Mexico Tax Presentation

Presenting a live 110‐minute teleconference with interactive Q&A
Mexico's IVA Tax:
VAT Fundamentals for U S Companies
VAT Fundamentals for U.S. Companies
Obtaining Deductions and Refunds, Complying With VAT Withholding, and Meeting Other Challenges
THURSDAY, JULY 26, 2012

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
Today’s faculty features:

Gabriel Andrade,, Partner,, International Tax Services,, KPMG,, Monterrey,
y, Mexico
Scott Sneckenberger, Partner, Plante Moran, Auburn Hills, Mich.
Luis Carbajo-Martinez, Principal, Baker & McKenzie, Juarez, Mexico
Juan Carlos Valles Zavala, Attorney, Baker & McKenzie, Juarez, Mexico
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Mexico’s IVA Tax: VAT Fundamentals for
M i ’ IVA T VAT F d t l f
U.S. Companies Seminar
July 26, 2012
Gabriel Andrade, KPMG Scott Sneckenberger, Plante Moran

gabrielandrade@kpmg.com.mx scott.sneckenberger@plantemoran.com
Luis Carbajo-Martinez, Baker & McKenzie Juan Carlos Valles Zavala, Baker & McKenzie
luis.carbajo@bakermckenzie.com juan.valles-zavala@bakermckenzie.com
Today’s Program
IVA Overview Slide 7 – Slide 72
[Gabriel Andrade]
Exempt And 0%-Rated Transactions Slide 73 – Slide 76

[Scott Sneckenberger]
IMMEX/Maquiladora Program, And Potential IVA Benefits Slide 77 – Slide 83

IVA And Importations By Non-Mexican

Non Mexican Companies Slide 84 – Slide 86
Impact Of Elections On IVA Policy Slide 87 – Slide 89

[Luis Carbajo-Martinez and Juan Carlos Valles Zavala]
Hot IVA Topics, From A Legal Perspective Slide 90 – Slide 101

[Luis Carbajo-Martinez and Juan Carlos Valles Zavala]
Handling IVA Refunds Slide 102 – Slide 104

[Gabriel Andrade]
Gabriel Andrade, KPMG
IVA OVERVIEW
Characteristics
1. It is an indirect tax
2. Federal tax
3. Value added Tax (VAT) is levied on consumption and it is present along all
economici activities’
ti iti ’ production
d ti and d commercialization
i li ti chains.
h i VAT is
i
applicable to goods and services acquired or received, respectively,
within the national territory, as well as imports
4. It is an efficient tax collection instrument.
5. Reduces tax evasion
6. Its application is merely inter‐territorial
7. It is inflationary.
8
General Provisions
(Articles 1 Through 7 of the Mexican VAT Law (VATL)
Elements of the VAT
• Subject and object to this tax: General Tax Rate 16%
 Individuals
I di id l
 Legal entities
• That carry out,

out in Mexican territory,
territory any of the following activities:
 Sale of goods
 Rendering of independent services
 Grant temporary use or enjoyment of goods
 Imports goods or services
9
Transfer Of The VAT
• The VAT shall be explicitly transferred to the buyer and separately

presented from the price.
price
• The seller or service provider must charge the tax whenever an

individual or an entity:
y
 Acquires or, uses or enjoys temporarily goods
 Receives a service
• This is mandatory even when the VATL establishes that the

corresponding tax is to be withheld by the buyer.
10
Withholding Of VAT
• The VATL establishes that the following persons are obliged to withhold the
tax that is transferred to them by the suppliers or service providers:
 Financial institutions that receive goods in lieu of payments or acquire

goods
d by
b legal
l l resolutions
l i or trusts
 Legal entities that:
‐ Receive independent personal services from individuals, or

temporarily use or enjoy good property of individuals. The
withholding will be performed for 2/3 of the corresponding VAT.
VAT
‐ Acquire scrap to be used as raw material in industry or for its

commercialization. The withholdingg will be p
performed for the entire
corresponding VAT.
11
Continued
Withholding Of VAT (Cont.)
 Legal entities that:
‐ Receive freight services from individuals or legal entities. The

withholding will amount to 4% of the price.
‐ Receive services from commission agents that are individuals.

The withholding will be performed for 2/3 of the corresponding
VAT.
VAT
 Individuals or legal entities that acquire goods, or temporarily use

or enjoy goods,
goods from foreign residents with no permanent
establishment in Mexico.
p
 Entities with special trade attributions authorized by
y the Ministry
y
of Economy when they acquire products related with the special
trade attributions from Mexican suppliers 12
Withholding Of VAT (Cont.)
• All VAT withholdings will apply and must be performed at the moment of
the payment carried out in favor of the seller or service provider, and only
for the amount that was effectively paid.
13
Effectively Paid
For VAT purposes, Mexican tax provisions establish that a transaction is

considered effectively
yppaid when:
 The price is received in cash.
 Goods or services are received in lieu of the payment, even if they are
received as advances or deposits.
 The
Th interest
i t t off the
th seller
ll isi fulfilled
f lfill d by
b any means off satisfaction
ti f ti off
obligations.
When the agreed price is paid by check,

check it can be considered that the value of
the transaction is effectively paid at the date of collection, or when the check is
endorsed in favor of other individual or entity.
14
Means Of Satisfying Obligations
• Offset: Takes place when two persons have, reciprocally, accounts payable
and accounts receivable from the other. The offset consists in canceling the
debts between each other insofar as the amount of the smallest.
• Right confusion: The obligation is satisfied when the same person is the
b
beneficiary
fi i and
d the
th debtor
d bt off the
th debt.
d bt
• Debt remission: Any person can renounce his right on a debt, even if it
renounces partially,
partially except on those cases that it is prohibited by law.
law
• Renewal of debt: Takes place when the first obligation is substituted by a

new obligation
15
Effectively Paid (Cont.)
• In case of documents receivable derived from financial factoring, the

transaction will be considered effectively paid at the moment in which
those documents are transferred.
• In connection with the foregoing,

foregoing taxpayers may consider the transaction
derived from financial factoring effectively paid when the document is
paid, as long as the following requirements are fulfilled:
 This option is expressly stated in the contract.

