The VAT law It is the one that is in charge of being able to regulate the tax that we pay every time we buy a product. In Mexico, it is a current and highly important tax for any entrepreneur and buyer, since it imposes a 16% charge on all operations carried out within the country, even if you are selling online.
I know that it can be a complicated and difficult to understand subject, but I will try to talk about the Value Added Tax Law in Mexico in the most detailed way possible so that you understand how it works, what its uses and applications are. Yes, at first it can be a complex issue, but don’t be scared, here I will help you clear up any doubts.
One of the main functions of VAT is that it can form completely indirect financing and, at the same time, collect extremely important amounts. In fact, all people who buy a good or contract a service are obliged to pay it, even if you are.
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What is the VAT Law in Mexico?
Now yes, it is time to go into detail. When it is spoken, it refers to the regulation of one of the most important taxes in our country, since it has a direct influence on factors of vital importance for the economy such as inflation.
The VAT Law in Mexico During 2022, it indicates that it is a constant, current and highly important tax and imposes a 16% charge on all operations carried out in national territory, with two exceptions:
- Products and activities in the border area, where the VAT rate is 8%.
- Some products that are not creditors of VAT and have a rate of 0% or do not pay tax.
The operations that are exempt from the VAT rate are:
- Alienation of assets.
- Acts and activities with 0% rate.
- 0% rate for export.
- Provision of services exempt from payment of VAT.
- Imports exempt from VAT payment.
- VAT exemptions for lease.
In this way we can realize that, essentially, VAT is the most important tax that is levied every time we buy a product and is included in almost all products, so it is very important to learn from it if you are considering, regardless of whether it is physical or online.
Evolution of the VAT Law in Mexico
In our country, the VAT rate has undergone constant changes over time, from adjustments in its general rate to special regimes.
One of the most important changes in the general VAT rate occurred in the 1990s, when the tax was 15 percent, while the applicable rate for border cities was between 6% and 20% for all products, but particularly those that were considerably luxurious.
The general rate suffered a decrease of five points in 1992, remaining at 10%, although the border rate did not show any change.
Between 1995 and 2009 both rates were increased. The general VAT rate returned to 15% and in the border cities it remained at 10%.
During those years there were also some sporadic attempts to tax food, an issue that has always generated controversy since, on average, the consumers who are most affected are those who do not have the necessary resources and who spend 60% or more of all your income for the purchase of groceries.
As you can see in this small excerpt, taxes in Mexico are constantly changing depending on the economic circumstances that the country may go through.
Structure of the VAT Law in Mexico
VAT tax revenues are currently one of the essential sources of income for the federation.
There is a lot of information to explain and I am sure that at this point you are wondering, what exactly is the structure of the VAT Law? Therefore, I will share more details below so that you can understand it.
Structurally, the Value Added Tax Law It has nine chapters in which 43 articles are grouped that speak from rates, taxes or obligations to credit balances, compensations and monthly calculations.
As I mentioned, everything is divided into the 16 percent rate, the 0 percent rate, and also the “exempt regime.”
One of the most notable points within these chapters is the one established in the first article, which tells us that all those people to whom VAT is transferred must retain it, since in this way the importance implied by the figure is derived. of the transfer of the tax.
With the above we can realize that since it is not a direct tax, all the economic burden can fall on the person who provides their services or grants the use of temporary goods.
Some of the most important features of the Value Added Tax Law (LIVE) are the following:
- It is an indirect tax. Since it can economically affect people completely different from the original taxpayer.
- It is a general tax. You can tax all the activities and acts that are the object of the LIVE.
- It is a permanent tax. It does not have a well-defined validity.
- It is a regressive tax. Since all the rates that people pay have no relation to the wealth they possess.
VAT Classification
To continue discovering the importance of VAT in the country, we must first analyze the context it has had on its finances.
