Do I have to pay more to sell online?
If you are an individual selling a product online using a digital platform in Mexico such as Amazon Mexico or Mercado Libre, then the changes to the tax laws that took effect on June 1, 2020 will impact you.
Am I subject to these tax reforms?
If you are a selling a product as an individual (persona fisica) and not as a company or corporation (persona moral) then yes, these tax reforms apply to you.
If you meet any of the characteristics below, then you are legally obligated to comply with the new tax reforms:
- The business operation occurs within Mexico.
- The payments are made by means of a technological platform located in Mexico.
- They purchase is made within Mexico.
- A phone number with Mexican code (+52) is used.
What are my obligations?
- To be registered within the RFC (Federal Taxpayer Registry).
- To process your FIEL (Advanced electronic Signature) or Electronic Signature.
- To provide your fiscal data to the digital platform.
According to this new reform, if any individual does not provide their fiscal data, the digital platform is obliged to retain 100% of IVA or VAT (Value Added Tax) and the corresponding ISR (income tax) in line with the Chart of Retentions of the article 113-a of the ISR Law.
What are the main changes?
The tax payment will not increase. In accordance with the article 113-A of the income tax law, depending on income earned from sales through the platforms, these are required to withhold a percentage of the taxes that the individual must pay. As income tax (ISR), the withhold can be from 0.4% to 5.4% of the income and 50% of VAT rate.
ISR Withholdings Chart
Another change made, is related to the Value Added Tax. According to the Law, all activities offered through Digital Platforms generate 16% VAT. These platforms are required to retain a total of 50% of the VAT generated by sales via the internet.
In addition, companies are required to generate withholding receipts, showing that they retained the withholding tax and must deliver it to the users of such platform.
Let us look at the above with an example:
Juan Pérez sells toys through Amazon. All of these are paid through the digital platform. In the month of June 2020, he sold a total of $25,000.00 MXN plus VAT. Let’s see the calculation:
The VAT rate to be applied is 16% which gives us a total of $29,000.00 MXN
In accordance with the law, the deductions are applied as follows:
The VAT withholding is 50% of the total generated. $4,000 MXN of VAT was generated during the month, so the withholding would be $2,000 MXN.
The retention of ISR is done according to the Chart: for having an income of 25,000 pesos, without exceeding the limit, a retention of 1.1% on the income is made. So, a withholding tax of 275 MXN is generated. VAT should not be considered as part of the income.
Therefore, the resulting total from applying the withholding tax on Juan Pérez’s sales is $26,725.00 MXN.
This is the total before applying the fees charged by Amazon for using their platform. It must be considered that this quantity varies according to the activity of each person.
You, as an individual who sells products through digital platforms, are not subject to the payment of any extra tax, the tax will simply be withheld from your income. This reform went into effect on June 1, 2020. Consider consulting with an accountant in Mexico for assistance with the new laws to ensure you are in compliance.