 The person transferring the document must pay the corresponding VAT.
 The bank statements that reflect the p payment
y are delivered to the
transferees within the first 10 days of the month following the
transaction.
16
VAT Rate For Border Region
• VAT will be calculated at a rate of 11% in the following scenarios:
 Activities subject to VAT performed by residents of the region close to

the border with neighboring countries, as long as the goods or
services are delivered or rendered, respectively, within such region
• The region close to the border covers 20 kilometers in a parallel line with
the border. Additionally, this region also includes the states of Baja
C lif i and
California d Quintana
Q i t R
Roo, andd some municipalities
i i liti ini Sonora
S among
others.
• In case of imports,
imports the tax rate applicable would be 11%,
11% as long as the
imported goods or services are alienated or rendered within the region
close to the border.
• Notwithstanding the foregoing, in case of alienation of real state, the

applicable tax rate would remain at a 16%. 17
VAT Rate At 0%
VAT will be calculated applying a rate of 0% for the following activities (certain
particularities or exceptions may apply), among others:
• Sale of:
 Non‐industrialized animals and vegetables
 Medicine
d and
d products
d oriented
d to nourishment
h
 Ice, fresh water
 Machinery for the first sector
 Materials and products destined to be used in the first sector
 Hydroponic greenhouse equipment
 Gold, jjewelry
y and artistic p
pieces
 Books, newspapers or magazines edited by the taxpayer

18
VAT Rate At 0% (Cont.)
• Rendering independent services to the following:
 To
T first
fi t sector
t activities
ti iti
 Grain mill
 Milk pasteurizing
 To hydroponic greenhouses
 Reinsurance
 Domestic water supply
• Grant use or enjoyment of machinery oriented to the first sector
• Export of goods or services that are subject to VAT
19
Creditable VAT
• Taxpayers can subtract the creditable VAT against the VAT payable for the
month determined by the VATL.
• Creditable VAT refers to the VAT that has been transferred to the individual or
entity by its suppliers, and the VAT that was paid for the import of goods and
services, if any.
• The right over creditable VAT is personal and cannot be transferred by any
means other than merging. In the event of a spin‐off, the right remains with the
original entity.
entity
Concept Amount
Activity subject to VAT

Activity subject to VAT 500,000
500,000
(x) VAT rate 16.00%
(=) Payable VAT 80,000
(-) Creditable VAT
Creditable VAT 55 000
55,000
(=) VAT in charge 25,000
20
Requirements For Creditable VAT
In order to be under conditions to subtract the creditable VAT from the VAT payable,
taxpayers must fulfill the following requirements:
• It must correspond to goods or services strictly necessary for the activities

performed by the taxpayer.
• The expenses related to the creditable VAT must be deductible, for income tax
purposes.
• Where the Mexican tax law establishes partial deductions for income tax
purposes, the creditable VAT may be subtracted from the payable VAT in the
same proportion.
• Separately
l presented
d in the
h invoice
• Creditable VAT must be effectively paid.
• VAT withheld by suppliers can be considered creditable VAT in the month after
the withholding took place.
21
Partially Creditable VAT For Exempt Activities
In the event that a taxpayer carries out activities that are not subject to VAT,
creditable VAT related to those activities would not be subtracted from the
VAT payable.
bl
In case the creditable VAT is related to both activities, subject and not subject
to VAT,
VAT the creditable VAT may be subtracted proportionally.
proportionally
In order to determine the aforementioned proportion, refer to the following

slide:
22
Creditable Tax:
Procedure Of Accreditation When Performing Taxable And Exempt Acts
1. In the case of VAT disbursements that are used exclusively to taxed acts
(16%, 11% and 0%), VAT will be credited in full. VAT is paid on the
importation of goods or services.
2. In the case of VAT disbursements that are used exclusively y to acts exempt
p
(not subjected for VAT), VAT will NOT be creditable. It includes the paid VAT
by the importation of goods or services.
3. In the case of VAT disbursements that are used interchangeably to perform

any taxed or exempted acts, VAT will be credited in proportion to the
taxable activities.
4. To determine the proportion above, it will be necessary to apply the

following formula:
23
Creditable Tax:
Formula To Determine The Proportion
p
Concept
Total value of the taxable activities, including the 0% of the month in question
Total value of the activities of the month in question
(=) The proportion of creditable VAT on the month to calculate
24
Crediting For Investments:
(
(Fixed Assets, Deferred Charges And Expenses)
g p )
1. The VAT will be creditable, considering whether the investment is intended to
perform taxed or exempt acts. If you alter the destination of investment, a creditable
VAT adjustment will have to be performed, derived from the investment.
2. If the investment is used to do only taxed activities (16%, 11% or 0%), VAT will be
y creditable. It includes the p
fully paid VAT by
y the motive of the importations.
p
3. If the investment is used for exempt activities, VAT of such investment will not be
creditable.
4. If the investments are destined to taxable and exempt activities, VAT will be
creditable on proportion to the activities that are taxed (16%, 11%, 0%), related
with the total of acts or activities (taxed plus exempt).
exempt)
5. If the investments described in 2 and 3 above change the normal fate of the income
taxed obtained or exempted, an adjustment must be made to creditable VAT of such
investments.
25
Case For Practice
Case for practice:
1. A business entity is dedicated in the sale of real estate and wants to

determine the creditable VAT for fixed assets of July 2010.
2. The company makes home sales (exempt) and locals commercial

(taxable).
3. The fixed asset data are as follows:
26
Case For Practice (Cont.)
Investment VAT investment

VAT investment
Used
exclusively
l i l forf $ 200 000 00
$ 200,000.00 $ 32 000 00
$ 32,000.00
acts taxed
Used
exclusively for $ 150,000.00 $ 24,000.00
acts exempted
Used
interchangeably with $ 300,000.00 $ 48,000.00
acts taxed and
acts taxed and
exempt
27
During the month, the following operations were performed:
Acts or activities taxable on 16% $ 2’000,000.00

Acts or activities exempted on VAT $ 1’850,000.00
The total value of the acts or activities
The total value of the acts or activities $ 3’850
$ 3 850,000.00
000 00
Solution:
28
IVA trasladado al Nivel de

contribuyente acreditamiento
Exclusively used
All creditable VAT
All creditable VAT
with activities
ith ti iti
$ 32,000.00 may be
subject to VAT
subtracted
Exclusively used
No right to subtract
with activities $ 24,000.00
the creditable VAT
subject to VAT
Indistinctly used for

both kind of $ 48,000.00 Proportionally
activities
29
Partially Creditable VAT For Exempt Activities
For the amount of $ 45,000.00, which corresponds to both activities, subject to and
exempt from VAT, the proportion factor would be applicable according to the following
investments:
Concept Amount
Value of all activities subject to VAT (including 0%) of the

corresponding month 2’000,000
Value of all activities of the corresponding month (including not

subject to VAT) 3’850,000
(=) Proportion applicable to the creditable VAT 0.5195
(x) 100% 100

p y p y
Proportion of creditable VAT than may be subtracted from payable
(=) VAT 51.95%
30
Partially Creditable VAT For
Exempt Activities (Cont.)
p ( )
Creditable VAT that can be subtracted from the payable VAT:
Concept Amount
VAT transferred by the supplier to the taxpayer

48,000
(x) Proportion applicable to the creditable VAT 51.95%
Creditable VAT that can be subtracted from the

payable VAT
(=) 24,936
31
Partially Creditable VAT For
Exempt Activities (Cont.)
p ( )
Total creditable VAT that can be subtracted from the payable VAT:
Concept Amount
Creditable VAT subject to the proportion

24,936
Other creditable VAT

(+) 32,000
Total creditable VAT that can be subtracted from the

(=) payable VAT 56,936
32
VAT Balances In Favor
When the VAT tax return results in a balance in favor, the taxpayer may:
‐ Offset
Off such
h balance
b l i favor
in f against
i VAT in
i charge
h off the
h following
f ll i months
h
‐ Request the refund of the balance in favor before the tax authorities. It must
be for the total amount of the balance in favor.
favor
‐ Offset such balances in favor against other federal taxes in charge
33
Exemptions
Alienation  Article 9 VATL

