As from 1 June 2020, the Mexican Government requires that all the digital platforms in Mexico, such as Amazon, Mercado Libre, Airbnb, etc, withhold a percentage of their users’ sales as a tax payment.
Digital platforms are requesting all their users provide them their RFC, that is their Mexican taxpayer registry number. For now, only individuals are liable for this retention. Corporations will keep reporting their taxes as before.
It is important to clarify that when receiving income in Mexico for a commercial activity such asrent from a property or the sale of an item, you are obliged to pay taxes for such income. The two main taxes are IVA or VAT (Value Added Tax) and ISR (Income Tax). To be able to pay these taxes, it is necessary to have an RFC number.
You are required to pay these taxes as long as one or more of the following is true:
- The business operation happens inside Mexico.
- The payments are made through a digital platform located in Mexico.
- They are requested from within Mexico.
- A Mexican code phone number (+52) is used.
What are my obligations?
- To be registered with an RFC.
- To obtain your FIEL (advanced electronic signature)
- To provide your tax information to the digital platform.
According to the new reform, if any natural person does not provide his tax information, the digital platform will be required to retain 16% of IVA (Value Added Tax) and 25 % of ISR sales tax.
If you provide an RFC, according to the platforms sales earned income, they are required to withhold 8 % of VAT and ISR from 0.4% to 10% of the income.
If you do not have an RFC, Mextax can offer you a solution according to your profile:
- If you have a temporary or permanent residency in Mexico, we can help you get an RFC as an individual very quickly, and to provide your commercial activity accounting.
- If you wish to have a Mexican company, we can assist you, from creating the company to making the monthly and annual statements.
- If you would rather obtain a company ready to use for a limited amount of time, there is also a special solution for you.
DO I HAVE TO PAY MORE TO SELL ONLINE?
Do I have to pay more to sell online?
If you are an individual selling a product online using a digital platform in Mexico such as Amazon Mexico or Mercado Libre, then the changes to the tax laws that took effect on June 1, 2020 will impact you.
Am I subject to these tax reforms?
If you are a selling a product as an individual (persona fisica) and not as a company or corporation (persona moral) then yes, these tax reforms apply to you.
If you meet any of the characteristics below, then you are legally obligated to comply with the new tax reforms:
- The business operation occurs within Mexico.
- The payments are made by means of a technological platform located in Mexico.
- They purchase is made within Mexico.
- A phone number with Mexican code (+52) is used.
What are my obligations?
- To be registered within the RFC (Federal Taxpayer Registry).
- To process your FIEL (Advanced electronic Signature) or Electronic Signature.
- To provide your fiscal data to the digital platform.
According to this new reform, if any individual does not provide their fiscal data, the digital platform is obliged to retain 100% of IVA or VAT (Value Added Tax) and the corresponding ISR (income tax) in line with the Chart of Retentions of the article 113-a of the ISR Law.
What are the main changes?
The tax payment will not increase. In accordance with the article 113-A of the income tax law, depending on income earned from sales through the platforms, these are required to withhold a percentage of the taxes that the individual must pay. As income tax (ISR), the withhold can be from 0.4% to 5.4% of the income and 50% of VAT rate.
ISR Withholdings Chart
Another change made, is related to the Value Added Tax. According to the Law, all activities offered through Digital Platforms generate 16% VAT. These platforms are required to retain a total of 50% of the VAT generated by sales via the internet.
In addition, companies are required to generate withholding receipts, showing that they retained the withholding tax and must deliver it to the users of such platform.
Let us look at the above with an example:
Juan Pérez sells toys through Amazon. All of these are paid through the digital platform. In the month of June 2020, he sold a total of $25,000.00 MXN plus VAT. Let’s see the calculation:
The VAT rate to be applied is 16% which gives us a total of $29,000.00 MXN
In accordance with the law, the deductions are applied as follows:
The VAT withholding is 50% of the total generated. $4,000 MXN of VAT was generated during the month, so the withholding would be $2,000 MXN.
The retention of ISR is done according to the Chart: for having an income of 25,000 pesos, without exceeding the limit, a retention of 1.1% on the income is made. So, a withholding tax of 275 MXN is generated. VAT should not be considered as part of the income.
Therefore, the resulting total from applying the withholding tax on Juan Pérez’s sales is $26,725.00 MXN.
This is the total before applying the fees charged by Amazon for using their platform. It must be considered that this quantity varies according to the activity of each person.
You, as an individual who sells products through digital platforms, are not subject to the payment of any extra tax, the tax will simply be withheld from your income. This reform went into effect on June 1, 2020. Consider consulting with an accountant in Mexico for assistance with the new laws to ensure you are in compliance.
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