newspapers and magazines are intended for sale to the public
by the person making payment of such consideration
b) For temporarily transferring the economic rights or temporarily granting licenses to use to
third parties, corresponding to works of their authorship as established in Article 13 (I)
through (VII), (IX), (X), (XII), (XIII) and (XIV), and article 78 of the Federal Copyright Law,
registered in the Public Copyright Registry of the Ministry of Public Education
c) The provisions of the preceding paragraphs do not apply:
‐ In the case of advertising ideas or phrases, logos, emblems, distinctive seals, industrial
designs or models, operating manuals or works of applied art
‐ If the consideration derives from the exploitation of written or musical works in business
activities other than the sale to the public of the author's works, or the rendering of services
50
ServicesRenderedInMexico
((Article16OfTheMexicanVATLawVATL))
 For the purpose of this law, the service is defined as rendered in national territory if
the service is rendered, whether wholly or partially, by a person resident in the
country
country.
 In the case of international transportation, the service is defined as rendered in
national territory, independently of the residence of the carrier, if the transportation
begins in national territory, even if it is a round trip.
 In the case of international air transportation, only 25% of the service is considered
to be rendered in national territory. Air transportation to Mexican towns located in
the 20‐kilometer border strip parallel to the northern and southern international
dividing lines will be treated the same.
 IIn the
h case off interest
i
and
d other
h consideration
id
i paid
id by
b Mexican
M i
residents
id
to foreign
f i
residents granting credit by credit cards, the service is understood to be rendered in
national territory if the card is used therein.
51
AirTransportationServices
(
(Article16OfTheMexicanVATLawVATL)
)
Theplaneiscomingfrom:
Taxrate
AnyoftheMexicanRepublic
Any
of the Mexican Republic
states(exceptforthebelow
mentioned)
16%
TerritoriesofBajaCalifornia
Territories
of Baja California and
and
QuintanaRoo
11%
Inaddition tothecross‐border
distanceof20KMparallelofthe
divisorinternationalnorthand
southlines
11%
Landing theplanein:
AnystateoftheMexicanRepublic
Any state of the Mexican Republic
AnystateoftheMexicanRepublic
AnystateoftheMexicanRepublic
52
AirTransportationServices
(
(Article16OfTheMexicanVATLawVATL),Cont.
),
Theplaneiscoming from:
AnyoftheMexicanRepublic
Any
of the Mexican Republic states
(except forthebelow mentioned)
Taxrate
Landingtheplanein:
4%
Abroad
Territories ofBajaCalifornia and
Quintana Roo
QuintanaRoo
2.75%
Abroad
Inaddition tothecross‐border
distanceof20KMparallelofthe
divisorinternationalnorthand
southlines
2.75%
Abroad
AnyoftheMexican Republic states
(except forthebelow mentioned)
From abroad
4%
From abroad
2.75%
Territories ofBajaCalifornia and
QuintanaRoo
2.75%
Inaddition tothecross‐border
distanceof20KMparallelofthe
divisorinternationalnorthandsouth
53
lines
From abroad
MomentOfVATPayment
(Article17)
 Payment of tax for rendering services is required at the moment the
consideration is effectively collected and on the amount of each such
consideration, except for interest mentioned in Article 18‐A hereto, in which
case the tax is paid as the interest is accrued.
54
TaxableBase
(Article18)
 In order to compute the tax in the case of services rendered, the value is
defined as the total consideration convened, as well as the additional amounts
charged to or collected from the person receiving the services for other taxes,
fees, travel and other expenses, reimbursements, ordinary or penalty interest,
contractual penalties or any other item.
 In the case of legal entities rendering services mainly to their members,
partners or associates, payments made by the latter, including contribution to
capital to absorb losses,
losses are considered as value for purposes of tax
calculation.
 In the case of loan agreements and other financing transactions,
transactions the interest
and all other consideration other than the principal received by the creditor is
considered as value.
55
TemporaryUseOrEnjoymentOfGoods
Articles19To23)
 For purposes of this law, temporary use or enjoyment of goods is defined to be
the lease,, usufruct and any
y other act,, independently
p
y of the legal
g form used for
said purpose, whereby one person allows another person to temporarily use
or enjoy tangible goods for consideration.
 The tax treatment established in this law for temporary use or enjoyment of
goods will be applied to the rendering of time‐share services.
