On December 9, 2019 the Tax Reform for 2020 was published in the Federal Official Gazette (DOF per its acronym in Spanish). The modifications included changes to the Value Added Tax Law (VATL), which are effective as of January 1st, 2020, unless otherwise provided, as it is the case of those related to digital platforms, which would be in force beginning July 1st, 2020.
In specific, a new Chapter III BIS “Digital Services Rendered by Foreign Residents without Permanent Establishment” is included, which establishes a the list of requirements for non-Mexican digital service providers to be registered, collect and remit the Value Added Tax (VAT) on income derived from digital platforms, websites and similar electronic distribution methods.
On December 28, 2019 the Administrative Rules applicable during 2020 was published (RMF 2020 per its acronym in Spanish), including procedural rules for the compliance of obligations provided for by Chapter III BIS of the VAT Law.
Scope the provision
Under the destination principle for customers, digital services would be deemed to be rendered in Mexico by non-Mexican digital service providers, whenever any of the following scenarios takes place:
• Customer is domiciled in Mexico;
• Intermediary located in Mexico;
• IP address located in Mexico; or
• Mexican phone number.
Chapter III BIS of the VATL would be applicable to the rendering of services through applications or digital content over the Internet or other network, mainly automated, may require minimal human intervention, in exchange for a consideration, for example:
a) Pictures, movies, text, information, video, audio, music, games, including gambling, as well as other multimedia content, multiplayer environments, mobile ringtones, online news viewing, traffic information, weather forecasts and statistics (except books, newspapers and electronic magazines).
b) Intermediation with third parties offering goods or services and the users thereof (except used movable goods).
c) Online clubs and dating pages.
d) Distance learning or test or exercise.
Tax obligations for non-Mexican digital service providers without PE
Foreign companies servicing Mexican customers through the online sales of goods and services are obliged to: obtain a Mexican Tax ID (R.F.C. per its acronym in Spanish), appoint a legal representative in México, have a Mexican tax domicile and obtain an electronic signature (e.Firma per its acronym in Spanish).
The rules to comply with the abovementioned obligations are provided by Chapter 2.1. “From the non-Mexican digital service providers” and Appendix 1-A of the RMF 2020, which contain the specific requirements applicable to each scenario.
Regarding the registry before the Mexican Tax Authorities, the data sheet 1/PLT “Non-Mexican digital service providers registration before the Mexican Taxpayers Registry” clarifies that there are two moments to file the application:
• Within the following 30 calendar days in which the services were rendered for the first time; or
• These bring us to the next obligation: to appoint a legal representative in Mexico, without whom, the registration would not be granted, given that the legal representative would be responsible for supervising the fulfilment of tax obligations and receiving any kind of notification from the MTA. Hence, should have R.F.C. and e.Firma.
Likewise, it is also mandatory to have a Mexican tax domicile. For which purposes, the MTA require any of the documents listed on the definitions section of the Appendix 1-A of the RMF 2020.
The rule 12.1.3. “Notice to appoint a legal representative and provide a tax domicile in Mexican territory” provides for a procedure for Non-Mexican digital service providers that have applied for its R.F.C. before June 1st, 2020. In this regard, the obligation to appoint a legal representative in Mexico would be deemed to have been satisfied always that a clarification notice is filed through the MTA website.
For issuing electronic invoices (CFDI per its acronym in Spanish) in response to an explicit request from Mexican customers, it would be mandatory to comply with the data sheet 2/PLT “Non-Mexican digital service providers e.firma certificate application” included in the Appendix 1-A of the RMF 2020.
The procedure is conducted personally at the tax authorities’ offices (by prior appointment only) and as part of the process, the MTA would ask a series of questions related to the tax situation of the applicant, having express power to require additional information to the Non-Mexican digital service provider and its legal representative, if necessary. They would be able to provide the information they consider necessary to overturn the MTA conclusions within the following 6 working days after the application was filed.
A list of all registered Non-Mexican digital service providers containing the following information would be published on the website of the MTA:
• Company name.
• Trading name.
• City and country of origin.
• Registry date before the R.F.C.
• Lack of registration shifts the burden to the Mexican recipient of the service, who would be obliged to remit the VAT to the MAT within the following 15 day in which the payment to the non-Mexican digital service provider took place.
• Non-compliance does not create Mexican PE for tax purposes.
• Finally, the omission on withholding and payment of taxes to the MTA is deemed a criminal offense according to Article 108 of the Federal Tax Code (FTC).
Clearly, the fulfilment of the obligations described above deserves care and attention. The documentation provided to the MTA in each application should be consistent and precise. However, it is important to watch the scope of the information placed in hands of the MTA to avoid unnecessary questioning and delays.
For any cases necessary, JA Del Río, offers its services to comply with the lengthy list of requirements established by the RMF 2020.