If you're a manufacturer doing business in Mexico—or considering expanding into the country—Value Added Tax (VAT), or IVA as it's known locally, is a critical part of your financial picture. While VAT can quickly pile up on imports, supplies, and services, the good news is: much of it can be recovered.
This guide explains how VAT works in Mexico, the importance of VAT and IEPS certification, and the steps to secure efficient reimbursement—all in simple terms, no accounting degree required.
Understanding VAT in Mexico
- What is VAT? VAT (IVA - Impuesto al Valor Agregado) is a 16% consumption tax applied at nearly every stage of the transaction, whether you're buying raw materials, importing goods, or contracting services. It's an indirect tax, meaning the cost is passed along through the supply chain until it reaches the end consumer.
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Who Pays VAT? Anyone conducting economic activities in Mexico—individuals or companies involved in manufacturing, sales, services, leasing, or importing—is generally subject to VAT.
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How Does It Work? VAT is calculated based on the sale price of goods or services. Businesses can credit VAT paid on prior stages of the supply chain against what they owe, effectively taxing only the value added.
VAT Rates in Mexico
VAT on Digital Goods in Mexico
Companies doing business in Mexico can be charged with the VAT for the delivery of digital services and products. These are things like audio-visual products like music and movies, streaming services, online storage services, and internet providers, among others.
VAT for Manufacturers
Manufacturers in Mexico frequently pay large VAT amounts upfront—for example, a $1 million import may trigger $160,000 in VAT at customs. These balances can create significant cash flow strain unless properly managed.
Companies can either:
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Offset VAT: Use credit balances to reduce future VAT liabilities.
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Request Reimbursement: Receive a direct refund from the tax authority (SAT).
VAT reimbursement is especially important for export-heavy operations, where products are zero-rated for VAT but still generate recoverable input VAT.
VAT Under the IMMEX Program
Mexico’s IMMEX program incentivizes export-driven manufacturing by offering tax advantages for companies that temporarily import goods for processing and then export the final product.
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VAT Exemption: Certified IMMEX companies may avoid paying VAT on temporary imports.
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Streamlined Reimbursements: VAT certification unlocks faster refund processing and fewer audits.
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Compliance Requirements: These include inventory controls (Annex 24), export thresholds (60% or 80%), and regular reporting.
The maquiladora industry in Mexico operates within one of the most complex tax and foreign trade environments. Due to the international nature of their operations, IMMEX companies often generate VAT credit balances, since exports are taxed at a 0% rate. This creates a challenge in managing VAT refund requests—if not handled properly, companies risk significant delays, errors, or even losing the ability to recover those credits.
Obligations and Requirements for IMMEX Companies
The IMMEX program promotes the export sector by offering tax incentives to companies doing business in Mexico, especially those involved in manufacturing and exporting goods. To benefit, companies must meet specific requirements, including:
- Maintaining operational and financial controls over temporarily imported goods and materials.
- Minimum export levels: Companies must export at least 60% of their annual production.
- Inventory control systems: A detailed, automated inventory system (per Mexican customs rules - Annex 24) is mandatory.
- Reporting: An annual foreign trade operations report and others must be submitted.
VAT Certification (IVA/IEPS)
VAT Certification actually comprises of two components, (1) VAT, value-added tax, or IVA as the acronym in Spanish, and (2) Special Tax on Production and Services, or IEPS in Spanish. The IVA/IEPS Certification program is a credit line to companies that comply with specific fiscal requirements established by Mexico's tax authorities. This credit line permits you to import without paying IVA, that xx when the products are exported.
Certified companies enjoy significant benefits, such as preferential VAT rates, streamlined customs procedures, and improved cash flow—key advantages for businesses engaged in international trade.
However, these benefits come with ongoing obligations. Certified companies are subject to periodic compliance audits by the tax authority, SAT, to ensure continued adherence to the program’s requirements. Failure to maintain compliance can result in the loss of certification and the benefits that come with it, along with potential financial penalties.