56
Exemptions
(Article20)
Tax is not be paid for the temporary use or enjoyment of the following goods:
• Real property exclusively intended or used as a residence. If real property is
intended for multiple purposes or uses, tax is not be paid on the part intended or
used for residential purposes. The provisions of this section do not apply to real
property
t or the
th portion
ti thereof
th
f provided
id d as furnished
f
i h d or intended
i t d d or used
d as
hotels or boarding houses.
• Farms intended or used solely for agricultural or cattle breeding purposes
• Tangible goods for which use or enjoyment is granted by foreign residents, with
no permanent establishment in national territory, and for which the tax was paid
pursuant to Article 24 of this law
• Books, newspapers and magazines
57
Articles21And22
LeasinginMexicanterritory
 TemporaryuseorenjoymentoftangiblegoodsisgrantedinMexicanterritory
ifthegoodislocatedthereinatthemomentofitsphysicaldeliverytothe
personwhoistouseorenjoysuchgood.
Moment ofVATpayment
 Iftemporaryuseorenjoymentoftangiblegoodsisgranted,thetaxispayable
If t
j
t ft
ibl
d i
t d th t i
bl
atthemomentthecorrespondingconsiderationsarecollectedbythegrantor,
andthetaxiscomputedontheamountofeachsuchconsideration.
58
TaxableBase
(Article23)
 In order to calculate the tax in the case of temporary use or enjoyment of
goods the value of the consideration agreed upon in the favor of the grantor
goods,
will be taken into account, as well as any additional amounts payable by or
collected from the person using or enjoying the goods on account of other
taxes, fees, maintenance expenses, constructions, reimbursements, ordinary
or late interest, contractual penalties or any other amounts.
59
ImportsOfGoodsOrServices
(Articles24To28)
For purposes of this law, the following are considered to be importation of goods
or services:
•The introduction of goods into the country
•The
Th purchase
h
b Mexican
by
M i
residents
id
off intangible
i
ibl goods
d transferred
f
d by
b foreign
f i
residents
•The temporary use or enjoyment in Mexican territory of intangible goods
provided by foreign residents
•The temporary use or enjoyment in Mexican territory of tangible goods, for
which physical delivery was made abroad
•The utilization in Mexican territory of services mentioned in Article 14, if
rendered by foreign residents.
residents This section does not apply to international
transportation.
60
Exemptions
(Article25)
Valueaddedtaxisnotpaidonthefollowingimports:
I
I.
Those that under the customs law are not finalized,
finalized are temporary,
temporary are regarded as
returning temporarily exported goods, or are in transit or transshipment
II. Those of baggage and household goods referred to in the customs law
III. Those of goods and services for which transfer in the country or rendering in
national territory, respectively, does not result in the payment of value added tax or
if such goods or services are indicated in Article 2‐A of this law
IV. Those of goods donated by foreign residents to the federal government, states,
municipalities or any other person authorized through generally applicable rules by
the Ministry of Finance and Public Credit
61
Exemptions
(Article25),Cont.
Valueaddedtaxisnotpaidonthefollowingimports:
V.
Those
h
off works
k off art that,
h due
d to their
h
quality
l
and
d Mexican cultural
l
l value,
l
are
recognized as such by competent official institutions, provided that they are
intended for permanent public exhibition
VI. Those of works of art created abroad by Mexicans or by residents that, due to their
quality and cultural value, are recognized as such by competent official institutions,
provided that the author carries out the importatio.
VII. Those of gold, containing at least 80% of such material
VIII. That of vehicles in accordance with Article 62 ((I)) of the Customs Law, p
provided it
complies with the requirements and conditions indicated by the Ministry of Finance
and Public Credit by means of generally applicable rules
62
ImportationOfGoodsAndServices
(Article 26)
(Article26)
Importation of goods and services is considered carried out:
• At the
th momentt the
th importer
i
t files
fil the
th customs
t
d l ti
declaration
f processing
for
i thereof
th
f
pursuant to the customs law
• In the case of temporary
p
y import,
p
when converted to final
• In the cases set forth in Article 24 (II) to (IV), of this law, at the time the consideration
is effectively paid
If periodic considerations are contracted, the moment at which each consideration in
question is paid
• In the case of utilization in national territory of services rendered abroad, the
provisions of Article 17 of this law apply.
