Understanding Mexico’s Value-Added Tax (IVA): What Foreign Companies Must Know
Introduction
When foreign companies consider entering Mexico—whether through direct operations, hiring staff, or selling goods or services—they must understand the Mexican VAT system (called IVA, “Impuesto al Valor Agregado”). IVA is an indirect tax applied to most goods and services, and missteps can lead to penalties, unexpected costs, or compliance problems.
This guide covers what IVA is, how it works, special rules for exports and digital services, VAT registration and invoice (CFDI) requirements, and tips for foreign companies to stay compliant.
What Is IVA (Value-Added Tax) in Mexico?
- Standard Rate: The standard IVA rate is 16% in most of Mexico. LegalClarity+2Lovat Compliance+2
- Border (Reduced) Rate: A reduced rate of 8% applies in certain border regions. Alegra Blog+1
- 0% Rate (Zero-Rated): Transactions considered exports of goods or services often qualify for 0%. Basic goods (like certain food items, medicine, books) may also be zero-rated. MEXTAX Accounting+3LegalClarity+3Bado.com+3
- Exemptions: Some goods or services are exempt (no IVA charged, and no credit for input IVA). Examples: healthcare services, educational services, residential rents under certain conditions. PwC Tax Summaries+1
When IVA Applies (and When It Doesn’t)
| Scenario | IVA Applies? | Notes Relevant for Foreign Companies |
|---|---|---|
| Sale of goods to customers in Mexico | Yes (16% or 8%) | Must register, issue facturas, collect and remit IVA. |
| Importing goods into Mexico | Yes | IVA must be paid at customs; imports often have input credit if used in business. PwC Tax Summaries+1 |
| Export of goods or services | 0% rate if legal requirements are met | Businesses exporting goods or providing services utilized abroad can use 0% IVA rate. KPMG+2Bado.com+2 |
| Digital services sold to Mexican customers | Yes | Foreign and domestic providers of digital services (e.g. streaming, online software) must charge IVA. Special rules apply. Lovat Compliance+2LegalClarity+2 |
Key Legal / Operational Requirements for Foreign Companies
IVA Registration
Foreign companies providing taxable goods or services in Mexico may need to register with the SAT (Servicio de Administración Tributaria). Even if there is no permanent establishment, IVA obligations can arise when services are consumed or goods are sold in Mexico. Rödl & Partner+1
CFDI Invoicing (Electronic Invoices)
- All invoices (“facturas”) must follow the CFDI (Comprobante Fiscal Digital por Internet) standard.
- Invoices should separately list the base amount, IVA, and contain legal taxpayer identifiers. Todo CFDI+1
Monthly Filing and Payments
- IVA returns are normally filed monthly, with the IVA collected (transferred IVA) minus the IVA paid on business inputs (creditable IVA). GST Cal+2PwC Tax Summaries+2
- Filing usually is before the 17th day of the month following the period of sales. Company Formation Mexico+1
Special Cases & Exports
Zero-Rated Exports
Services or goods exported from Mexico are often taxed at 0% IVA under Article 29 of the IVA Law. To benefit, exporters must meet certain conditions (e.g. “exports,” “utilization abroad,” proper documentation). Bado.com+2KPMG+2
Digital Services & E-Commerce
- Non-resident providers of digital and online services must charge IVA on sales to Mexican consumers. Lovat Compliance+2Moss Adams+2
- E-commerce platforms (foreign or local) selling into Mexico must adapt to recent rules making them responsible for IVA even if payment is made outside Mexico. Mexico News Daily
Common Mistakes & Risks for Foreign Companies
- Misclassifying exports or services as 0% when they don’t meet legal criteria – which can lead to denied refunds or audits.
- Failing to invoice correctly according to CFDI rules, making invoices invalid.
- Not registering for IVA when required, particularly for digital services or cross-border transactions.
- Overlooking local reduced rates or border rate rules, and being caught off-guard with higher taxes.
Practical Tips to Stay Compliant and Optimize IVA
- Work with a local tax advisor who understands SAT and IVA laws.
- Maintain robust documentation for exports or services consumed abroad (agreements, proof of recipient location, payment method).
- Use accounting systems that can handle CFDI invoicing, IVA tracking (IVA trasladado vs IVA acreditable).
- Plan cash flow for IVA payments, since IVA collected must be remitted monthly.
- If operating digitally, monitor the rules for non-resident digital service providers carefully—they can change.
Conclusion
IVA is one of the most critical tax obligations for foreign companies operating in Mexico. Understanding rates, exemptions, export rules, invoicing (CFDI), and registration obligations is essential.
When handled correctly, IVA compliance can be managed smoothly—and zero-rating for exports or services used abroad can offer meaningful tax advantages. But errors or oversight can be costly.
If you’re planning to do business in Mexico, partnering with local experts—or using an Employer of Record (EOR) who understands IVA obligations—can make a big difference.
