Detail Oriented Manufacturers Save with Added Tax IVA Refunds

February 07, 2012

By Elsa Sturza
Vice President of Finance, Tetakawi

A basic understanding of the Mexican tax system is important to any company manufacturing in Mexico under the auspices of a Manufacturing Community and shelter program, such as that offered by Tetakawi. However, a much more detailed understanding of the matter is critical to manufacturing companies establishing themselves in Mexico on their own as a wholly-owned foreign subsidiary.

A core element of the Mexican tax system is a value-added tax (VAT), known by its acronym in Spanish, IVA. This term means Impuesto al Valor Agregado. It is a 16% tax levied in the country's interior, and 8% in Mexico's border region. It is important to note that this tax is levied on a cash basis.

VAT is charged on virtually every transaction conducted in Mexico, regardless of whether business is done in person, online or over the telephone.  Except for pharmaceuticals, every purchase of 100 pesos, for example, will be charged at 116 pesos, or 111 pesos in the border region. For manufacturers that are exporting their product for consumption outside of Mexico, the tax is recoverable through a rebate process.

Like most other concerns for doing business in Mexico, Manufacturers in Mexico are not enamored with the idea of paying an extra 16% up front on fixed assets purchases, a hotel night or a tank of gas, but the good news is that this money can find its way back into a business bank account in three to five months -- as long as care is taken in the execution of the process for receiving its rebate. If you don’t cross your T’s and dot your I’s get ready for some delays. Tetakawi does the legwork that is required to secure these rebates as a part of the service package that it offers to manufacturers in Mexico that operate under its Manufacturing Communities.

 The VAT Rebate Process in Mexico

  1. RFC Process or Registro Federal de Contribuyentes:  When an individual, or a company, that seeks a VAT refund makes a purchase, it must present its tax code identification number to the Mexican seller. 
  2. RFC Identification: Generally, individuals and employees in Mexico will carry a small, plastic-card containing the number, and the individual’s (or corporation's) proper name and address.
  3. The Factura or Reciept: It is then up to the Mexican vendor to provide an official receipt, known as a factura, to the buyer. This factura must then be saved, or presented to the business office each month, and submitted to Hacienda (the Mexican federal taxation authorities) for the VAT refund.  That VAT, in turn, can be refunded during the next cycle of monthly submissions to Hacienda.
  4. Hacienda and Facturas: While US tax authorities accept a variety of receipts, or even a businessman's word, Hacienda is not as flexible. If you do not have a factura on the official Hacienda stock complete with a seal and the RFC, it is as if the business transaction never took place.
  5. Actions to Recover your VAT/IVA: In order to be sure that you can recoup your IVA taxes, you must sometimes take small actions to obtain the required tax information such as waiting in line in restaurants, taking an extra 30 seconds at the hotel checkout, spending additional time at the Pemex station to have the attendant print you out a receipt, or devoting an extra minute to document an online purchase to fly Aeroméxico or Interjet in order to get the necessary documentation to use as evidence of the purchase having been made.

Pay attention to details. An error may not cost you the deduction itself, but it might delay your receipt of refund.

Another important item to remember is that the Mexican taxation authorities (Hacienda) will require the corporate entity's name to be on all facturas -- not a nickname, or other entity.

Much of Mexico's tax reporting is headed in the direction of online filing and refunding. But it's not there yet. Under the most recent set of guidelines, all companies in Mexico with more than 4 million pesos in annual revenue (about US $280,000) should be filing digitally. This policy was supposed to take force in 2012, but some companies still file the old-fashioned way: paperwork.



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