 Articles 22 and 22 RVAT
A ti l 22 d 22 RVAT
Rendering of independent services.  Article 15 VATL

 Articles 28 to 31 RVATL
Articles 28 to 31 RVATL
Temporary use or enjoyment of goods  Article 20 VATL

 Article 34 RVATL
Article 34 RVATL
Importation  Article 25 VATL

 Articles 38 and 39 RVATL
34
Tax Rate 0% And Exemptions
0% Tax Rate Exemptions

.
• It is expressed in support documentation. • It is recorded as a expenditure.
• Allows acreditation • Does not allow accreditation
• It is considered
d d in the
h VAT refund
f d request. • VAT refund request is not allowed
• Although it is a virtual tax, takes tax implications • Does not have tax implications
35
Alienation
(Articles 8 Through 13 Of The Mexican VAT Law (VATL)
(Articles 8 Through 13 Of The Mexican VAT Law (VATL)
For purposes of this law, the concept of alienation includes, in addition to the
provisions of the Federal Fiscal Code, missing items a decrease in the
company’s’ inventories.
i t i In I the
th latter
l tt case, this
thi presumption
ti admits
d it evidence
id t
to
the contrary.
The transfer of goods by death or by donation is not taxable,

taxable unless such
donation is made by a company for which the donation is not deductible for
income tax purposes.
If the transfer of goods is not effectively made, the corresponding value added
tax may be refunded, provided that the requirements of the first and second
paragraphs
g of Article 7 hereto are satisfied. If tax has been withheld pursuant
to Articles 1‐A and 3, third paragraph of this law, the tax is not refundable and
the provisions of Article 7, third paragraph of this law will apply.
36
Exempted Alienations
((Article 9 Of the Mexican VAT Law, VATL)
, )
VAT will not be paid on the transfer of the following goods:
• Land
• Constructions attached to land, either intended or used for residential purposes
• Books, newspapers
p p and magazines,
g as well as the author’s right
g to use or exploit
p a work
• Used personal property, unless transferred by enterprises
• Tickets and other receipts

p that ppermit pparticipation
p in lotteries, raffles, drawings
g or ggames of
chance and contests of any kind; as well as the respective prizes, as established in the Income
Tax Law
• National and foreign

g currency,y as well as ggold or silver p
pieces that had been regarded
g as
currency and those pieces known as “troy ounces”
• Partnership interests, documents pending collection and negotiable instruments
• Gold ingots with a minimum gold content of 99%, provided that the transfer is made by retail
sales to the general public
37
Exempted Alienations
((Article 9 Of The Mexican VAT Law VATL), Cont.
),
VAT will not be paid on the transfer of the following goods:
•T
Transfer
f off goods
d between
b t f i residents,
foreign id t or by b a foreign
f i resident
id t to
t a
legal entity having an authorized program under the Decree for
Implementation of Temporary Import Programs to Produce Export Items or
the Decree for Development and Operation of Export In‐Bond
In Bond Corporations
(Maquiladoras), or under a similar tax regime on the terms of the Customs
Law; or companies in the terminal automotive, auto transportation vehicle,
or auto parts manufacturing industries for placement into a bonded
manufacturing warehouse, provided that the goods have been exported or
introduced into national territory under a program authorized by such
decrees or similar tax regime
g in accordance with the Customs Law …
38
Alienation In Mexican Territory
((Article 10 Of The Mexican VAT Law VATL))
 For purposes of this law, transfers are understood to be made in national

territory
y if the ggoods are located therein at the moment of shipping
pp g the
goods to the transferee and, in the absence of shipment, physical delivery of
the goods is made in the country by the transferor.
 Transfers or alienation of goods subject to Mexican matriculation or

registration are considered made within Mexican territory once
matriculated or registered, even though the goods are physically outside
M i and
Mexico, d provided
id d that
th t the
th transferor
t f i a resident
is id t off Mexico
M i or a foreign
f i
resident’s establishment in the country.
 In the case of intangible goods,

goods the transfer is considered to take place in
national territory if the transferee and the transferor are residents therein.
39
Moment Of Alienation
 Transfers of goods are made at the moment the consideration is effectively

collected, and on the amount of each one of such considerations.
 In the case of transfer of negotiable instruments that evidence real property

rights to the delivery and disposition of goods, the goods covered by such
negotiable instruments are deemed transferred at the time of payment for
transfer of the negotiable instrument. If no transfer is made, transfer occurs
when the goods covered by such instruments are physically delivered to a
person other
th than
th the
th issuer
i off the
th negotiable
ti bl instrument.
i t t
 In the case of participating real estate trust certificates, the goods covered
by the certificate are deemed transferred when the certificate is transferred.
transferred
40
Alienation Taxable Base
 In order to compute the tax on transfers, the value is the price or agreed
upon
p consideration, as well as the additional amounts charged g to or
collected from the transferee for other taxes, fees, ordinary or late interest,
contractual penalty or any other amounts.
41
Rendering Of Services
((Articles 14 Through 18 Of The Mexican VAT Law VATL)
g )
The following are defined as rendering independent services, for VAT
purposes:
• A
An affirmative
ffi ti covenantt by b one person to
t perform
f i favor
in f off another
th person,
regardless of the act from which such covenants arises and the name or classification
given to said act by other laws
• Transportation of persons or goods
• Insurance, bonding and re‐bonding
• Agency, commission, mediation, representation, brokerage, consignment and

distribution
• Technical assistance and technology transfer
• All affirmative covenants to give, or negative covenants to not do or allow

undertaken by one person in favor of another,
another provided that such obligations or
covenants are not defined hereunder as a transfer or temporary use or enjoyment of
goods 42
Rendering Of Services
 The rendering of independent services does not include the rendering of
dependant services for remuneration or the rendering of services for
i
income which
hi h the
th Income
I T Law
Tax L defines
d fi as similar
i il tot said
id remuneration.
ti
 The rendering of independent services is deemed personal if the services

are activities described under this article as not having the characteristics of
business activities.
43
VAT‐Exempt Services
Value added tax is not paid on the rendering of the following services:
• Commissions and other consideration paid by the debtor to the creditor on account of
mortgage loans given for the purchase, enlargement, construction or repair of residential real
property, except for those resulting after the authorization of said loan or which are payable to
third parties by the debtor
• Commissions collected by retirement fund managers or, if applicable, by banking institutions

from employees for the management of their funds derived from the retirement savings
systems and services related to said management, as established in the Law for the Retirement
Savings System (SAR) and the Law of the State Workers Social Security and Services Institute,
Institute
as well as in all other provisions derived therefrom
• Services rendered free of charge, unless the beneficiaries of the services are members, partners
or associates of the legal entity rendering the service
• Educational services rendered by the Federal Government, the Federal District, the States, the
Municipalities and their decentralized agencies, and by private establishments with official
authorization or official validation of studies pursuant to the General Education Law,
Law as well as
preschool educational services
• Public land transportation of persons, except by railroad 44

