VAT Rates in Mexico
Mexico’s primary indirect tax is the Value Added Tax, locally known as IVA (Impuesto al valor agregado). It typically applies to all imports, the sale of goods, and the provision of services by a taxable entity, unless explicitly exempted by specific legislation. This tax is levied by the federal government throughout the entire commercialization chain and has been in effect in Mexico since 1980.
Here is a breakdown of the different tax rates and their corresponding categories:
| Rate | Type | Goods and services |
|---|---|---|
| 16% | Standard | All other taxable goods and services |
| 8% | Reduced | Supply of goods and services, as well as the use or enjoyment of goods in localities or establishments located in the Southern and Northern border regions |
| 0% | Zero | Exports, basic food items (such as milk, wheat, meat, corn), medicine, some agricultural services, fresh water, ice, books, newspapers, and more |
VAT exempt supplies are those not subject to the Mexican IVA, as stipulated by the law. This includes immovable property, land, financial services, insurance, cultural exhibitions and events, imports, copyrights, and other specific exemptions.
Additionally, there is a Lodging tax (ISH, Impuesto Sobre Hospedaje) that is directly charged to guests. The ISH tax rate varies from state to state, typically ranging between 2% to 5%.
It’s worth noting that, until December 2013, Mexico applied a reduced rate of 11% in certain border states, including Baja California Norte, Baja California Sur, Quintana Roo, the municipalities of Caborca and Cananea, and the bordering regions of the Colorado River in the state of Sonora. This reduced rate was implemented to attract businesses to these areas, as the sales tax in U.S. border states was only half of the IVA in Mexico. However, this 11% reduced rate was discontinued starting January 1, 2014, and replaced with a broader set of incentives designed to support manufacturing companies located in those regions, commonly referred to as “maquiladora zones.”