63
TaxableBaseForImportationOfGoods
(
(Article27)
)
 In order to compute the value added tax on imports of tangible goods, the
value used for general import tax purposes is considered,
considered adding to the
value the amount of the latter tax and other taxes payable on account of
importation.
 The value taken into account in the case of importation of goods or services
mentioned in Article 24 (II), (III) and (V) is that corresponding under this
law for transfer of goods, use or enjoyment of goods or rendering of
services, in national territory, as applicable.
 In the case of temporarily exported goods returning to the country with
i
increased
d value,
l
the
h value
l will
ill be
b that
h used
d for
f purposes off the
h generall
import tax, with the additions mentioned in the first paragraph hereto.
64
TaxPaymentOnImportationOfGoods
 In the case of imports of tangible goods, payment is regarded as estimated
and is made jointly with the general import tax, even if payment of the
latter tax is deferred by reason of the fact that since the goods are in
bonded deposit in general deposit warehouses. However no credit is
applicable against said tax payment.
 In the case of goods for which payment of general import tax is not
required, taxpayers will pay the tax established hereunder through tax
returns presented at the corresponding customs authority.
authority
 Value added tax paid upon importation of goods will result in a credit on
the terms and with the requirements established by this law.
 Merchandise may not be taken from the customs, tax or bonded
p
gp
payment
y
in conformity
y with this law
warehouse, unless the corresponding
has been made.
65
ExportationsOfGoodsOrServices
(Articles29Through31)
ForpurposesofthisVATL,exportationofgoodsorservicesis:
• Thatregardedasfinalunderthecustomslaw
g
• Thetransferofintangiblegoodsbypersonsresidinginthecountrytopersons
residingabroad
• Thetemporaryuseorenjoymentabroadofintangiblegoodsgrantedbypersons
residinginthecountry
• Theutilizationabroadofservicesrenderedbyresidentsundertheconceptof:
a) Technical assistance, technical services related thereto, and information related to
industrial commercial or scientific experiences
industrial,
b) Maquila and sub‐maquila export operations pursuant to the customs law and the
Decree for the Development and Operation of Export In‐Bond Corporations
(Maquiladoras). For these purposes, services are understood utilized abroad if the
goods under maquila or submaquila are exported by the maquiladora company.
66
ExportationsOfGoodsOrServices
• Theutilizationabroadofservicesrenderedbyresidentsundertheconceptof:
c)Advertising
) Ad ti i
d)Commissionsandintermediation
e)Insuranceandreinsurance,aswellasbondingandre‐bonding
f)Financingtransactions
g)Filmingorrecording,providedthattherequirementssetforthintheregulations
tothislawaresatisfied
h)Callservicecentersforcallsoriginatingabroad,contractedandpaidforbya
foreignresidentwithoutapermanentestablishmentinMexico
67
ExportationsOfGoodsOrServices(Cont.)
• International transportation of goods, rendered by residents in the country
and p
port services of cargo,
g , carriage,
g , warehousing,
g, custodial,, stowage
g and
carriage within ports and port facilities, provided that such services are
rendered in merchandise exportation maneuvers
• Air passenger transportation rendered by persons residing in the country,
for that portion of the service which under the terms of the second‐to‐last
paragraph of Article 16 is not considered rendered in national territory
• Hotel and related services rendered by hotel companies to foreign tourists
entering the country to participate exclusively in congresses, conventions,
expositions or fairs to be held in Mexico; provided that said foreigners
present the immigration document evidencing such status pursuant to the
General Immigration Law, and the services in question are paid with a
foreign‐issued
foreign
issued credit card, and the event organizers have contracted the
hotel and related services
68
ObligationsOfTaxpayers
(Articles32Through37)
Persons required to pay this tax and persons engaged in the activities
mentioned in Article 2‐A to this law, have the following obligations, in
addition
dditi to
t those
th
i di t d in
indicated
i other
th articles
ti l hereto:
h t
 To keep accounting in accordance with the Federal Fiscal Code, the
regulations thereto,
thereto and the regulations to this law,
law and to separate,
separate in
accordance with the latter regulations, those activities for which the tax is
payable at different rates from those activities exempted from the tax
hereunder
 In case of commission agents, to separate in the accounting books and
records those transactions made on their own account from those made on
account of the principal
 To issue supporting documentation, indicating therein in addition to the
requirements, the value added tax charged expressly and separately to
those who purchase or temporarily use or enjoy the goods or receive the
69
services
ObligationsOfTaxpayers
 If the supporting documentation covers activities for which value added tax is
payable, it must expressly state whether the consideration is paid in a lump sum or in
installment payments.
