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The reforms to the LISR and LIVA on digital services enter into vigor.

Who would have thought that today with just one click we can order food, private transportation, download music or books, and even transfer money. Surely you are familiar with platforms such as Netflix, Spotify, Paypal, among others that provide online services.

All the mentioned services are digital services, which are nothing more than a function that is provided online to the user and that the user can only use through a digital device, such as a computer, smartphone, tablet, etc.

The providers of these services also contribute with their taxes, which is why on June 1 a reform to the Value Added Tax Law and the Income Tax Law on digital services and digital intermediation services between third parties came into force.

In Article 18-B of the Value Added Tax Law, it mentions the following:

"...when these are provided through applications or content in digital format via the Internet or another network, fundamentally automated, and may or may not require minimal human intervention, provided that a consideration is charged for the aforementioned services."

To be more specific, these are the points that the law provides us with other features in its content:

  • The title of the chapter: Provision of digital services by residents abroad without establishment in Mexico.

  • Sections I, II, III, and IV of Article 18-B: Downloading images, movies, text, information, games, music, forecasts, statistics, etc. Those who act as intermediaries between third parties; online clubs, dating sites; teaching, exercises

However, it must be precise that this is aimed at residents abroad without a permanent establishment in Mexico, which according to the official SAT website are:

Companies: Legal entity that has established in a country other than Mexico the main administration of the business or its effective management headquarters. People (Physical):

  • When they do not have a house in Mexico.

  • When they have a home in Mexico or in another country, in the following cases:

    1. When more than 50% of the total income obtained in the calendar year is generated in a country other than Mexico.

    2. When they have the main center of their professional activities in a country other than Mexico.

It must be taken into account that these Additions to the Value Added Tax Law directly affect national recipients or customers, so for their application, the recipient of the service must be in a national territory, stating the following data, according to Article 18-C: Domicile in national territory; that the payment intermediary is in national territory; that the IP address of the recipient's devices are in national territory; the telephone number with national code (+52).

Now that we know who is susceptible to this new law, we must know how it will affect them and what, according to article 18-D, will be the new obligations and rights for people who provide digital services to receivers located in national territory:

  • Register in the Federal Taxpayers Registry.

  • Offer and collect, together with the price of your digital services, the corresponding value-added tax expressly and separately.

  • Provide the SAT with reports on the number of services or operations each month.

  • Calculate the VAT each month, with a rate of 16% on the considerations effectively collected in that month, as well as make your payment by electronic declaration.

  • Issue and send payment vouchers electronically to recipients.

  • Appoint a legal representative before the SAT and provide an address in the national territory for notifications and monitoring of compliance with tax obligations.

  • Process advanced electronic signature.

It should be added that if these digital service providers are not on the SAT list, they will be considered imports, so they must pay import service taxes in accordance with article 18-I of the Value Added Tax Law

Finally, it should be noted that it is probable that consumers of said digital services will be given a price increase, this is due to the expense that service providers entail to comply with the new obligations that will be regulating them.

We recommend digital service providers to review very carefully in case they are susceptible to these new adaptations that were made in the Value Added Tax Law. We also recommend them to seek a good legal advisor to help them comply with their obligations in order to not fall into tax penalties.

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