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June 23, 2021

Mexico repeals VAT rule that exempted certain purchases of temporarily imported goods from nonresidents from VAT withholding

This repeal will affect maquiladora or IMMEX structures that result in the sale by a nonresident of goods temporarily imported into Mexico under a program granted in accordance with the Decree for the Promotion of the Manufacturing, Maquiladora and Export Services Industry (IMMEX Program). Taxpayers with these structures should analyze their operations and implement any changes needed to comply with the VAT requirements.

Effective 8 July 2021, Mexico will repeal rule 5.2.5 of the General Rules of Foreign Trade, which exempts certain qualified purchases of temporarily imported goods from nonresidents (i.e., goods passing through Mexico to another country) from value-added tax (VAT) withholding.


Generally, VAT applies to sales of goods within Mexico if the goods are delivered in Mexico or shipped from Mexico. Mexican residents purchasing inventory from a nonresident must calculate and withhold VAT for goods that are located in Mexico. The withholding mechanism requires the purchaser to gross up the invoiced amount for VAT and remit this VAT to the tax authorities. The purchaser may claim a credit for the withheld VAT in the month following the date the withheld amount is paid.

Rule 5.2.5 treats sales of goods by nonresidents to companies that operate under an IMMEX program and previously imported the goods temporarily as made outside of Mexico and, therefore, not subject to VAT withholding.

Rule 5.2.5 has come into play in the context of maquila or tolling structures that take part in transactions involving sales of raw materials, scrap materials, or assets (i.e., machinery and equipment, tooling, etc.). Some companies have also relied on Rule 5.2.5 when a Mexican distribution company operating under an IMMEX program purchased finished products manufactured by another maquila or IMMEX entity from a nonresident. To the extent that the acquisition also results in a change from the “temporary” customs regime to the “definitive” customs regime, VAT would be due when the customs regime changes. As such, the transaction may result in double VAT.

The Mexican tax authorities have been challenging the application of Rule 5.2.5 on transactions in which no VAT withholding is triggered on purchases made by a Mexican distribution entity. Because of the challenges to the application of Rule 5.2.5, many Mexican distribution companies have been applying VAT on those transactions.

On 27 May 2021, Mexico’s Tax Administration issued the Fifth Resolution of Modifications to the General Rules of Foreign Trade. The resolution will repeal Rule 5.2.5 on 8 July 2021.

VAT withholding

While the rule remains in effect (before 8 July 2021), no VAT withholding will be triggered on qualified transactions involving maquila and IMMEX structures, but VAT will continue to apply to the extent that a change in the customs regime from temporary (i.e., passing through Mexico) to definitive (i.e., remaining in Mexico) occurs for the goods being purchased. Once the rule's repeal becomes effective, there may be a double VAT cash flow impact for some companies.

Beginning 8 July 2021, Mexican resident purchasers should withhold VAT at a 16% rate on the value of the sale made by nonresidents at the time of payment. The VAT should be withheld even if the resident purchaser is part of an IMMEX program. The resident purchaser must remit the withheld VAT to the Mexican tax authorities as part of its monthly VAT filing. VAT paid for the change in customs regime, and the VAT withheld on the purchase of temporarily imported goods, may be recoverable through a credit or refund mechanism. However, the timing for obtaining the refund or using the credit will vary on a case-by-case basis.

With 8 July 2021 quickly approaching, taxpayers should consider analyzing their structures and implementing any processes necessary for complying with the VAT withholding requirement.


For additional information with respect to this Alert, please contact the following:

EY México

Ernst & Young LLP (United States), Latin American Business Center

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

Ernst & Young LLP (United Kingdom), Latin American Business Center, London


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