Digital Platforms of 2020
On June 1 2020, the new tax reform stipulating that digital platforms will be obligated to withhold taxes (VAT and ISR), for the services offered on their platform took effect.
Digital platforms such as Netflix, Uber, Mercado Libre, among others, are required to withhold tax to all platform providers and then notify (pay) tax directly to SAT (Mexico´s Tax Administration Service).
This applies only to the sellers/providers who are individuals, not corporations.
The taxes to be withheld are:
- Value Added Tax (VAT/ IVA)
- Income Tax (ISR)
The VAT retention rate is 8%, in case of ISR retention it will depend on the registered activity and income earned 18-J LIVA.
Individuals conducting business activity through technological platforms and software applications 113-A LISR.
I. Provision of ground passenger transport and goods delivery services.
II. Provision of hosting services.
III. Disposal of assets and service delivery.
For the tax withholding to be applied, the Mexican tax ID number of the provider (RFC) must be available. If it is not provided, the ISR retention rate will be 20%.
A user asks for an Uber transport service, selects the route and a driver (service provider) agrees to provide the service. The user pays the platform by debit/credit card, the platform receives the user’s money and after the driver provides the service, the platform pays the driver for the activity performed. Considering that Uber charges a commission of 25% to drivers, before June 1, the payment would look like this:
After 1 June, the payment will look like this:
The driver or service providerwill receive less money when the withholding tax is made by the platform, in turn, the platform will pay this tax to the SAT.
The digital platforms are required to provide the service provider the withholding tax record 5 days after making the retention.It is very important that service provider wait for these records to be delivered to them to verify the taxes payment.
What should I do if I don’t have my RFC?
If you are a Mexican resident and do not have RFC, you must register with the SAT as an individual with business activities. It is important to go to the SAT offices to carry out the procedure or hire a Mexican accountant who will guide and advise you through the process.
If you are offering services through a digital platform and have doubts about your fiscal situation, contact a professional who can give you thorough and complete assistance according to your activities. They will recommend the option that best suits your needs.