),
• International maritime transportation of goods rendered by foreign residents

without a permanent establishment in the country. In no case will the provisions of
this section apply in the case of coastal navigation services within national territory.
• Insurance against agribusiness risks, housing loan insurance covering debtor default
risk on mortgages loans or loans secured by fiduciary guarantee for the purchase,
enlargement, construction or repair of residential real property; financial guaranty
insurance covering the risk of issuer default on securities, negotiable instruments or
documents which are the subject of public offerings or stock exchange
intermediation, provided that the funds derived from the placement of such
securities, negotiable instruments or documents are used to finance mortgage loans
or securedd by
b fiduciary
fid i guarantee for
f theh purchase,
h enlargement,
l construction
i or
repair of residential real property, and life insurance whether it covers the risk of
death or grants annuities or pensions, as well as the agent's commissions on said
insurance.
45
),
• Those resultingg in interest:
a) Derived from transactions in which the transferor, the service provider or the grantor of the
temporary use or enjoyment of goods provides financing related to activities on which the
payment
p y of this tax is not required
q or levied at the rate of 0%
b) Received or paid by banking institutions, credit unions, limited purpose financial corporations,
savings and loan corporations and financial factoring corporations in financing transactions for
which authorization is required
q and under the concept p of discount on documents p pendingg
collection; interest received and paid by multiple purpose financial corporations that for
income tax purposes are part of the financial system, due to the granting of loans, factoring or
discounting on documents pending collection; received by general deposit warehouses for
loans ggiven and secured by y ppledge
g bonds; as well as the commissions for agents g and
correspondents of credit institutions for said transactions
c) Received by bonding, insurance and mutual insurance corporations, in financing transactions,

excepting the case of loans granted to individuals who are not entitled to the exemption set
forth in (b) above
46
),
• Those resultingg in interest:
d) Derived from mortgage loans or loans secured by fiduciary guarantee for the purchase,
enlargement, construction or repair of residential real property
e) Derived from employees' saving banks and from savings funds establish by businesses, provided
that the deductibility requirements under the Income Tax Law are satisfied
f) Derived from notes issued in accordance with the provisions of the General Law of Negotiable
Instruments and Credit Operations
g) Received or paid by public institutions that issue bonds and manage savings plans with the
unconditional payment guarantee of the Federal Government in accordance with the Law
h) Derived from securities payable by the Federal Government and listed in the National Registry of
Securities and Intermediaries
i) Derived from negotiable instruments placed with the large investing public in accordance with the
applicable general rules issued by the Ministry of Finance and Public Credit, or from transactions
involving the loan of negotiable instruments, securities and other fungible goods referred to in
47
(III), Article l4‐A of the Federal Fiscal Code
),
• Derived from financial derivative transactions mentioned in Article 16‐A of the Federal Fiscal
Code
• Provided to members as ordinary consideration for dues and provided that the services
rendered are solely related to the particular purposes of the entity, in the case of:
a) Legally recognized political parties, associations, coalitions and fronts
b) Labor unions and confederations
c) Chambers of commerce and industry, agricultural, stockbreeding, fishing or forestry groups,

as well as their federations
d) Employer associations and professional associations
e) Civil law associations or partnerships organized for scientific, political, religious and
cultural purposes, except for those that provide services with sports facilities when the
value of the latter represents more than 25% of the total value of the facilities
48
),
• Derived from the entry ticket for public events, except for theater and circus events,
if the
h agreement entered d into
i with
i h the
h State
S or the
h Department
D off the
h Federal
F d l
District in which the event takes place does not fall into the provisions of Article 41,
(VI) of VATL. The exemption established in this section is inapplicable to the entry
ticket for cinema functions.
Events presented in restaurants, bars, lounges, party or dance halls and nightclubs
are not considered public events
• Professional medical services if the rendering thereof requires a medical degree

under law, provided such services are rendered by individuals, whether individually
or through any civil association
• Professional medical, hospital, radiology, laboratory services and clinical tests

rendered by the decentralized agencies of the Federal Public Administration, the
Federal District,
District the state or municipal public administrations
49
),
• For those on which authors receive consideration in the following cases:
a) For authorizing third parties to publish written works of their creation in newspapers and
magazines, provided that the newspapers and magazines are intended for sale to the public
by the person making payment of such consideration
b) For temporarily transferring the economic rights or temporarily granting licenses to use to
third parties, corresponding to works of their authorship as established in Article 13 (I)
through (VII), (IX), (X), (XII), (XIII) and (XIV), and article 78 of the Federal Copyright Law,
registered in the Public Copyright Registry of the Ministry of Public Education
c) The provisions of the preceding paragraphs do not apply:
‐ In the case of advertising ideas or phrases, logos, emblems, distinctive seals, industrial
designs or models, operating manuals or works of applied art
‐ If the consideration derives from the exploitation of written or musical works in business
activities other than the sale to the public of the author's works, or the rendering of services
50
Services Rendered In Mexico
 For the purpose of this law, the service is defined as rendered in national territory if
the service is rendered, whether wholly or partially, by a person resident in the
country
country.
 In the case of international transportation, the service is defined as rendered in

national territory, independently of the residence of the carrier, if the transportation
begins in national territory, even if it is a round trip.
 In the case of international air transportation, only 25% of the service is considered
to be rendered in national territory. Air transportation to Mexican towns located in
the 20‐kilometer border strip parallel to the northern and southern international
dividing lines will be treated the same.
 IIn the
h case off interest
i andd other
h consideration
id i paid
id by
b Mexican
M i residents
id to foreign
f i
residents granting credit by credit cards, the service is understood to be rendered in
national territory if the card is used therein.
51
Air Transportation Services
(
(Article 16 Of The Mexican VAT Law VATL)
)
The plane is coming from: Tax rate Landing the plane in:
Any of the Mexican Republic
states (except for the below 16% Any state of the Mexican Republic
mentioned)
Territories of Baja California
Territories of Baja California and
and Any state of the Mexican Republic
Any state of the Mexican Republic
11%
Quintana Roo
In addition to the cross‐border
distance of 20 KM parallel of the Any state of the Mexican Republic
11%
divisor international north and
south lines
52
Air Transportation Services
(
(Article 16 Of The Mexican VAT Law VATL), Cont.
),
The plane is coming from: Tax rate Landing the plane in:

Any of the Mexican Republic states
4% Abroad
(except for the below mentioned)

