Is there really a new online gambling tax in Mexico?

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Andrea Avedillo, Head of Legal at gaming, legal and fintech firm Lazcano Sámano, talks about Mexican VAT law and some of the questions raised following an amendment made late last year that impacts foreign operators.

As of June 1 2020, an amendment to the Mexican VAT Law approved in December 2019 entered into force. This amendment creates a new section aimed to regulate digital services provided by foreign residents in Mexico. 

Among the digital services contemplated in the VAT Law, the “downloading or accessing of games, including games of chance, as well as other multimedia content and multiplayer environments” has raised a great deal of questions. 

A lot of people may think that the digital services provided in the form of games (“gaming digital services”) automatically supposes that Mexican online gambling operators will have to pay VAT from now on, or that foreign operators can legally offer their content in Mexico without a gambling license by just complying with the VAT Law. In my opinion, both affirmations are far from being accurate. 

For starters, current online gambling operators that are licensed in Mexico are not subject to the VAT Law because they conduct their businesses through Mexican entities, whilst the new regulation of the VAT Law is focused exclusively to foreign residents, ie companies or entities located outside of Mexico. 

Moreover, it is important to note that gambling is governed by a special Gambling Law (in Spanish Ley Federal de Juegos y Sorteos) and its regulations, and since those normative bodies have not been derogated, there is no reason to believe that gambling it is now governed by a different legislation such as the VAT Law. 

On the other hand, what constitutes gambling in Mexico, according to the aforesaid special gambling Mexican legislation, is the existence of a bet and not the level of chance in which the result of a game is determined. Therefore, it is fair to assume that, at least from Mexico’s legal perspective, games of chance are not necessarily gambling. 

Furthermore, another misunderstanding about the new dispositions of the VAT Law is that the person obliged to pay the VAT – at a tax rate of 16% – is the provider of the gaming digital services, when actually this tax must be charged to the consumer of such services, because it is not an income or a gaming tax, but a tax over consumption. 

Contrary to the belief that the VAT Law provisions impose additional taxes or charges to online gambling, it opens the possibility for foreign operators to expand their gaming offer in the Mexican market with a different approach, on the assumption that the provision of digital gaming services is carried out within the framework of compliance with the VAT Law.

In conclusion, we are now facing three different scenarios. The first one is current online gambling licensed Mexican operators that do not have to pay or charge VAT, because they are not subject to a new gambling tax. The second one is foreign operators that are seeking to enter the Mexican market with online gambling products, which shall explore the different licensing options available under the Mexican Gambling Law and its Regulations. 

Last but not least is the scenario for foreign operators that, as of June 1, 2020, can legally offer all kinds of gaming products whose profitability model is based on pay-to-play schemes, without the presence of a bet (eg entry fees to contests, tournaments and competitions; sales of in-game products, digital advertising, etc), such as esports, poker tournaments, Daily Fantasy Sports, video games, real and virtual sports based games, games of chance, social games, etcetera. 

The differences might be discreet, but it is important to understand them because each has its own legal and regulatory implications.

Source: sbcamericas.com

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