Mexico: Changes for Digital Services Suppliers

Part 1: Main Aspects of the 2^nd Modification of the Miscellaneous Fiscal Resolution for 2020

The Mexican Tax Administration (SAT) released the second modification of the Miscellaneous Fiscal Resolution for 2020 (RMF2020). This is the first of two blogs, where we address some of the main changes in compliance obligations for suppliers of digital services not established in Mexico, and local suppliers of services using those platforms for sales.  As a reminder, a new regime became effective on 1 June 2020, imposing an obligation to withhold, collect, report and pay income tax and VAT on foreign suppliers of digital products when consumers of those goods and services are located in Mexico. This modification of the RMF2020 introduced the following changes and clarifications to ease compliance with those obligations:

• Tax returns used by suppliers of digital services and local suppliers of that ecosystem: To clarify these obligations, this modification of the RMF2020 has introduced new returns and/or changed the names of the existing ones, to ensure foreign suppliers and local taxpayers use the correct return depending on the applicable regime. (See table below)

• Place for payments: New provisions have been added to establish that foreign suppliers may opt to pay the VAT applicable to their activities using the local currency (Mexican pesos) or using American dollars. Those payments can be made via the foreign accounts of the Mexican Treasury (TESOFE) or via domestic entities authorized by the TESOFE, when the foreign supplier opts for that choice during his registration process at the SAT.

• Are VAT and Income Tax withheld to local suppliers definitive or not? The choice is in the hands of the local supplier. For those under the threshold established by law, a rule was added for individuals to formally notify the SAT of their choice for the income tax withholdings and the 8% VAT made by digital platforms.

• Cancellation of transactions, credits and refunds of income tax and VAT: New rules were added to the RMF2020 to allow individuals subject to the regime of definitive withholdings and payments, to modify their periodic income tax returns when sales under that regime have been revoked or discounts given to clients. When local users of the digital platforms make direct or indirect sales to clients cancel transactions, they’re allowed to file a supplemental return, once they issue the corresponding CFDI of Egresos or proceed to cancel the CFDI following the procedure established by current regulations. A similar procedure should be followed for VAT.

Once these procedures are concluded, the local supplier can request a refund of the excess income tax and VAT paid for the cancelled or modified transactions, using the Electronic Form for Refunds (FED). Finally, it’s worth mentioning that if a local direct seller not subject to the regime of definitive withholding via digital platforms, is the one making a cancellation of a transaction or providing a credit, a new rule was added to allow them to modify their VAT returns. This is done by issuing corresponding credit notes when sales have been revoked or discounts are provided to clients. In those cases, they should follow the standard procedure established by the SAT for cancelling CFDIs.

New and Modified Tax Returns Required to Digital Platforms and Foreign Suppliers of Digital Services and Local Suppliers

In the second part of this blog, we’ll explain other important regulatory changes related to Mexico’s e-invoicing mandate and VAT compliance introduced by the Miscellaneous Fiscal Resolution.