2.75% Abroad
Quintana Roo
Quintana Roo
distance of 20 KM parallel of the
2.75% Abroad
divisor international north and
south lines
Any of the Mexican Republic states
From abroad 4%
(except for the below mentioned)
From abroad 2.75%
Quintana Roo
distance of 20 KM parallel of the
From abroad 2.75%
divisor international north and south
lines 53
Moment Of VAT Payment
(Article 17)
 Payment of tax for rendering services is required at the moment the

consideration is effectively collected and on the amount of each such
consideration, except for interest mentioned in Article 18‐A hereto, in which
case the tax is paid as the interest is accrued.
54
Taxable Base
(Article 18)
 In order to compute the tax in the case of services rendered, the value is
defined as the total consideration convened, as well as the additional amounts
charged to or collected from the person receiving the services for other taxes,
fees, travel and other expenses, reimbursements, ordinary or penalty interest,
contractual penalties or any other item.
 In the case of legal entities rendering services mainly to their members,

partners or associates, payments made by the latter, including contribution to
capital to absorb losses,
losses are considered as value for purposes of tax
calculation.
 In the case of loan agreements and other financing transactions,

transactions the interest
and all other consideration other than the principal received by the creditor is
considered as value.
55
Temporary Use Or Enjoyment Of Goods
Articles 19 To 23)
 For purposes of this law, temporary use or enjoyment of goods is defined to be

the lease,, usufruct and any
y other act,, independently
p y of the legal
g form used for
said purpose, whereby one person allows another person to temporarily use
or enjoy tangible goods for consideration.
 The tax treatment established in this law for temporary use or enjoyment of
goods will be applied to the rendering of time‐share services.
56
Exemptions
(Article 20)
Tax is not be paid for the temporary use or enjoyment of the following goods:
• Real property exclusively intended or used as a residence. If real property is

intended for multiple purposes or uses, tax is not be paid on the part intended or
used for residential purposes. The provisions of this section do not apply to real
property
t or the
th portion
ti thereof
th f provided
id d as furnished
f i h d or intended
i t d d or used d as
hotels or boarding houses.
• Farms intended or used solely for agricultural or cattle breeding purposes
• Tangible goods for which use or enjoyment is granted by foreign residents, with
no permanent establishment in national territory, and for which the tax was paid
pursuant to Article 24 of this law
• Books, newspapers and magazines
57
Articles 21 And 22
Leasing in Mexican territory
 Temporary use or enjoyment of tangible goods is granted in Mexican territory

if the good is located therein at the moment of its physical delivery to the
person who is to use or enjoy such good.
Moment of VAT payment
 If temporary use or enjoyment of tangible goods is granted, the tax is payable

If t j t ft ibl d i t d th t i bl
at the moment the corresponding considerations are collected by the grantor,
and the tax is computed on the amount of each such consideration.
58
Taxable Base
(Article 23)
 In order to calculate the tax in the case of temporary use or enjoyment of

goods the value of the consideration agreed upon in the favor of the grantor
goods,
will be taken into account, as well as any additional amounts payable by or
collected from the person using or enjoying the goods on account of other
taxes, fees, maintenance expenses, constructions, reimbursements, ordinary
or late interest, contractual penalties or any other amounts.
59
Imports Of Goods Or Services
(Articles 24 To 28)
For purposes of this law, the following are considered to be importation of goods
or services:
•The introduction of goods into the country
•The
Th purchase
h b Mexican
by M i residents
id off intangible
i ibl goods
d transferred
f d by
b foreign
f i
residents
•The temporary use or enjoyment in Mexican territory of intangible goods

provided by foreign residents
•The temporary use or enjoyment in Mexican territory of tangible goods, for

which physical delivery was made abroad
•The utilization in Mexican territory of services mentioned in Article 14, if

rendered by foreign residents.
residents This section does not apply to international
transportation.
60
Exemptions
(Article 25)
Value added tax is not paid on the following imports:
I
I. Those that under the customs law are not finalized,
finalized are temporary,
temporary are regarded as
returning temporarily exported goods, or are in transit or transshipment
II. Those of baggage and household goods referred to in the customs law
III. Those of goods and services for which transfer in the country or rendering in
national territory, respectively, does not result in the payment of value added tax or
if such goods or services are indicated in Article 2‐A of this law
IV. Those of goods donated by foreign residents to the federal government, states,
municipalities or any other person authorized through generally applicable rules by
the Ministry of Finance and Public Credit
61
Exemptions
(Article 25), Cont.
Value added tax is not paid on the following imports:
V. Those
h off works
k off art that,
h dued to their
h quality
l and
d Mexican cultural
l l value,
l are
recognized as such by competent official institutions, provided that they are
intended for permanent public exhibition
VI. Those of works of art created abroad by Mexicans or by residents that, due to their
quality and cultural value, are recognized as such by competent official institutions,
provided that the author carries out the importatio.
VII. Those of gold, containing at least 80% of such material
VIII. That of vehicles in accordance with Article 62 ((I)) of the Customs Law, p
provided it
complies with the requirements and conditions indicated by the Ministry of Finance
and Public Credit by means of generally applicable rules
62
Importation Of Goods And Services
(Article 26)
(Article 26)
Importation of goods and services is considered carried out:
• At the
th momentt theth importer
i t files
fil the
th customs
t d l ti
declaration f processing
for i thereof
th f
pursuant to the customs law
• In the case of temporary

p y import,
p when converted to final
• In the cases set forth in Article 24 (II) to (IV), of this law, at the time the consideration
is effectively paid
If periodic considerations are contracted, the moment at which each consideration in

question is paid
• In the case of utilization in national territory of services rendered abroad, the

provisions of Article 17 of this law apply.
63
Taxable Base For Importation Of Goods
(
(Article 27)
)
 In order to compute the value added tax on imports of tangible goods, the
value used for general import tax purposes is considered,
considered adding to the
value the amount of the latter tax and other taxes payable on account of
importation.
 The value taken into account in the case of importation of goods or services
mentioned in Article 24 (II), (III) and (V) is that corresponding under this
law for transfer of goods, use or enjoyment of goods or rendering of
services, in national territory, as applicable.
 In the case of temporarily exported goods returning to the country with

i
increased
d value,
l the
h value
l willill be
b that
h used d for
f purposes off theh generall
import tax, with the additions mentioned in the first paragraph hereto.
64
Tax Payment On Importation Of Goods
 In the case of imports of tangible goods, payment is regarded as estimated
and is made jointly with the general import tax, even if payment of the
latter tax is deferred by reason of the fact that since the goods are in
bonded deposit in general deposit warehouses. However no credit is
applicable against said tax payment.
 In the case of goods for which payment of general import tax is not
required, taxpayers will pay the tax established hereunder through tax
returns presented at the corresponding customs authority.
authority
 Value added tax paid upon importation of goods will result in a credit on
the terms and with the requirements established by this law.
 Merchandise may not be taken from the customs, tax or bonded

p gp
warehouse, unless the corresponding payment
y in conformity
y with this law
has been made.
65
Exportations Of Goods Or Services
(Articles 29 Through 31)
For purposes of this VATL, exportation of goods or services is:
• That regarded as final under the customs law

g
• The transfer of intangible goods by persons residing in the country to persons

residing abroad
• The temporary use or enjoyment abroad of intangible goods granted by persons

residing in the country
• The utilization abroad of services rendered by residents under the concept of:
a) Technical assistance, technical services related thereto, and information related to

industrial commercial or scientific experiences
industrial,
b) Maquila and sub‐maquila export operations pursuant to the customs law and the
Decree for the Development and Operation of Export In‐Bond Corporations
(Maquiladoras). For these purposes, services are understood utilized abroad if the
goods under maquila or submaquila are exported by the maquiladora company.
66
Exportations Of Goods Or Services
• The utilization abroad of services rendered by residents under the concept of:
c) Advertising
) Ad ti i
d) Commissions and intermediation
e) Insurance and reinsurance, as well as bonding and re‐bonding
f) Financing transactions
g) Filming or recording, provided that the requirements set forth in the regulations
to this law are satisfied
h) Call service centers for calls originating abroad, contracted and paid for by a
foreign resident without a permanent establishment in Mexico
67
Exportations Of Goods Or Services (Cont.)
• International transportation of goods, rendered by residents in the country
and pport services of cargo,
g , carriage,
g , warehousing,
g, custodial,, stowage
g and
carriage within ports and port facilities, provided that such services are
rendered in merchandise exportation maneuvers
• Air passenger transportation rendered by persons residing in the country,

