In recent years there has been a constant effort on the part of the tax authorities to obtain information that allows for more efficient taxation control; with the aim of achieving higher incomes for the government. This has led to the tax authorities focusing on the supervision of foreign companies operating in Mexico. For this reason, it is vital that foreign companies operating in Mexico have a comprehensive understanding of their invoicing requirements.
Value Added Tax – VAT (IVA in Spanish)
A foreign company is subject to pay taxes for the activities they conduct in Mexico, either through withholding tax for income earned in the Mexico, importation taxes/duties or taxable VAT activities. Recently, the Tax Administration Service (SAT) has been reviewing all Mexican companies that purchase goods from foreign companies operating in Mexico.
Although there is an obligation for Mexican companies to pay VAT, they also have the right to credit it and therefore the payment of it is “virtual”; that is, the result of this control effort does not have a collection effect and only generates costs and inconveniences for Mexican companies and for SAT itself.
Another issue that has affected this type of transaction is certain formal obligations that apply to foreign companies that sell goods or providing services in Mexico.
Until last year, it was enough that the invoices of foreign companies include basic requirements that any invoice contains. This included:
- Deduction of the purchases and prove that VAT has been paid
- Identification of company issuing the invoice
- Identification of company receiving the invoice
- Description of good, service and price
Currently, for the purposes of articles 29, antepenúltima paragraph and 29-A, and the last paragraph of the Fiscal Code of the Federation, taxpayers who deduct or credit tax receipts issued by residents abroad without a permanent establishment in Mexico, can use such vouchers which contain the following:
- Name, denomination, company name, address and tax identification number
- Place and date of issue
- RFC of the person/s or business/es involved
- The requirements established in article 29-A, section V, first paragraph of the CFF
- Unit value and total amount of the good or service
- In the case of the alienation of goods or the granting of their use or temporary enjoyment, the amount of taxes withheld, as well as the taxes transferred, are separated from each of the corresponding tax rates
Many Mexican companies already have customers billed electronically abroad. Two common accounting questions are: Is the RFC to be recorded in electronic invoices as a business transaction? How is it established?
Federal Taxpayers Registry (RFC)
In accordance with regulation 184.108.40.206 of the Fiscal Miscellaneous Resolution for 2016, for this type of transaction with customers residing abroad, the generic RFC XEXX010101000 is used when one of the two subjects is not Mexican national, and lives outside the country, but pays for a service or product from Mexico.
The RFC is a code that identifies you to the federal tax authorities as a taxpayer. It is used as a means to fulfill tax obligations in regards to your economic activities. The RFC is the basic requirement in digital tax receipts (CFDI), in accordance with articles 29 and 29-A of the CFF.
The RFC contains your basic personal data such as your surname, name and date of birth; assisting SAT in identifying Mexican taxpayers. You will also have a homoclave assigned to you by SAT. The generic RFC is used in very specific cases; for example, when you perform a legal act with a physical or moral person of which you do not know their RFC.
Today all taxpayers are obliged to issue tax receipts according to government policy, even if their clients do not request them. For this reason, it is important for foreign companies to understand their invoicing requirements; with this knowledge you will be able to issue a CFDI with the generic RFC by operation. Remember that it is important to do so in order to be permitted tax deductions. The use of the generic RFC can allow you to maintain customers while complying with the law; as long as the taxpayers comply with the requirements established by the tax regulations to issue these types of vouchers.
If you would like more information on the invoicing requirements of foreign companies in Mexico, or general financial reporting advice, contact Biz Latin Hub Mexico. Reach out to Alex Mahoney at [email protected] and see how we can add value to your Mexican investment.