payments
 When consideration is paid in installments, for installment payments made after the
date on which the document mentioned in the preceding paragraph is issued,
taxpayers shall issue a supporting document for each such installment payments,
which shall comply with the requirements set forth in Article 29‐A (I), (II), (III), (IV)
and (VIII) of the Federal Fiscal Code. Said documents shall state as well the amount of
the installment payment covered thereby, the way in which the installment payment
was paid, the amount of tax charged, the amount of tax withheld, if any, and the
number and date of the document issued under the terms of the preceding paragraph
covering the transfer of goods, the granting of temporary use or enjoyment of goods
or the
h rendering
d i off the
h service
i in
i question.
i
 Taxpayers opting for entering on the reverse of the supporting document the amount
payment
y
made under Article 134 ((II)) of the Income Tax Law will
of the installment p
enter the payment date, the amount of charged tax and, as applicable, the amount of
tax withheld. In this case, taxpayers are not required to issue supporting
70
documentation for each one of the installment payments.
ObligationsOfTaxpayers(Cont.)
 In the case of transactions or activities undertaken with the general public,
the tax is included in the price at which the goods or services are offered,
as well
ll as in
i the
th documentation
d
t ti issued.
i
d
 In the case of taxpayers rendering personal services, each payment
received on account of rendered services is considered a lump sum and not
an installment payment.
 To file at authorized offices the tax returns indicated in this law
 To issue certifications for tax withholdings made in the cases set forth in
Article 1‐A, upon receipt of the document mentioned in ((III)) of this article,
and provide on a monthly basis to the tax authorities, by the electronic
means and forms established by the Tax Administration Service,
information on the persons from whom the tax established hereunder was
withheld. Said information will be presented no later than the 17th day of
the month immediately following the month to which said information
71
corresponds.
ObligationsOfTaxpayers(Cont.)
 To notify the tax authorities within 30 days following the first
withholding made by those persons that regularly make the withholdings
referred to in Article I‐A and Article 3, third paragraph hereto
 To provide value added tax information as requested on income tax
returns
t
 To provide on a monthly basis to the tax authorities, by electronic means
and forms indicated by the Tax Administration Service,
Service information on
payment, withholding, crediting and charging of value added tax in
transactions with suppliers, breaking down the value of transactions and
activities by the rate at which the value added tax was charged, including
activities for which the taxpayer is not required to pay such tax. Said
information will be presented no later than the 17th day of the month
y followingg the month to which said information corresponds.
p
immediately
72
Scott Sneckenberger, Plante Moran
EXEMPT AND 0%‐RATED EXEMPT AND 0%
RATED TRANSACTIONS
Exempt Vs. 0%-rated
Transactions/Taxpayers
Exempt transactions
•
•
Residential real estate, land
•
Medical services by a doctor
•
Exempt taxpayers do not charge their customers VAT.
•
Credits/refunds for VAT paid are generally not available.
0%-rated transactions
•
•
Exports, IMMEX (maquiladora transactions)
•
Food and medicine
•
Transaction is part of the VAT system; it is just subject to a 0% rate.
•
Credits/refunds for VAT paid are available, subject to normal VAT
regulations.
This is an IMPORTANT, and often misunderstood, difference between VAT
exempt companies/transactions and 0%-rated transactions.
transactions
•
74
Exempt Vs. 0%-Rated Transactions: Example
• Client: Residential construction company
― All inputs (i.e., bricks and mortar) are purchased with
IVA tax.
― No VAT on the land purchased by builder (perhaps VAT
on some land improvements?)
― No IVA
A tax collected
ll
d on sale
l to h
homeowner
― All indirect costs (i.e. accounting, architect, land
p
) will include IVA.
development)
― The builder must include the VAT on all inputs, to cover
this cost. This is often a surprise – and an expensive
one!
75
Exempt Vs. 0%‐Rated Transactions: Example (Cont.)