for that portion of the service which under the terms of the second‐to‐last
paragraph of Article 16 is not considered rendered in national territory
• Hotel and related services rendered by hotel companies to foreign tourists

entering the country to participate exclusively in congresses, conventions,
expositions or fairs to be held in Mexico; provided that said foreigners
present the immigration document evidencing such status pursuant to the
General Immigration Law, and the services in question are paid with a
foreign‐issued
foreign issued credit card, and the event organizers have contracted the
hotel and related services
68
Obligations Of Taxpayers
(Articles 32 Through 37)
Persons required to pay this tax and persons engaged in the activities
mentioned in Article 2‐A to this law, have the following obligations, in
addition
dditi tot those
th i di t d in
indicated i other
th articles
ti l hereto:
h t
 To keep accounting in accordance with the Federal Fiscal Code, the

regulations thereto,
thereto and the regulations to this law,
law and to separate,
separate in
accordance with the latter regulations, those activities for which the tax is
payable at different rates from those activities exempted from the tax
hereunder
 In case of commission agents, to separate in the accounting books and

records those transactions made on their own account from those made on
account of the principal
 To issue supporting documentation, indicating therein in addition to the

requirements, the value added tax charged expressly and separately to
those who purchase or temporarily use or enjoy the goods or receive the
services
69
Obligations Of Taxpayers
 If the supporting documentation covers activities for which value added tax is
payable, it must expressly state whether the consideration is paid in a lump sum or in
installment payments.
payments
 When consideration is paid in installments, for installment payments made after the
date on which the document mentioned in the preceding paragraph is issued,
taxpayers shall issue a supporting document for each such installment payments,
which shall comply with the requirements set forth in Article 29‐A (I), (II), (III), (IV)
and (VIII) of the Federal Fiscal Code. Said documents shall state as well the amount of
the installment payment covered thereby, the way in which the installment payment
was paid, the amount of tax charged, the amount of tax withheld, if any, and the
number and date of the document issued under the terms of the preceding paragraph
covering the transfer of goods, the granting of temporary use or enjoyment of goods
or the
h rendering
d i off the
h service
i ini question.
i
 Taxpayers opting for entering on the reverse of the supporting document the amount
of the installment p
payment
y made under Article 134 ((II)) of the Income Tax Law will
enter the payment date, the amount of charged tax and, as applicable, the amount of
tax withheld. In this case, taxpayers are not required to issue supporting
documentation for each one of the installment payments.
70
Obligations Of Taxpayers (Cont.)
 In the case of transactions or activities undertaken with the general public,
the tax is included in the price at which the goods or services are offered,
as well
ll as in
i the
th documentation
d t ti issued.
i d
 In the case of taxpayers rendering personal services, each payment

received on account of rendered services is considered a lump sum and not
an installment payment.
 To file at authorized offices the tax returns indicated in this law
 To issue certifications for tax withholdings made in the cases set forth in
Article 1‐A, upon receipt of the document mentioned in ((III)) of this article,
and provide on a monthly basis to the tax authorities, by the electronic
means and forms established by the Tax Administration Service,
information on the persons from whom the tax established hereunder was
withheld. Said information will be presented no later than the 17th day of
the month immediately following the month to which said information
corresponds.
71
Obligations Of Taxpayers (Cont.)
 To notify the tax authorities within 30 days following the first
withholding made by those persons that regularly make the withholdings
referred to in Article I‐A and Article 3, third paragraph hereto
 To provide value added tax information as requested on income tax

returns
t
 To provide on a monthly basis to the tax authorities, by electronic means

and forms indicated by the Tax Administration Service,
Service information on
payment, withholding, crediting and charging of value added tax in
transactions with suppliers, breaking down the value of transactions and
activities by the rate at which the value added tax was charged, including
activities for which the taxpayer is not required to pay such tax. Said
information will be presented no later than the 17th day of the month
immediately y followingg the month to which said information corresponds.
p
72
Scott Sneckenberger, Plante Moran
EXEMPT AND 0%‐RATED
EXEMPT AND 0% RATED
TRANSACTIONS
Exempt Vs. 0%-rated
Transactions/Taxpayers
• Exempt transactions
• Residential real estate, land
• Medical services by a doctor
• Exempt taxpayers do not charge their customers VAT.
• Credits/refunds for VAT paid are generally not available.
• 0%-rated transactions
• Exports, IMMEX (maquiladora transactions)
• Food and medicine
• Transaction is part of the VAT system; it is just subject to a 0% rate.
• Credits/refunds for VAT paid are available, subject to normal VAT
regulations.
• This is an IMPORTANT, and often misunderstood, difference between VAT
exempt companies/transactions and 0%-rated transactions.
transactions
74
Exempt Vs. 0%-Rated Transactions: Example
• Client: Residential construction company

― All inputs (i.e., bricks and mortar) are purchased with
IVA tax.
― No VAT on the land purchased by builder (perhaps VAT
on some land improvements?)
― No IVA
A tax collected
ll d on sale
l to h
homeowner
― All indirect costs (i.e. accounting, architect, land
p
development) ) will include IVA.
― The builder must include the VAT on all inputs, to cover
this cost. This is often a surprise – and an expensive
one!
75
Exempt Vs. 0%‐Rated Transactions:
Example (Cont.)
• The following chart represents the exempt IVA transaction flow
Brick‐and‐
mortar Indirect
purchases P h
Purchases
Purchased
Purchased with VAT
with VAT
Residential
Construction
Company
Residence sold with no VAT
Residence sold with no VAT
Residence
sold to
consumer
76
IMMEX/MAQUILADORA
PROGRAM, AND POTENTIAL
IVA BENEFITS
IMMEX P
IMMEX Program: Overview
O i
• The maquiladora program was started by a former secretary of
the economy in Mexico in the late 1960s, to promote
employment in northern Mexico.
• In September 2006, the maquiladora and PITEX programs were

combined into a single export program called IMMEX
IMMEX. The term
“maquiladora” is still widely used to describe a Mexican
company involved in manufacturing for export .
• The goal was to simplify the administration of the two

programs, which were already very similar.
78
IMMEX Program: Traditional Sales Flow Chart
Invoices customer
U.S. Company U.S. Customer
USA
MEXICO Bills labor + overhead + 3%
mark‐up Exports
Supplies raw final
material and product
provides M&E
id M&E
Ships final product to
customer with a pro forma
Pays maquila invoice
service Virtual export
Virtual import
Virtual import
Company de
Customer Mexico
Pays labor +
Mexico
3% mark‐up
3% mark up Supplies labor to operation
Supplies labor to operation
Services
Company
79
IMMEX Program: VAT Overview
• The traditional format for an IMMEX operation includes:

