Mexico issues tax rules on withholding by digital service providers, online platforms

By Arturo Treviño Villarreal, Tax Partner, Fratelli Consultores, Monterrey, Mexico

Mexico’s tax authorities on May 12 published in the official federal gazette a series of new rules that provide additional guidance on the taxation in Mexico of digital services and transactions performed on technological platforms.

The new rules form part of the omnibus tax bill (in Mexico, Resolución Miscelánea Fiscal) for this financial year and enter into effect on June 1.

More specifically, title 12. of the bill addresses the provision of digital services. Rules 12.1.8. and 12.1.9. were added to chapter 12.1. (non-residents providing digital services); the addition of rules 12.2.6. to 12.2.11. correspond to chapter 12.2. (digital services of intermediation by and between third parties); and rules 12.3.11. to 12.3.17. were added to chapter 12.3. (individuals who transfer goods, provide with services or grant lodging/accommodation through technological platforms).

Mexico’s omnibus tax bill

The omnibus tax bill is comprised of general administrative rules issued by Mexico’s tax authorities and duly published in the official gazette. Unless otherwise stated, the validity of the rules is set for a calendar year (there can be cases in which the effects of the rules are limited to periods of less than a year). Moreover, the rules will create mandatory compliance obligations for taxpayers. Judicial precedents from the Mexican Supreme Court support this approach, i.e., mandatory compliance for taxpayers as long as domestic constitutional requisites are met.

As a matter of principle, the rules should serve to clarify the contents of different tax laws and their regulations as well as facilitate their application.   

 Mexico’s digital services tax regime is formed by a number of provisions and rules mainly contained in the local income tax law, value-added tax (VAT) law, and the 2020 omnibus tax bill.

Except for rules covering the levy of a withholding tax for income tax and VAT purposes applicable to providers of ground/land passenger transport services or prepared food delivery (i.e., rules 3.11.11. to 3.11.17.), all enter into force and effect as of June 1.

 Daily income

Rule 12.2.6. of the new guidance addresses the option to compute withholding tax based on daily income. This rule applies to income derived by Mexican resident individuals performing business activities and non-resident individuals with a permanent establishment in Mexico. It also applies to the transfer of goods or the provision of services through the internet using technological platforms and computer applications.

Mexican resident legal entities or non-residents with or without a permanent establishment in Mexico and foreign entities or legal arrangements acting as withholding tax agents for personal income tax purposes may opt to compute withholding tax for each taxpayer using daily periods, with the tax applied to the total daily amount of income from the taxpayer.

The tax rate will vary depending on the activity performed and the amount of daily income. For example, in case of ground/land passenger transport services and the delivery of goods, withholding tax rates range from 2% to 8%, for lodging/accommodation services the tax rates are from 2% to 10%, and for the transfer of goods and provision of services the rates are from 0.40% to 5.40%.

Payment of the withholding tax should take place monthly.

Further, the rule 12.2.8. defines the computation of withholding tax on income derived from the transfer of goods or the provision of services through internet, using technological platforms, computer applications and others.

Such rule states that the tax base for purposes of withholding tax will incorporate income effectively cashed-in by individuals as well as such income that the technological platform, application, or others pay themselves to the individual.

Nevertheless, income directly obtained from acquirers of goods or recipients of services through the intermediation of the technological platforms, computer applications, and others will be excluded.

Rules 12.3.12. and 12.3.13. relate to certain personal income tax payment procedures which individuals with business activities transferring goods or providing services through the internet, using technological platforms, applications, or others must comply with.

If individuals with business activities do not opt in to consider as final the withholding tax levied by the relevant withholding tax agents, those individuals must submit payments of estimated income tax on a monthly basis.

Individuals who have opted in to assess as final the withholding tax levied by corresponding withholding tax agents in relation to income directly received from acquirers of goods or services must submit final tax payments also on a monthly basis.

Official electronic format

In addition, the new guidance clarifies the electronic format to be used by non-residents without an establishment in Mexico who provide digital services through technological platforms, for purposes of payment of VAT and delivery of information to tax authorities on the monthly amount of services or transactions performed.

These clarifications will also apply for purposes of payments to the Mexico budget of withholding tax levied on individuals with business activities who transfer goods or provide services through the internet, using technological platforms, computer applications and others (in the context of digital services of intermediation between third parties).

Regarding the option to make final income tax payments, which can be exercised under certain conditions by individuals with business activities who transfer goods or provide services through internet, using technological platforms, applications and others, the new guidance mandates that the total annual income should include amounts obtained from the transfer of goods or provision of services through internet and the income obtained from wages, salaries, and the provision of dependent personal services. Income from interests should also be taken into account.