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Mexico: Chamber of Deputies Evaluating Proposed Digital Services Tax

Robert Sledz  

Robert Sledz  

On October 15, 2018, Mexico’s Chamber of Deputies (lower house of Congress) discussed the draft decree (“Draft Tax Law Initiative on Income from Digital Services“) released by Mexico’s Party of the Democratic Revolution on September 6th, which would introduce a tax on digital services, among other tax reform proposals.

Editor’s Note: Mexico does not have rules regarding collection of VAT on digital transactions.

Under the September 6th draft decree, a 3% digital services tax (DST) would apply to both natural and legal persons resident in Mexico, as well as to foreign residents that have a permanent establishment (PE) in Mexico, on gross income obtained from the following activities:

  • Advertising in a digital interface directed to users.
  • Providing users with a multifaceted digital interface that allows them to locate and interact with other users, and that can facilitate the delivery of goods or services directly between users.
  • Transmission of collected data about users that is generated in digital interfaces.

The October 15th agenda of the Chamber of Deputies says that the DST would not apply to instant messaging (e.g., WhatsApp), e-mail, and payment (e.g., PayPal) services. The sponsor of the legislation (Javier Salinas Narvaez) said that implementation of the DST will require “specific and complex rules for each type of income [listed above].” While the DST would apply to both resident and non-resident natural and legal persons, the tax would be aimed primarily at non-residents, according to Mr. Salinas Narvaez.

The DST would not apply to the first MXN 100 million of income obtained by natural and legal persons resident in Mexico, as well as by foreign residents with a Mexican PE. It would also not apply to income from the provision of a digital interface, when the sole or main purpose of the entity is to provide digital content to users or to provide communication services or payment services; to the provision of financial services; or to the transmission of data by a financial services provider.

The October 15th agenda of the Chamber of Deputies says that the DST is modelled on the March 21, 2018 European Commission proposed Directive, and other proposals of other countries in Latin America (e.g., Argentina and Chile).

Taxpayers would have to file annual informational returns on the Mexican DST, and remit payments to the Mexican tax authority (Servicio de Administración Tributaria or SAT) each month.

The September 6th draft decree, if approved, would enter into force one day after its publication in Mexico’s official gazette.

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