•
The following chart represents the exempt IVA transaction flow
Brick‐and‐
mortar purchases
Indirect P h
Purchases
Purchased with VAT
Purchased with VAT
Residential Construction Company
Residence sold with no VAT
Residence sold with no VAT
Residence sold to consumer
76
Scott Sneckenberger, Plante Moran
IMMEX/MAQUILADORA PROGRAM, AND POTENTIAL IVA BENEFITS
IMMEX P
IMMEX Program: Overview
O
i
• The maquiladora program was started by a former secretary of
the economy in Mexico in the late 1960s, to promote
employment in northern Mexico.
• In September 2006, the maquiladora and PITEX programs were
combined into a single export program called IMMEX
IMMEX. The term
“maquiladora” is still widely used to describe a Mexican
company involved in manufacturing for export .
• The goal was to simplify the administration of the two
programs, which were already very similar.
78
IMMEX Program: Traditional Sales Flow Chart
Invoices customer
U.S. Company
USA
MEXICO
Bills labor + overhead + 3% mark‐up
Supplies raw material and provides M&E
id M&E
79
Exports final product
Ships final product to customer with a pro forma invoice
Virtual export
Virtual import
Virtual import
Pays maquila service
Pays labor + 3% mark‐up
3% mark
up
U.S. Customer
Company de Mexico
Services Company
Customer Mexico
Supplies labor to operation
Supplies labor to operation
IMMEX Program: VAT Overview
•
The traditional format for an IMMEX operation includes:
― Foreign company
― Owns inventory (raw materials and finished goods)
― Provides machinery and equipment on a free bailment lease
― Intangibles and essentially all other substantial assets
― Pays no VAT for material purchases, IMMEX services
― No VAT on temporary importation of equipment
― IMMEX operation
― Provides manufacturing services to the foreign company
― Bills the U.S. parent company for its services, with 0% value
added tax
― Temporarily imports raw materials and M&E
― D
Does nott own th
the raw materials,
t i l work
k iin process or finished
fi i h d
goods
80
IMMEX Program: VAT Overview (Cont.)
• An IMMEX, in general, is a bonded warehouse. As such, you must
strictly account for the goods on temporary importation. Full control
and accounting of the goods on temporary importation is required.
• In general, a maquiladora exports (either directly or virtually) the
majority of its goods to either another maquiladora or a company with
an export program.
• Additional complexities
p
occur for direct sales into the Mexican
market.
• Must complete a cost/benefit analysis to determine the optimal
structure
81
IMMEX Program: VAT Overview (Cont.)
• For IMMEX operations, three common types of transactions are
0%-rated, from a VAT perspective:
― Temporary importation of raw materials and subassemblies
― Temporary importation
i
i off tooling,
li
equipment
i
and
d
related items
goods from Mexican suppliers
pp
for use in the
― Purchases of g
manufacturing process
― Invoices from IMMEX operation to U.S. parent company
82
IMMEX Program: Limitations On VAT Benefits
• Limitations on beneficial VAT treatment
― Goods or inventory may only remain in Mexico for a
maximum of 18 months, duty and VAT-free.
― For sales of product for final use in Mexico, the customs
status off the
h good
d must b
be changed,
h
d and
d any d
duties
i and
d
VAT are due on the fair market value of the goods in
question.
― Equipment may remain in Mexico VAT-free for the life of
the IMMEX operation.
83
Scott Sneckenberger, Plante Moran
IVA AND IMPORTATIONS BY NON‐MEXICAN COMPANIES
Value‐Added Tax Issues For Non‐
Mexican Companies
• Foreign companies may be subject to VAT on certain activities,
including:
― Importation of products in to Mexico – importance of
the importer of record
― Purchases of certain services
• Treaty protection
i is
i not available,
il bl as the
h VAT
A iis not an iincome
tax.
g companies
p
should not be an importer
p
of record.
• Foreign
― Importer of record should be a Mexican subsidiary or
Mexican customer.
― No IVA credit if importer of record is foreign company
85
Value‐Added Tax Issues For Non‐
Mexican Companies (Cont.)
• For services paid for by a foreign company, consider whether
they could be deemed an export. If so, the 0% rate applies.
― Are the services paid for by a company that does not
have a permanent establishment in Mexico?
― Are the services paid for from a bank account located
outside Mexico?
― If so, the 0% VAT rate applies.
pp y include:
― Services to which the 0% rate mayy apply
― Advertising
― Technical assistance – wide range of applications
― Other services?