― Foreign company
― Owns inventory (raw materials and finished goods)
― Provides machinery and equipment on a free bailment lease
― Intangibles and essentially all other substantial assets
― Pays no VAT for material purchases, IMMEX services
― No VAT on temporary importation of equipment
― IMMEX operation
― Provides manufacturing services to the foreign company
― Bills the U.S. parent company for its services, with 0% value
added tax
― Temporarily imports raw materials and M&E
― D
Does nott own th
the raw materials,
t i l work
k iin process or finished
fi i h d
goods
80
IMMEX Program: VAT Overview (Cont.)
• An IMMEX, in general, is a bonded warehouse. As such, you must

strictly account for the goods on temporary importation. Full control
and accounting of the goods on temporary importation is required.
• In general, a maquiladora exports (either directly or virtually) the

majority of its goods to either another maquiladora or a company with
an export program.
• Additional complexities
p occur for direct sales into the Mexican
market.
• Must complete a cost/benefit analysis to determine the optimal

structure
81
IMMEX Program: VAT Overview (Cont.)
• For IMMEX operations, three common types of transactions are

0%-rated, from a VAT perspective:
― Temporary importation of raw materials and sub-

assemblies
― Temporary importation
i i off tooling,
li equipment
i and
d
related items
― Purchases of g
goods from Mexican suppliers
pp for use in the
manufacturing process
― Invoices from IMMEX operation to U.S. parent company
82
IMMEX Program: Limitations On VAT Benefits
• Limitations on beneficial VAT treatment
― Goods or inventory may only remain in Mexico for a

maximum of 18 months, duty and VAT-free.
― For sales of product for final use in Mexico, the customs
status off the
h good
d must bbe changed,
h d andd any d
duties
i andd
VAT are due on the fair market value of the goods in
question.
― Equipment may remain in Mexico VAT-free for the life of
the IMMEX operation.
83
IVA AND IMPORTATIONS BY
NON‐MEXICAN COMPANIES
Value‐Added Tax Issues For Non‐
Mexican Companies
• Foreign companies may be subject to VAT on certain activities,

including:
― Importation of products in to Mexico – importance of
the importer of record
― Purchases of certain services
• Treaty protection
i isi not available,
il bl as the
h VAT
A iis not an iincome
tax.
g companies
• Foreign p should not be an importer
p of record.
― Importer of record should be a Mexican subsidiary or
Mexican customer.
― No IVA credit if importer of record is foreign company
85
Value‐Added Tax Issues For Non‐
Mexican Companies (Cont.)
• For services paid for by a foreign company, consider whether

they could be deemed an export. If so, the 0% rate applies.
― Are the services paid for by a company that does not
have a permanent establishment in Mexico?
― Are the services paid for from a bank account located
outside Mexico?
― If so, the 0% VAT rate applies.
― Services to which the 0% rate mayy apply
pp y include:
― Advertising
― Technical assistance – wide range of applications
― Other services?
86
Luis Carbajo Martinez, Baker & McKenzie
Luis Carbajo‐Martinez, Baker & McKenzie
Juan Carlos Valles Zavala, Baker & McKenzie
IMPACT OF ELECTIONS ON IVA
POLICY
Impact Of 2012 elections On VAT Policy
 Increase of VAT rate?
– Tax reform to sustain universal health coverage and other priorities
– Decision to be taken in Congress
– A VAT rate increase is not
not, per se
se, a campaign promise
promise.
– New structure of the Mexican Congress:
 As the PRI does not have control over the Mexican Congress
Congress, it will be
necessary to negotiate with other political parties.
88
IImpactt Of 2012 El
Elections
ti
On VAT Policy (Cont.)
 What are the proposals from the PRI?
– Traditional PRI position: Food and medicines shall be VAT-exempt.
– Beltrones:
B lt General
G l VAT rate
t off 16% on allll ttransactions,
ti iincluding
l di
food and medicines
– 3% refund available to certain consumers
– Luis Videgaray: Need to increase tax collections and eliminate
special regimes and privileges that erode the potential for tax
collection
 What is the general position of the PAN?
– VAT on all transactions, including food and medicines
– Need to eliminate special regimes
 PRD: Not clear
89
Luis Carbajo Martinez, Baker & McKenzie
Luis Carbajo‐Martinez, Baker & McKenzie
Juan Carlos Valles Zavala, Baker & McKenzie
HOT IVA TOPICS, FROM A
,
LEGAL PERSPECTIVE
Relevant VAT Court Cases
 VAT-exempt: The purchase and sales transaction of goods subject
to the customs regime of fiscal deposit (in a duty free warehouse)
are not deemed to take p
place within the Mexican territory.
y
 The VAT paid upon the change of customs regime by a maquiladora,

of goods not belonging to the maquiladora, cannot be credited or
offset (erroneous interpretation)
interpretation).
 Jurisprudence confirming that the application of o% VAT rate on

sales of ice and water in containers of less than 1 liter capacity
p y
 Sale of goods in Mexico between non-residents, with no material

delivery or shipment, is subject to VAT regardless of VAT rules.
91
VAT Considerations
C id ti On
O
Customs Transactions
 Sale of goods subject to IMMEX import is VAT-exempt.
 Sale of g
goods that are exported is subject
j to 0% VAT.
 Manufacturing services provided by IMMEX company (maquila) to non-

residents are subject to 0% VAT.
 Virtual customs transactions prescribe a deemed export-import of goods

within Mexican territory.
 Temporary imported goods may only remain in Mexico for a limited period of
time.
 Customs regime change from temporary to definitive import is subject to

16% VAT
VAT.
92
Sale
S l By
B MMexican
i Party
P t To T Non-
N
Resident, With Delivery In Mexico
Non-resident
Outside MX 1
Sale of goods
MX
16% VAT
2
MX Co 1 MX Co 2
Delivery of goods
1. Sale from MX Co 1 to non-resident

1 non resident is subject to a 16% VAT.
VAT
2. Delivery of goods within Mexican territory
93
Sale
S l Between
B t N
Non-Residents
R id t Of Goods
G d
Situated And Delivered In Mexico
1
Non-resident 1 Non-resident 2
VAT-able transaction;
shipment while goods
are in Mexico
Outside MX
MX
2
MX Co 1 MX Co 2
Delivery of goods
1. Sale of goods between non-residents is subject to VAT, as long as:

- There is shipment from MX Co1 to MX Co2
- There is material delivery of goods in Mexico
2 Seller needs to comply with formal obligations
2.
3. VAT not creditable to buyer
94
Sale Between Non-Residents Of Goods
Situated In Mexico, With No Delivery
1
Sale of goods
NO VAT
Outside MX
MX
2
Goods remain in third
MX Co
party possession
1. No shipment and no material delivery; virtual delivery

2 Court
2. C t precedent
d t on the
th contrary
t
3. Risky position
95
Sale By Mexican Company To Foreign Company,
With Delivery To Third Foreign Company
1
Outside MX
Sale of goods
MX 2
0% VAT
Exportation of goods
No VAT
MX Co
1. Sale from MX Co to Non-resident 1 is subject to a 0% VAT (due to subsequent exportation).

