The Value Added Tax (VAT) is an end consumption tax; In general terms, the taxpayers are affected to this tax at the moment of payment effectively of each operation. The general rate for operations performed inside Mexico is 16% but for exportation of merchandise or services the rate is 0%.
The individuals & legal entities generate VAT when one of the following activities happens within Mexican Territory:
• Transfer of goods
• Rendering of independent services.
• Temporary use or enjoyment of goods
• Importation of goods or services
However, the taxpayers can credit the payment of the VAT for the same activities performed with its suppliers. On a monthly basis if the VAT that the tax payer collects from their clients is higher than the VAT paid to its suppliers there will be a payment for the authority just for the difference between both. On the other case, if the VAT paid to your suppliers is higher than the VAT collected from your clients, the tax payers will generate a VAT in favor that could be subject to:
a) Request in refund to the government
b) Credit it vs other VAT favor balances
c) Offset it vs other taxes
As an example of the aforementioned mechanic, the following is an illustrative example: A company that commercializes products in Mexico would have VAT effects as follows:
Sales (effectively collected)
Purchase and Expenses (effectively paid)
Monthly tax determination VAT Collected vs. VAT Creditable (Result VAT due or VAT in Favor)
As can be seen, this company made sales and effectively collected them for $10,000 which is generating a VAT payable for $1,600; additionally, this company generated a total VAT creditable in the month for $960 which was originated by the sum of the whole VAT paid by the company for: a) products to produce the goods that were sold for $5,000 that generated a VAT creditable of $800 and b) general expenses for $1,000 which generated as well a VAT creditable for $160.
The difference between the generated VAT for $1,600 and the creditable VAT for $960 results in a VAT in charge for $640, which will be paid for the tax authority no later than day 17th of the following month.
It’s worth to mention that the VAT doesn’t affect the profit or loss of the company, because it will be reflected as a balance sheet account.
Due date to determine & file VAT
The VAT filing (and payment in case an amount is due) must be made on day 17th of the following month at the latest.
If you require additional information, we would appreciate you contact us and we will be glad to help.