86
Luis Carbajo Martinez, Baker & McKenzie
Luis Carbajo‐Martinez, Baker & McKenzie
Juan Carlos Valles Zavala, Baker & McKenzie
IMPACT OF ELECTIONS ON IVA POLICY
Impact Of 2012 elections On VAT Policy
 Increase of VAT rate?
– Tax reform to sustain universal health coverage and other priorities
– Decision to be taken in Congress
– A VAT rate increase is not
not, per se
se, a campaign promise
promise.
– New structure of the Mexican Congress:
 As the PRI does not have control over the Mexican Congress
Congress, it will be
necessary to negotiate with other political parties.
88
IImpactt Of 2012 El
Elections
ti
On VAT Policy (Cont.)
 What are the proposals from the PRI?
– Traditional PRI position: Food and medicines shall be VAT-exempt.
– Beltrones:
B lt
General
G
l VAT rate
t off 16% on allll ttransactions,
ti
iincluding
l di
food and medicines
– 3% refund available to certain consumers
– Luis Videgaray: Need to increase tax collections and eliminate
special regimes and privileges that erode the potential for tax
collection
 What is the general position of the PAN?
– VAT on all transactions, including food and medicines
– Need to eliminate special regimes
 PRD: Not clear
89
Luis Carbajo Martinez, Baker & McKenzie
Luis Carbajo‐Martinez, Baker & McKenzie
Juan Carlos Valles Zavala, Baker & McKenzie
HOT IVA TOPICS, FROM A ,
LEGAL PERSPECTIVE
Relevant VAT Court Cases
 VAT-exempt: The purchase and sales transaction of goods subject
to the customs regime of fiscal deposit (in a duty free warehouse)
place within the Mexican territory.
y
are not deemed to take p
 The VAT paid upon the change of customs regime by a maquiladora,
of goods not belonging to the maquiladora, cannot be credited or
offset (erroneous interpretation)
interpretation).
 Jurisprudence confirming that the application of o% VAT rate on
sales of ice and water in containers of less than 1 liter capacity
p
y
 Sale of goods in Mexico between non-residents, with no material
delivery or shipment, is subject to VAT regardless of VAT rules.
91
VAT Considerations
C
id
ti
On
O
Customs Transactions
 Sale of goods subject to IMMEX import is VAT-exempt.
 Sale of g
goods that are exported is subject
j
to 0% VAT.
 Manufacturing services provided by IMMEX company (maquila) to nonresidents are subject to 0% VAT.
 Virtual customs transactions prescribe a deemed export-import of goods
within Mexican territory.
 Temporary imported goods may only remain in Mexico for a limited period of
time.
 Customs regime change from temporary to definitive import is subject to
16% VAT
VAT.
92
Sale
S
l By
B M
Mexican
i
Party
P t To
T NonN
Resident, With Delivery In Mexico
Non-resident
Outside MX
MX
1
Sale of goods
16% VAT
2
MX Co 2
MX Co 1
Delivery of goods
1. Sale from MX Co 1 to non-resident
1
non resident is subject to a 16% VAT.
VAT
2. Delivery of goods within Mexican territory
93
Sale
S
l Between
B t
N
Non-Residents
R id t Of Goods
G d
Situated And Delivered In Mexico
1
Non-resident 1
Non-resident 2
VAT-able transaction;
shipment while goods
are in Mexico
Outside MX
MX
2
MX Co 2
MX Co 1
Delivery of goods
1. Sale of goods between non-residents is subject to VAT, as long as:
- There is shipment from MX Co1 to MX Co2
- There is material delivery of goods in Mexico
2 Seller needs to comply with formal obligations
2.
3. VAT not creditable to buyer
94
Sale Between Non-Residents Of Goods
Situated In Mexico, With No Delivery
1
Non-resident 1
Non-resident 2
Sale of goods
NO VAT
Outside MX
MX
2
MX Co
Goods remain in third
party possession
1. No shipment and no material delivery; virtual delivery
2 Court
2.
C t precedent
d t on the
th contrary
t
3. Risky position
95
Sale By Mexican Company To Foreign Company,
With Delivery To Third Foreign Company
Non-resident 1
Outside MX
MX
Non-resident 2
1
Sale of goods
0% VAT
MX Co
2
Exportation of goods
No VAT
1. Sale from MX Co to Non-resident 1 is subject to a 0% VAT (due to subsequent exportation).
2. MX Co shall act as the Mexican exporter of record – not a VAT-able transaction.
Note: MX Co owns the goods; goods are of Mexican origin or imported under definitive basis.
