Mexico changes

As of November 1, 2023, Avalara is enhancing the AvaTax VAT/GST determination solution to support more complex calculation logic and content for some specific Mexican use cases.

Use case definitions

Northern and Southern region tax incentives
A transaction in the Northern or Southern Mexican region refers to transactions that are performed by taxpayers in the Mexican border zones that are entitled to a credit equal to 50% of the VAT due on the transaction and that can be taken at the time of the taxable act, which results in a VAT reduction from 16% to 8%. This reduction is allowed for qualified transactions, in specific regions and subject to registration.
IMMEX program (also known as Maquiladora)
A maquiladora is defined as a mode of manufacturing in Mexico that is established by a foreign company, involving the export of manufactured goods to the company’s origin country. Under the IMMEX program, these companies can benefit from VAT exempt import of raw materials, machinery and equipment to be used in the manufacturing process.

What's changing?

Northern and Southern region tax incentives
We are enhancing our AvaTax functionality to be able to support specific transactions that can benefit from these tax incentives. If the transaction can benefit from such tax incentive, AvaTax will apply a reduced rate of 8% (50% of the 16% Mexican VAT rate) if the user has followed the steps below:
1. The user needs to add in the AvaTax section “Where do you collect tax” the country of Mexico and indicate whether they are registered in either the Registry for Beneficiaries of the Incentives for the Mexican Northern Border, Southern Border, or both.
2. When the user creates or sends a transaction to AvaTax to calculate taxes, the user will need to send:
  1. A full Mexican address (including the zip code) that falls within one of the Northern or Southern border regions
  2. An Avalara tax code that is not considered to be a digital service in Mexico
IMMEX program (also known as Maquiladora)
We are enhancing our AvaTax functionality to be able to support transactions for an entity that is registered for an IMMEX authorization. If the user is registered under the program and the transaction meets certain criteria, AvaTax will exempt from VAT the transaction assuming that the following steps are followed:
1. The user needs to add in the AvaTax section “Where do you collect tax” the country of Mexico and indicate whether they are registered for the IMMEX authorization.
2. When the user creates or sends a transaction to AvaTax to calculate taxes, the user will need to send:
  1. If the document type is a “Purchase Invoice” or a “Customs Invoice," one of the following parameters needs to indicate that the import of the products is temporary:
    - IsTemporaryImport18months: This parameter works in conjunction with the AvaTax tax codes listed below to identify the items that do not require the payment of import VAT if the reexport will occur within 18 months.
      - PM020770: Packaging equipment parts 1 to 3 years
      - PP210000: Packaging materials
      - PM020760: Materials used and consumed in the assembling, manufacturing, or fabrication process in existing facilities
      - PM020765: Lubricants and grease used and consumed within 25 days in the manufacturing process
      - PL018834: Labels & Price Tags not attached to merchandise
    - IsTemporaryImport: This parameter works in conjunction with the AvaTax tax codes listed below to identify items that do not require the payment of import VAT if the reexport will occur before the end of the IMMEX program:
      - PM020770: Packaging equipment parts 1 to 3 years
      - PM020700: Manufacturing machinery
      - PM020704: Repair or replacement parts for manufacturing machinery
      - PM020750: Assembling, manufacturing or fabricating machinery and equipment used in existing facilities with a useful life of three years or more
      - PM020780: Industrial machine tools
      - PT030600: Telecom - Machinery and Equipment (Replacement Parts)
      - PT030000: Telecommunication Machinery and Equipment
      - PM008826: Heavy Equipment Parts and Accessories
      - PM020755: Wear parts > 3 years life
      - PM020756: Wear parts 1 to 3 years life
      - PM020757: Wear parts < 1 year life
  2. If the document type is a "Sales Invoice" and related to services provided as part of the IMMEX program to the principal entity outside of Mexico, then the user will need to send the following parameters as part of the transaction:
    - ServicePerformedonTemporaryImport: This parameter identifies that the service performed in Mexico is eligible to be treated as a service performed outside of Mexico due to it being performed on an item temporarily imported for the service.
    - isbilledtoprincipal: This parameter confirms that the service is billed to the principal as that is a required condition.

Please note that no immediate action is required regarding the above. Please feel free to reach out to your CAM should you have any questions.

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