Doing Business

Doing Business in Mexico 2015

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194 Tax and Legal Services - PwC Mexico Scope of Value-Added Tax The federal Value-Added Tax (Impuesto al Valor Agregado, IVA in Spanish) represents a one-time tax, payable by the ultimate consumer of all types of products and services. However, each business entity involved in the process from the sale of raw materials to the production and distribution of finished products to the ultimate consumer is generally required to bill its customers the tax on its products (output tax) and to pay the tax to its suppliers on its purchases of goods and services (input tax), crediting the amounts so paid against the amounts due on its own activities. The taxpayer is required to remit the excess of the VAT collected from its customers over the VAT it paid to its suppliers to the tax authorities on a monthly basis. If the amount paid exceeds the amount collected, a refund can usually be requested for the difference, credited against other VAT obligations, or compensate against other tax obligations. In general, VAT does not represent an additional cost to most business enterprises, because even though all types of business enterprises, including government departments and agencies, are required to accept charges of the tax by suppliers on their purchases of goods and services, such amounts will normally be eligible for offset against the liability of the business enterprises for the tax collected on their billings to customers. There will be some exceptions, principally when the sales of an enterprise are "exempt" from VAT, in which case the enterprise is treated as the last consumer and will have to absorb any charges for VAT (input taxes) on its purchases, except insofar as its activities are subject to the zero rate, as mentioned below. However, input tax paid on goods or services used to produce items that are exempt from VAT, may be deducted for corporate income tax purposes. (See "other deductions" in chapter 15). With few exceptions, VAT is a cash basis tax in the sense that only the receipt of payment for goods or services triggers the output VAT liability, and an input VAT credit can be claimed only when the taxpayer pays VAT to its suppliers of goods and services or when the liability to a creditor is satisfied through any other form of extinction or compensation. Thus, the net amount payable by each enterprise will generally be the difference between the tax that was effectively paid and the tax that was effectively collected. Taxable transactions In general, VAT is payable on all sales of goods, independent services, rentals, and imports of goods and services, although a number of significant exceptions are provided in the law, as well as certain defined activities which are taxed at the zero rate (See Appendix XII).

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