VAT withholding on sales between foreign residents and domestic IMMEX companies
Last November 18, 2014, the Third Resolution of Amendments to the 2014 Foreign Trade Rules was published in the Federal Official Gazette. We can highlight, among them, the annulment of Rule 5.2.2 Section II, which stated that foreign resident sales of merchandise imported temporarily by a company with an IMMEX (Export Manufacturing, Maquila, and Services Industry) program to another (domestic) company with such a program would be considered exported and therefore not be subject to value added taxes.
The elimination of such rule relates to the amendments made to Article 9 Section IX of the Value Added Tax Act through the 2014 Tax Reform. Note that such reform eliminated the exemption held by a foreign resident to sell to a legal entity with an IMMEX program, and since the merchandise is located in domestic territory, the transaction is subject to value added taxes that the buyer has the obligation to withhold pursuant to Article 1-A Section III of such act.
Nevertheless, in order not to affect the economy of the domestic taxpayers holding an IMMEX program, on December 26, 2013, the Tax Benefits Decree for the Maquila Industry was published whereby the latter were granted the benefit of crediting the value added tax due and withholding it. The credit would be against the withholding made in the same period.
To conclude, the amendments made will not affect the taxpayers’ economy or the chain of production; however, the respective administrative measures will need to be made to keep adequate records of such transactions.
MXGA personnel are duly qualified to offer you further information regarding this publication.