The Myth of double payment of VAT
By Adina Moloman
Source: AIM, CNIMME
On July 29, 2011, the Ministry of Finance, published in the DOF, the Temporary Regulations to the Customs Law for 2011.
A copy of the entire document is also available through the Maquiladora Industry Association web page.
This includes a new VAT rule for Certified Maquiladoras that would require the payment (“withholding”) of VAT in case of temporarily imported goods that are transferred to Mexican residents under a virtual export/import mechanism. So there were a few controversial interpretation, which concluded in the payment of VAT twice on the sale of the goods by the foreign resident to a Mexican resident: first upon the virtual, definite importation of the goods by the Mexican resident and also as a consequence of the VAT withholding by the same Mexican resident (based on an observation of Ernst& Young fiscal expert).
Normally Mexican VAT Law and Temporary Regulations to the Customs Law provide for a complex set of rules with exemptions and zero rated VAT treatment for transactions involving maquiladoras.
So in its defense CNIMME, as a support of the Mexico Maquiladora Services, extended a statement over this information indicating that this is false, that when considering an activity that effectively results in an increase in the amount of VAT payable, however, this amount is creditable, so the effect of double payment of VAT practically nullified. The CNIMME has seen that a delay of implementing this new procedure be delayed until at least December 31 of this year.
More specifically, the VAT will be recoverable (creditable) for the Mexican resident in the month following the month on which the VAT is paid to the tax authorities.
Also is important to specify that the sale of the goods made by the foreign resident is supposed to be made in Mexico. The implementation of this new Rule will be more critical to Maquilas that are in the interior of Mexico more so than Maquiladora operations that operate along the U.S. Mexico border.
