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Taxes on business activities on digital platforms

As part of the Mexican government's commitments as an OECD member, the 2020 Tax Reform includes changes both to Income Tax Law (ISR) and Value Added Tax Law (IVA) applicable both to trade activities done on digital platforms such as Amazon, eBay and Mercado Libre and to service activities on AirBnB, VRBO, etc. These changes go into effect on June 1st as the government has not announced any extensions after the deadline all platforms have to make the necessary changes to their systems in order to be able to comply with the reform.

Income Tax

Regarding Income Tax, the Tax Reform includes the creation of an entirely new system which makes it mandatory for digital platforms through which products are sold or services are provided to withhold some of the income that goes through them as income tax. These withholdings will be provisional payments, which means each taxpayer then has to file monthly and yearly returns where they will get a credit in the amount that was withheld. There is also an option to consider those withholding as definite payments, thus eliminating the obligation to file other returns, as long as the gross income received through digital platforms is not higher than MXN $300,000 per tax year; this is, from January 1st to December 31st.

Withholdings will be done as follows:

For passenger transportation and delivery services (Uber, UberEats, Rappi, etc)

Gross monthly income Withholding rate

Up to $5,500 2%

Up to $15,000 3%

Up to $21,000 4%

Over $21,000 8%

*All figures are in MXN

For short-term rental services (AirBnB, VRBO, Home Away, etc)

Gross monthly income Withholding rate

Up to $5,500 2%

Up to $15,000 3%

Up to $35,000 5%

Over $35,000 10%

*All figures are in MXN

Regarding goods sales and providing services (Amazon, eBay, Mercado Libre, etc)

Gross monthly income Withholding rate

Up to $1,500 0.4%

Up to $5,000 0.5%

Up to $10,000 0.9%

Up to $25,000 1.1%

Up to $100,000 2%

Over $100,000 5.4%

*All figures are in MXN

Value Added Tax (IVA)

In terms of IVA, the Tax Reform also includes withholdings by digital platform companies for activities done through them; they will have to withhold 50% of the IVA generated in each transaction. On the other hand, the taxpayer who does business through an digital platofrm, will have to file an IVA monthly return and will get a credit for the withholding done.

As is the case with income tax, there is an option to consider the withholdings as definite payments as long as the yearly gross income received through digital platforms is not higher than MXN$300,000; this also means the taxpayer will not get a credit for IVA paid for business expenses.

Other obligations

Digital platforms will have to issue a withholdings CFDI (Comprobante Fiscal Digital por Internet, this is the official name for electronic receipts, including invoices--facturas--, payroll slips, etc) to each taxpayer they withhold any tax from. Taxpayers doing business through digital platforms will continue to have the obligation to issue CFDIs to their clients for the income they receive (before withholdings) using either their clients' RFC numbers or the generic one for transactions with the general public.

Local taxes

This is a federal tax reform, so local taxes, such as the Hospitality Tax, remain the same.

What is going to happen to RIF taxpayers?

Those who have been paying tax under the RIF system (Régimen de Incorporación Fiscal), thus enjoying the benefit of the discounts that apply under that system as well as the benefit of only having to keep "simplified books" will now only be allowed to pay taxes under that system for any applicable activities other than the ones they do through online platforms. For example: if you have a rental and you also have another business that does not go through a digital platform, you can continue to claim that other business' income under RIF while the rental will have to be claimed under the new system. On the other hand, if you rent your property directly to your guests or using a rental agency only, you could remain filing under RIF. If you use a combination of sources for your rentals, you could file your non-digital-platform-generated rentals under RIF, thus being able to keep the discounts on part of your income.

If your only business activity in Mexico is done through a digital platform, you will no longer be able to file under RIF and will have to file under the new system for e-business.

Contact us if you need more information on the Tax Reform

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