On December 9th, 2019, it was published in the Official Gazette a Decree whereby: (i) the Income Tax Law (ITL), (ii) the Value Added Tax Law (VATL), and the (iii) Federal Tax Code (FTC) were modified. These amendments came into effect on January 1st, 2020.
The most relevant modifications are the following:
Income Tax Law
a. Permanent Establishment (articles 2 to 3 of the ITL):
- The Permanent Establishment (PE) concept was broadened,
considering that a PE will be constituted even if that individual
does not have a business place in Mexico, when a non-resident does
commercial acts in the Mexican territory through a person other
than an independent agent, when he normally concludes or leads to
the conclusion of agreements by the non-resident and carry out the
- They are held in the name or on behalf of the non-resident;
- They sale the property rights or the granting for temporary use or benefits of assets; or
- They bind the non-resident to provide a service.
- It will be presumed that an individual or a company are not an independent agent when they are acting exclusively or almost exclusively on behalf of a foreign related party.
- The exempt activities set forth in Article 3 of the ITL shall not be considered to constitute PE only when the activities or the overall activity is to carry out preparatory or auxiliary activities regarding the business activity of the non-resident.
- The development of propaganda activities for the provision of information, scientific research, preparation for loan placement, as long as they are preparatory or auxiliary, are added to the list of activities exempt from constituting a PE.
- Likewise, it is contemplated that the non-resident who
establishes a business location within the Mexican jurisdiction for
the preparation or assistance for the celebration of business
activities will not be considered a PE, which will not be
applicable when the non-resident performs in one or more places of
business in the national territory functions that:
- Are complementary as part of a cohesive business operation.
- Are part of a cohesive business operation, but whose combination of activities results in not being preparatory or auxiliary.
b. Payments and income. Fiscally transparent entities and private equity funds (Article 4-A to 4-B of the ITL):
It is contemplated that the fiscally transparent entities and private equity funds, regardless of whether all or part of its members, partners, shareholders or beneficiaries accumulate their income in their country or jurisdiction of residence, will be considered as entities, and must pay the corresponding Income Tax (IT). In the same way, it is established that when the fiscally transparent entities and private equity funds have their main administration or their effective management headquarters in Mexico, shall be considered as Mexican resident for tax purposes. entities.
When a Mexican or a non-resident with a PE in Mexico gets income through a foreign transparent vehicle or private equity funds, he will not be taxed under the preferential tax regimes provision, and must accumulate his corresponding income according to his participation established in that entity, for which they are bounded to pay the Income Tax for the income obtained through the fiscally transparent entities in the corresponding proportion.
They are also required to pay the IT for the income obtain through foreign companies regardless their tax treatment abroad. If these companies are taxpayers in the country or jurisdiction where they were incorporated, the amount of the income will be the fiscal utility calculated in terms of the Title II of the ITL.
c. Non-deductible expenses (Article 28 of the ITL):
The following assumptions are added as exceptions to the IT deduction:
- Payments made to related parties or through a structured agreement, when the income of its counterparty is subject to a preferential tax regime.
- Payments made by the taxpayer that are deductible for a member of the same group, or for the same taxpayer in a country or jurisdiction where he is considered a tax resident.
- Net interest income of the fiscal year that exceeds the amount resulting from multiplying the adjusted fiscal profit by 30%.
d. Use of digital platforms (Article 113-A to 113-C of the ITL):
A new section is added to the ITL which establishes the obligation for taxpayers who sell goods or provide services through digital platforms to the withholding and payment of the IT for the income generated through such platforms. The rate that will be applied to these platforms are the following:
I. Passenger land transportation services and delivery of goods (Uber, Cabify, DiDi).
Up to $5,500
Up to $15,000
Up to $21,000
More than $21,000
II. Lodging services (Airbnb).
Up to $5,500
Up to $15,000
Up to $35,000
More than $35,000
III. Sale of goods and rendering of services (Uber Eats, Rappi).
Up to $1,500
Up to $5,000
Up to $10,000
Up to $25,000
Up to $100,000
More than $100,000
** It is important to mention that this subsection will be effective as of June 1st, 2020.
e. Lease Digital Invoice (Article 118 of the ITL):
The lease creditor in a trial must prove the issuance of the invoice for the corresponding overdue lease.
f. Foreign companies subject to preferential tax regimes (Article 176 to 178 of the ITL):
Residents in Mexico and/or abroad with a PE will be legally bound to pay the tax for the incomes subject to a preferential tax regime generated through a foreign company in which they participate.
Income will be considered to be subject of a preferential tax regime when the IT caused and paid is 75% lower than the tax generated in Mexico.
g. Companies with a maquila program (article 183 to 183-Bis of the ITL):
As of this reform, non-residents who provide raw materials, machinery or equipment to companies with a maquiladora shelter program will not be considered as a PE in Mexico, as long as the residents described herein are not related parties of such entity.
The foregoing shall be applicable whenever the non-residents who carry out maquila operations through companies with a maquiladora shelter program comply, in addition to the obligations established in the tax and customs provisions, with the following:
- Request their enrollment without tax obligations before the Federal Taxpayer Registry.
- Present provisional and annual payment declarations.
- Present annually before the tax authorities, at the latest in the month of June of the following year, an informative declaration of their maquila operations according to the general rules issued by the Tax Administration Service.
- Submit a notice before the Tax Administration Service when they stop carrying out the activities.