2. MX Co shall act as the Mexican exporter of record – not a VAT-able transaction.
Note: MX Co owns the goods; goods are of Mexican origin or imported under definitive basis.
96
Change Of Customs Regime
Non-resident
Outside MX 1
Temporary importation
MX
of goods
NO VAT
MX Co
Change of customs regime from

2 temporary importation to definitive
importation
16% VAT
1. Temporary importation is VAT-exempt.

2. Goods may only remain under temporary importation for a limited period of time.
3. Change
g of customs regime
g to definitive importation
p is subject
j to 16% VAT.
4. There are other tax implications associated with this transaction (i.e., not having a “maquila
operation” or non-creditable issues if MX Co is not the owner of the goods).
97
Sale By Non
Non-Resident
Resident To A Third Party (Not A
Maquila), With Delivery In Mexico By Maquila
Non-resident
2
Sale of goods
16% VAT
Outside MX 1 WTH byb MX CoC
MX NO VAT
3
Maquila MX Co
Physical delivery
with customs transfer
(virtual export - importation)
16% VAT on permanent
importation
1. Temporary importation by Maquila is VAT-exempt.
2. Sale from non-resident to MX Co is subject to regular VAT taxation.
3. MX Co carries out a deemed permanent importation of goods from abroad, subject to 16% VAT rate.
NOTE: Goods are deemed returned/exported by maquila (qualifies for a “maquila operation”),
4. Double-VAT issue
5. Service by maquila subject to the 0% VAT rate as export.
98
Sale By Maquila To Non-Resident, With
Delivery In Mexico To Third-Party Maquila
Non-resident
1
Sale of goods
Outside MX
NO VAT
MX NO VAT
2
Maquila 1 Maquila 2
0% VAT
Physical delivery
(virtual export -
importation)
1. Sale from non-resident to maquila 1 is VAT-exempt (due to temporary importation customs regime).
2. 0% VAT on delivery of goods between maquilas with IMMEX program
99
Sale
S l By
B Non-Resident
N R id t 1 To
T Non-Resident
N R id t 2,2
With Delivery In Mexico To Third-Party Maquila
2
Sale of goods
NO VAT
Outside MX
1
MX Temporary importation
NO VAT
3
Maquila 1 Maquila 2
0% VAT
Physical delivery
(virtual export -
importation)
1. Sale between non-residents is VAT-exempt (due to temporary importation customs regime).

2 0% VAT on delivery of goods between maquilas with IMMEX program
2.
4. Maquila 1 may qualify for a “maquila operation,” for other tax purposes.
100
Export Of Services
 Technical assistance, technical services, royalties
 Mediation (mediación) - Commission
 Maquila services/sub-maquila
 Advertisement
 Call centers
 Hotel/convention
H t l/ ti services
i
 Independent personnel services
101
Gabriel Andrade, KPMG
HANDLING IVA REFUNDS
Tax Refund Process In Mexico: Main Aspects
‐ Tax authorities are obliged to refund amounts paid in error and in

excess according to the tax laws. There are two options to request a
refund:
‐ Conventional
‐ CPA certification (submitting statutory tax report)
‐ El t i process since
Electronic i 2012 – Tax
T authority
th it Web
W b page
‐ The tax authority should pay the amounts to be refunded,
considering updated figures, with interest.
‐ Potential issues:
‐ Many requests for information by the authority
‐ Requirements without concrete legal basis
‐ Delayed response to the procedure by the authority
‐ Refunds for a lower amount; would require further clarification
by the authority
p
‐ Refund term is sometimes not respected
103
Tax Refund Process In Mexico: Time Frame
‐ The maximum period to obtain a refund is:

‐ 40 days, or
‐ 25 days in the case of companies submitting statutory tax
reports , or
‐ 20 days if the taxpayer omits digital invoices and/or operates
under
d the
th IMMEX program, or
‐ 5 days for “empresa certificada.”
‐ In case of errors in the request,

request the authority may require additional
information within 20 days following the filing, and the company
normally has 20 days to respond. A new request may take place only
within 10 days after the reply from the last requirement, and the
company will have 10 days to answer it.
104

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Presenting a live 110‐minute teleconference with interactive Q&A

THURSDAY, JULY 26, 2012

Today’s faculty features:

Please refer to the instructions emailed to the registrant for additional

Gabriel Andrade, KPMG Scott Sneckenberger, Plante Moran

Exempt And 0%-Rated Transactions Slide 73 – Slide 76

IMMEX/Maquiladora Program, And Potential IVA Benefits Slide 77 – Slide 83

IVA And Importations By Non-Mexican

Impact Of Elections On IVA Policy Slide 87 – Slide 89

Hot IVA Topics, From A Legal Perspective Slide 90 – Slide 101

Handling IVA Refunds Slide 102 – Slide 104

4. It is an efficient tax collection instrument.

5. Reduces tax evasion

6. Its application is merely inter‐territorial

Elements of the VAT

• Subject and object to this tax: General Tax Rate 16%

• That carry out,

• The VAT shall be explicitly transferred to the buyer and separately

• The seller or service provider must charge the tax whenever an

• This is mandatory even when the VATL establishes that the

 Financial institutions that receive goods in lieu of payments or acquire

 Legal entities that:

‐ Receive independent personal services from individuals, or

‐ Acquire scrap to be used as raw material in industry or for its

 Legal entities that:

‐ Receive freight services from individuals or legal entities. The

‐ Receive services from commission agents that are individuals.

 Individuals or legal entities that acquire goods, or temporarily use

For VAT purposes, Mexican tax provisions establish that a transaction is

 The price is received in cash.

When the agreed price is paid by check,

• Renewal of debt: Takes place when the first obligation is substituted by a

• In case of documents receivable derived from financial factoring, the

• In connection with the foregoing,

 This option is expressly stated in the contract.

• VAT will be calculated at a rate of 11% in the following scenarios:

 Activities subject to VAT performed by residents of the region close to

• Notwithstanding the foregoing, in case of alienation of real state, the

 Ice, fresh water

 Machinery for the first sector

 Materials and products destined to be used in the first sector

 Hydroponic greenhouse equipment

 Books, newspapers or magazines edited by the taxpayer

 Domestic water supply

• Grant use or enjoyment of machinery oriented to the first sector

• Export of goods or services that are subject to VAT

Activity subject to VAT

• It must correspond to goods or services strictly necessary for the activities

• Creditable VAT must be effectively paid.

In order to determine the aforementioned proportion, refer to the following

3. In the case of VAT disbursements that are used interchangeably to perform

4. To determine the proportion above, it will be necessary to apply the

Total value of the activities of the month in question

(=) The proportion of creditable VAT on the month to calculate

1. A business entity is dedicated in the sale of real estate and wants to

2. The company makes home sales (exempt) and locals commercial

3. The fixed asset data are as follows:

Investment VAT investment

During the month, the following operations were performed:

Acts or activities taxable on 16% $ 2’000,000.00

IVA trasladado al Nivel de

Indistinctly used for

Value of all activities subject to VAT (including 0%) of the

Value of all activities of the corresponding month (including not