96
Change Of Customs Regime
Non-resident
Outside MX
MX
1
Temporary importation
of goods
NO VAT
MX Co
2
Change of customs regime from
temporary importation to definitive
importation
16% VAT
1. Temporary importation is VAT-exempt.
2. Goods may only remain under temporary importation for a limited period of time.
3. Change
g of customs regime
g
to definitive importation
p
is subject
j to 16% VAT.
4. There are other tax implications associated with this transaction (i.e., not having a “maquila
operation” or non-creditable issues if MX Co is not the owner of the goods).
97
Sale By Non
Non-Resident
Resident To A Third Party (Not A
Maquila), With Delivery In Mexico By Maquila
Non-resident
2
Outside MX
MX
Sale of goods
16% VAT
WTH by
b MX Co
C
1
Temporary importation
NO VAT
3
MX Co
Maquila
Physical delivery
with customs transfer
(virtual export - importation)
16% VAT on permanent
importation
1. Temporary importation by Maquila is VAT-exempt.
2. Sale from non-resident to MX Co is subject to regular VAT taxation.
3. MX Co carries out a deemed permanent importation of goods from abroad, subject to 16% VAT rate.
NOTE: Goods are deemed returned/exported by maquila (qualifies for a “maquila operation”),
4. Double-VAT issue
5. Service by maquila subject to the 0% VAT rate as export.
98
Sale By Maquila To Non-Resident, With
Delivery In Mexico To Third-Party Maquila
Non-resident
1
Outside MX
MX
Sale of goods
NO VAT
Temporary importation
NO VAT
2
Maquila 1
0% VAT
Physical delivery
with customs transfer
(virtual export importation)
Maquila 2
1. Sale from non-resident to maquila 1 is VAT-exempt (due to temporary importation customs regime).
2. 0% VAT on delivery of goods between maquilas with IMMEX program
3. Goods may only remain under temporary importation for a limited period of time.
99
Sale
S
l By
B Non-Resident
N
R id t 1 To
T Non-Resident
N
R id t 2,
2
With Delivery In Mexico To Third-Party Maquila
2
Non-resident 1
Non-resident 2
Sale of goods
NO VAT
Outside MX
MX
1
Temporary importation
NO VAT
3
Maquila 1
0% VAT
Physical delivery
with customs transfer
(virtual export importation)
Maquila 2
1. Sale between non-residents is VAT-exempt (due to temporary importation customs regime).
2 0% VAT on delivery of goods between maquilas with IMMEX program
2.
3. Goods may only remain under temporary importation for a limited period of time.
4. Maquila 1 may qualify for a “maquila operation,” for other tax purposes.
100
Export Of Services
 Technical assistance, technical services, royalties
 Mediation (mediación) - Commission
 Maquila services/sub-maquila
 Advertisement
 Call centers
 Hotel/convention
H t l/
ti services
i
 Independent personnel services
101
Gabriel Andrade, KPMG
HANDLING IVA REFUNDS
TaxRefundProcessInMexico:MainAspects
‐
‐
‐
‐
Tax authorities are obliged to refund amounts paid in error and in
excess according to the tax laws. There are two options to request a
refund:
‐ Conventional
‐ CPA certification (submitting statutory tax report)
El t i process since
Electronic
i
2012 – Tax
T authority
th it Web
W b page
The tax authority should pay the amounts to be refunded,
considering updated figures, with interest.
Potential issues:
‐ Many requests for information by the authority
‐ Requirements without concrete legal basis
‐ Delayed response to the procedure by the authority
‐ Refunds for a lower amount; would require further clarification
by the authority
p
‐ Refund term is sometimes not respected
103
TaxRefundProcessInMexico:TimeFrame
‐
The maximum period to obtain a refund is:
‐ 40 days, or
‐ 25 days in the case of companies submitting statutory tax
reports , or
‐ 20 days if the taxpayer omits digital invoices and/or operates
under
d the
th IMMEX program, or
‐ 5 days for “empresa certificada.”
‐
In case of errors in the request,
request the authority may require additional
information within 20 days following the filing, and the company
normally has 20 days to respond. A new request may take place only
within 10 days after the reply from the last requirement, and the
company will have 10 days to answer it.
104