Mexico Expands the Reduced VAT Rate to its Southern Border

Ramón Frias
January 22, 2021

On December 31, 2020, Mexico published a new decree by which it expands a number of fiscal benefits to 22 municipalities located in the southern states of Quintana Roo, Tabasco, Campeche and Chiapas. Among the main benefits extended to those locations is the reduction of the standard VAT rate to 8% to all sales and purchases of goods and services, where both the seller and the purchaser are located within the cities listed in the decree. The application of this new rate is not automatic but conditioned to compliance with several requisites by the businesses wishing to benefit from the rate reduction, including that:

  1. the business should request and obtain permission from the tax administration (SAT) in order to apply the reduced rate;

  2. the business should not be listed as bad taxpayer by the SAT;

  3. the taxpayer should have a banner in its location informing that he is applying the special rate approved by the law.

Also, there are some sales to which the reduced rate can never apply, such as sales of intangibles, digital goods and services, real property and transportation services outside the region. Businesses that do not comply with these requisites, and others mentioned by the Decree, should keep applying the standard 16% rate of the Mexican VAT. The decree can be found here

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Author

Ramón Frias

Ramon is a Tax Counsel on the Regulatory Analysis team at Sovos. He is licensed to practice law in the Dominican Republic and is a member of the Dominican Bar Association. He has a Certificate Degree from Harvard University as well as a J.D. from the Universidad Autonoma de Santo Domingo. Ramon has written a number of essays about tax administration and has won the first prize in the international essays contest sponsored by the Inter American Center of Tax Administrations (CIAT). Prior to joining Sovos, Ramon worked for more than 10 years in the Department of Revenue of the Dominican Republic where he served as Deputy Director. He is proficient in French and Spanish.
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