There are different ways to classify public revenue and the importance of each of them. These can be grouped into different categories such as:
By its origin
- ordinary
- extraordinary
Due to its institutional classification
- oil revenue
- non-oil revenue
- Tax
- Non-tax
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ordinary income
Ordinary income could be considered, essentially, as a normal and periodic source of the different fiscal resources available to the public sector and that are established in a budget.
All this income is captured by the public sector for its performance in public law activities and as a producer of different goods and services by the income law.
extraordinary income
They are the income that is obtained by exceptional methods and the origins of these can be different from the functions of the government. They generally come from contracting credits, issuing coins, etc.
Oil and non-oil revenues
This classification is mainly used to analyze public finances from the income generated from oil, since at one point they represented a third of all budget income.
Tax and non-tax income
The main purpose of tax revenue is to be able to mark and establish some indicators that serve for the tax burden. While non-tax revenues are those revenues that the Federal Government collects as contributions and the goods and resources obtained by companies with budgetary control.
Elements of the VAT Law
All the elements that make up the VAT are important since this way it is possible to better understand and comprehend what the scope that all taxes propose really is.
But before addressing this topic, here is a quick summary of the elements that essentially make up any tax.
- Object: It refers to all the activities, acts or reasons for which the tax is charged. It is basically the source of why the payment obligation is made.
- The basis, the quota or rate: are the amounts on which the tax is being determined and are used to determine when it must be paid.
Now yes, we present you the elements that it has the VAT Law:
Subject
There are two types of subject: active and passive. The active subject is made up of the state and all its entities and is the one in charge of receiving the tax; For its part, the taxpayer is the person who is obliged to pay the tax.
When we talk about the subject in the case of VAT, the asset is the Federation and it is received; while the liabilities are those natural or legal persons who have the obligation to make their payment of the tax.
VAT in border areas
In the border areas of Mexico, the products and activities that are carried out have a tax credit of 50% of the value added tax, leaving the rate at 8%.
This tax incentive applies to individuals and corporations whose activities include the sale of assets, the provision of independent services or the temporary enjoyment of assets.
As with any law, there are exceptions. The activities that cannot apply to this fiscal stimulus are:
- Alienation of real estate or alienation and granting of temporary use or enjoyment of intangible assets.
- Digital services.
- Digital intermediation services between third parties.
- Those who provide transportation services for goods or people, whether by land, sea or air. Although if the provision of this service begins and ends in the border region, without having scales outside it, they will be able to receive said credit.
I am sure that you will ask yourself, which are the municipalities that have this benefit? To resolve this doubt, I share what he points out:
What municipalities make up the northern border zone?
- Ensenada, Playas de Rosarito, Tijuana, Tecate and Mexicali in the state of Baja California.
- Janos, Ascensión, Juárez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga and Manuel Benavides from the state of Chihuahua.
- San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco and Agua Prieta in the state of Sonora.
- Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero and Hidalgo in the state of Coahuila de Zaragoza.
- Anahuac from the state of Nuevo León.
- Nuevo Laredo; Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso and Matamoros in the state of Tamaulipas.
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What municipalities make up the southern border zone?
- Palenque, Ocosingo, Meritorious of the Americas, Marquis of Comillas, Maravilla Tenejapa, Las Margaritas, La Trinitaria, Frontera Comalapa, Amatenango de la Frontera, Mazapa de Madero, Motozintla, Tapachula, Cacahoatán, Unión Juárez, Tuxtla Chico, Metapa, Frontera Hidalgo and Suchiate from the state of Chiapas.
- Calakmul and Candelaria, from the state of Campeche.
- Balancán and Tenosique, in the state of Tabasco.
- Othón P. Blanco from the state of Quintana Roo.
Taxable rates and activities
The law mentions three different categories in terms of the applicable rates that VAT has, but there are really only two rates.
The first and the one we have been talking about mainly is the 16% rate, which has been in force since 2014 and taxes activities such as:
- Alienation of assets.
- Provision of independent services.
- Dation in use or temporary enjoyment of goods.
- Import of goods or services.
In all these activities the rate of 16% may be applied.
Now, the second rate is 0% which is used and applied…
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