What is IEPS?
IEPS, or Impuesto Especial sobre Producción y Servicios (Special Tax on Production and Services), is a federal tax in Mexico applied to the production, sale, or importation of specific goods and services considered non-essential or harmful to public health or the environment. These include products like alcoholic beverages, tobacco, sugary drinks, gasoline, and high-calorie foods.
Unlike VAT (IVA), which is generally applicable to most goods and services, IEPS targets a narrower group and is not always transferred directly to the final consumer—though in practice, it often affects retail prices. The calculation of IEPS depends on the type of product: it may be based on a fixed rate per unit or as a percentage of the sale price, as defined by the applicable tax regulations.
Key Requirements and Obligations
To maintain VAT Certification, companies must:
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Stay current on all tax obligations, including VAT and IEPS payments, to avoid sanctions or suspension.
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Notify AGACE (the General Administration of Foreign Trade Audits) of any changes to legal name, address, shareholders, facilities, subcontractors, clients, or suppliers.
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Meet export thresholds:
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IMMEX companies must export at least 60% of the value of temporarily imported goods, including maintaining Annex 24.
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For sensitive goods listed in Annex II or 28, this threshold increases to 80%.
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Submit regular reports to SAT, including:
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Annex 31: tracking beginning inventory and inventory withdrawals
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Other documentation supporting tax compliance and operational transparency
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VAT Reimbursements in Mexico
Businesses in Mexico can generally credit the VAT they pay on purchases and expenses related to VAT-taxable activities—including those subject to the 0% rate—against the VAT they collect from customers on their sales or services.
If a business pays more VAT on purchases than it collects from sales, the excess VAT can be recovered through:
- A refund from the tax authority,
- A credit applied to future VAT obligations.
What You Need to Qualify
To request a reimbursement, manufacturers must:
- Be a legally registered entity in Mexico
- File electronic invoices (CFDIs) that match up with your claims
- Prove you’ve paid the VAT (bank statements, receipts)
- Maintain a compliant digital accounting system
- Submit accurate and timely monthly tax returns
- Be up to date with SAT (Servicio de Administración Tributaria)
Companies operating under the IMMEX program—especially those with VAT certification—may have additional advantages or streamlined processes.
How VAT Reimbursement Works
Step-by-Step Process:
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Track VAT Credits from eligible purchases, imports, and services.
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Prepare Filing: Gather CFDIs, export documents, and payment proof.
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Submit Request via SAT Portal.
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Wait for Review: SAT may audit or request further documentation.
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Receive Refund: If approved, the funds are deposited in your company’s Mexican account.
The Challenge of VAT Refunds in Mexico's Maquila Industry
Maquiladoras benefit from VAT exemptions on temporarily imported materials for export, but still generate creditable VAT on domestic expenses. Recovering these VAT balances is critical for cash flow, yet the refund process is complex and documentation-heavy. Without proper systems and automation, maquiladoras face high risks of delays and errors due to the large volume of data and strict compliance requirements set by Mexican tax authorities.
Best Practices for Smooth Reimbursement
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Work with a tax advisor or shelter service expert.
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Reconcile VAT credits regularly.
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Conduct internal audits before filing.
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Stay updated on SAT regulations.
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Consider certification if VAT volume is high.
Avoiding Common Pitfalls
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Incomplete invoices: Ensure CFDIs are correct and complete.
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Late filings: Delays can void reimbursement.
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Non-compliance: Even small errors can trigger audits.
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Poor internal systems: Disorganized records slow down or block refund approval.
Tax Compliance: Successfully Doing Business in Mexico
VAT reimbursement for companies Doing Business in Mexico can seem complicated at first, but it’s a powerful financial lever for manufacturers—especially those focused on exports. By understanding the rules, keeping clean records, and getting expert support, companies can recover large amounts of working capital and improve their financial agility.
Whether you're new to Mexico or scaling operations, managing VAT the right way is a smart move.