Value Added Tax Law
a. Recoverable balances of VAT (Article 6 of the VATL):
When in the payment declaration results a recoverable balance of VAT, as of January 1st, 2020, the taxpayer may deduce it against the corresponding tax in the following months until it is exhausted or request its refund exclusively for the total balance in favor.
b. Provision of digital services by non-residents (Article 18-B to 18-I of the VATL):
- It will be considered as digital services those that are
provided through digital platforms and that establish a
consideration. These services are the following:
- The downloading or access of images, movies, text, information, video, audio, music, games, as well as other content.
- The intermediation between third parties that offer the sale of goods or services.
- Dating pages.
- Online teaching.
- Non-residents without an establishment in Mexico that rendered
digital services to recipients located in national territory must
comply with the following obligations:
- Register in the Federal Taxpayers Registry.
- Calculate, include and collect the VAT in an expressly and separately way.
- Provide to the Tax Administration Service the number of services or operations done each month.
- Submit the electronic declaration no later than the 17th of the corresponding month.
- Issue and send digitally the invoice with the tax transferred expressly and separately.
- Appoint a legal representative and tax domicile in Mexico before the Tax Administration Service.
- Obtain and electronic signature.
** This provision will be enforceable no later than June 30th, 2020.
Federal Tax Code
a. Tax mailbox (article 17-K of the FTC):
All taxpayers must enable their tax mailbox and provide and keep updated the means of contact.
b. Joint liability with taxpayers (Article 26 of the FTC):
The FTC reform adds as joint liability for the fulfillment of the obligations of taxpayers to:
- Liquidators and trustees for contributions paid by the company in liquidation or bankruptcy.
- The partners or shareholders.
- The associates
c. Obligations arising from theFederal Taxpayers Registry (Article 27 of the FTC):
The following obligations related to the Federal Taxpayers Registry (FTR) are added:
- Appoint the tax domicile.
- Obtain the electronic signature.
- Write down in the partners and shareholders book, as well as in the assembly meetings, the FTR number of each partner and shareholder.
- Submit a notice before the FTR stating the name and FTR number of the partners or shareholders, each time there is any modification or incorporation into a company.
- Set the corresponding FTR number of each partner and shareholder or legal representatives in the incorporation meetings or other meetings recorded in the public deeds.
It is given to the authority the faculty to carry out inspection visits of the data registered before the FTR and tax receipts, without it being considered that they initiate their powers of verification. Also, as of January 1st, 2020, the tax authorities may use the georeferencing technological means, panoramic or satellite views, to verify the fiscal address provided before the Tax Administration Service.
d. Accounting preservation (Article 30 of the FTC):
The taxpayers must keep their Taxpayer identification card, registration application of the FTR or certified copy, and the opening notice available to the authorities at their tax address.
e. Presentation of information (Article 31-A of the FTC):
From the following year, taxpayers must submit the information for each of the following operations, within 60 days after the end of the first quarter:
- Transactions with related parties.
- Operations regarding with the participation in the capital stock of companies and changes in tax residence.
- Operations related to corporate restructuring and reorganization.
- Operations related to disposals and contributions, such as: tax losses; capital refunds and dividend payments.
f. Electronic signature in notifications (Article 38 of the FTC):
Now, the officials and the Ministry of Treasure and Public Credit and the tax authorities could use their electronic signature in any document issued in the exercise of their powers, having the same value as if it were the autograph signature.
g. Inspection visits (Article 42 of the FTC):
The authority may carry out inspection visits to the tax advisors in order to verify that they have complied with the tax obligations.
h. Third fiscal collaborator (Article 69-B Ter of the FTC):
The figure of the third fiscal collaborator is created, being the person who did not participate in the issuance, acquisition or disposal of tax receipts that support non-existent operations, but that has information to prove such situation and that he provides the information to the tax authority voluntarily.
i. Administrative offenses regarding with the FTR (Article 79 of the FTC):
- It does not establish or incorrectly record the FTR code of each partner or shareholder in the assembly meetings or partners or shareholders books.
- It does not response to procedures made by tax authority to prove the authenticity of the FTR.
j. Tax mailbox sanction (Article 86-C of the FTC):
It does not enable the tax mailbox, not registering or keeping your means of contact updated will be considered an administrative offense.
k. Infringements to third parties (Article 89 of the FTC):
Allow the publication of the acquisition or disposal of invoice or any tax receipts that cover non-existent or illegal transactions, it is added as an infraction committed by third parties.
l. Notification through the tax mailbox (Article 86-C of the FTC):
This reform empowers the authority to notify subpoenas, procedures, requests for reports or documents and administrative acts through the tax mailbox.
m. Disclosure of reportable schemes (Article 197 to 202 of the FTC):
The FTC will envisage, as of 2020, the disclosure regime of reportable schemes, establishing the obligation for tax advisors to disclose before the tax authorities the generalized and personalized reportable schemes regardless the taxpayer's residence, as long as he obtains a Fiscal benefit in Mexico.
This modification establishes that taxpayers must disclose reportable schemes only and exclusively when:
- The tax advisor does not provide the identification number of the reportable scheme.
- The reportable scheme has been designed, organized, implemented and managed by the taxpayer.
- The taxpayer obtains tax benefits in Mexico from a reportable scheme designed, implemented or administered by a person who is not a tax advisor.
- The tax advisor is a non-resident without a permanent establishment in national territory.
- There is a legal impediment for the tax advisor to reveal the reportable scheme.
- There is an agreement between the tax advisor and the taxpayer to be the latter the one to disclose the reportable scheme.
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Originally published 25 February 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.