Foreign Digital Providers Must Issue Digital Receipts in Mexico Starting January 2020
As of January, foreign firms without an office in Mexico and which provide electronic services in the country must start to issue their Mexican customers with digital receipts, file a quarterly activity statement with the SAT Tax Administration Service, and settle monthly VAT payments.
These are the determinations of Decree DOF: 09/12/2019 approved by the government and concerning, in Chapter III (a), “digital service provision by residents from abroad with no establishment in Mexico”.
The measure sees the Mexican government step up to oversee the economic activity generated by foreign digital service providers without a physical presence in the country, following in the steps of other places such as Colombia and Argentina.
To meet the new regulations, web businesses must sign up to SAT’s Federal Taxpayers Register and have an advanced electronic signature.
If companies fail to send the tax information on their customers, it will be the customers themselves who must pay SAT an import tax.
Mexico rolls out new digital-economy tax formulas
In the traditional economy, businesses pay taxes in the countries where they have their tax base, i.e., where their operational physical location is registered. This economic policy is explained by the international expansion methods of businesses based on opening offices on a country-to-country basis. But the Internet age makes it possible to exchange services anywhere with no need for a physical presence. This means firms focus their invoicing on countries where they have their business name, even if they operate globally.
It poses a major challenge for governments when it comes to auditing the turnover generated by digital firms in their countries. This new paradigm in economic policy is sparking extensive debates and numerous initiatives have been implemented to take it on.
Internationally, the OECD is working to create a common regulatory framework which will see taxation based not on tax domicile but where the customers are. The goal is to reduce tax evasion and bring the tax burden into line with the profit made in each country.
Latin American nations are getting behind policies that equate the tax responsibilities of national firms with foreign ones by making VAT payment compulsory for all digital products provided in their territories. Europe, meanwhile, has chosen to create taxes on corporate invoicing levels.
Latin American countries that have bent the OECD curve and taken their own initiatives include Colombia, Uruguay, Argentina, and now Mexico. Colombia approved a law requiring foreign firms to pay 16% VAT on their activities to the DIAN Tax and Customs National Authority in 2016, making it a pioneer in digital economy policies in the region. In the case of Argentina, cloud-based service providers pay 21% VAT. Electronic businesses in Uruguay have been paying 18% VAT, along with Non Resident Tax (IRNR), to the DGI General Directorate of Taxation since January 2018. Other countries studying similar measures are Paraguay, Costa Rica, Chile, and Dominican Republic.
However, the UN’s Economic Commission for Latin America and the Caribbean (CEPAL) recommends 4.0 economy tax policies follow OECD suggestions.
In Europe, the EU has attempted to create a European Digital Tax involving a 3% charge on tech firms with global turnover exceeding €750Mn and more than €50Mn in the European Union. But lack of consensus among member states has led to its suspension pending OECD approval of an international auditing standard.
Until this global agreement arrives, some countries have undertaken their own tax initiatives, such as France, where tech firms invoicing over €750Mn worldwide and more than €25Mn in France must pay a rate. The UK plans to impose a 2% charge on invoicing for firms generating over £500Mn per year and filing a profit. For its part, Spain is also working on creating a law in the same vein.
And Europe and Latin America aren’t the only places test-driving changes in tax matters - countries such as Canada, India, and Australia are also moving to solve the new tax challenges of online businesses.
The number of countries around the world adopting new tax policies for digital services is expected to grow next year.