Mexico: New criteria to withhold VAT to foreign residents

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Mexico: New criteria to withhold VAT to foreign residents

cuellar.jpg

nava.jpg

David Cuellar


Marco Nava

On May 31 2013 the Mexican tax authorities issued non-binding criteria on the application of the value added tax (VAT) law regarding VAT withholding to foreign residents, when certain transactions are carried out with Mexican taxpayers. According to the Mexican VAT Law, Mexican taxpayers are obliged to withhold and remit 16% VAT on the acquisition or leasing of tangible goods that are sold or granted by a foreign resident without a permanent establishment (PE) in Mexico. With this mechanism, Mexican taxpayers withhold the corresponding VAT and, if certain conditions are met, they can credit such VAT.

Additionally, the Mexican VAT law establishes that a foreign resident would be deemed as resident in Mexican territory for VAT purposes when it has one or more establishments (which may be intrepreted as not necessarily permanent, but just an establishment) for all the activities carried out therein. Consequently, there was an interpretation which suggested that some foreigners may be tax residents in Mexico for VAT purposes but not for income tax purposes and therefore the 16% withholding VAT resulted not applicable, without taking into consideration whether they have a PE in Mexico, or not.

In this regard, the Mexican tax authorities issued new criteria establishing that when a foreign resident without a PE in Mexico carries out activities regarding the acquisition or leasing of tangible goods in Mexico, the PE definition in the income tax law or in the tax treaties concluded by Mexico should be applicable; and it should be deemed as a non-binding criteria when a foreign resident with no PE in Mexico carries out these types of activities and the Mexican taxpayer does not withhold VAT, considering that the foreign resident is resident in Mexico for VAT purposes.

If an annual statutory tax report needs to be filed to the Mexican tax authorities by the auditor of a Mexican taxpayer, the auditor should disclose whether non-binding criteria were applied by the taxpayer, so these transactions should be reviewed in detail during the audit process.

It is recommended that foreign residents carefully structure their operations when leasing or selling tangible goods to Mexican residents on a case-by-case basis, and determine the corresponding tax consequences that may arise in Mexico both for income tax and VAT purposes.

David Cuellar (david.cuellar@mx.pwc.com) and Marco Nava (marco.a.nava@us.pwc.com)

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

more across site & shared bottom lb ros

More from across our site

The ruling is ‘well-structured’ in its references to the OECD TP guidelines, one expert says, while another argues it overlooks key technical issues
India also brokered its first-ever multilateral APA last year, the Central Board of Taxes announced
A global tax framework may not materialise anytime soon, but a common set of principles is becoming increasingly necessary, Rudolf Winkenius also tells ITR
Kingsley Napley’s claimants are arguing that taxing the provision of education breaches the European Convention on Human Rights
While pillar two can progress without the US, it won’t reach the same heights without American involvement, argues Renáta Bláhová, founding partner of BMB Partners Taxand
There are unanswered questions as to how foreign investors could reclaim money via tax credits, advisers suggested
Amid an ever-changing tax environment, India’s advisory market is bustling with competition ahead of the 2025 World Tax rankings and ITR Awards
The deal comes after PwC had accused Paul McNab of using confidential information; in other news, McDermott hired a new London tax head from a US rival
Looking at transfer pricing simplification is “obviously helpful”, but it should be done in line with current standards, a senior government figure reportedly said
The UK Government’s plans to close the tax gap via increased HM Revenue and Customs investment have failed to impress local tax advisers
Gift this article