What Is VAT in Mexico? IVA Rates, Withholding, and Filing

VAT in Mexico is called the Impuesto al Valor Agregado, or IVA, and it applies at a standard rate of 16% to most sales of goods, provision of services, rentals of property, and imports.1PwC Tax Summaries. Mexico – Corporate – Other Taxes A reduced 8% rate applies in designated border zones, a 0% rate covers basics like unprocessed food, medicine, and exports, and some transactions are exempt entirely. Businesses collect the tax, offset what they paid on their own purchases, and remit the difference to Mexico’s tax authority, the Servicio de Administración Tributaria (SAT).

How IVA Works

At each stage of the supply chain, a business charges IVA on what it sells (output VAT) and pays IVA on what it buys (input VAT). When the monthly return is due, the business subtracts input VAT from output VAT and sends only the net amount to SAT. If input VAT is larger, the business has a credit it can carry forward or request as a refund.

That credit mechanism is what makes IVA a true value-added tax rather than a cascading sales tax. Each business pays tax only on the value it added, and the final consumer absorbs the full 16% built into the retail price. The system depends on proper invoicing, which is why Mexico requires electronic invoices, known as CFDIs, for virtually all commercial transactions.

The Standard 16% Rate

The general IVA rate is 16%, and it covers most commercial activity in Mexico.1PwC Tax Summaries. Mexico – Corporate – Other Taxes Electronics, clothing, restaurant meals, hotel rooms, professional services, and most retail goods carry the 16% rate. Lease payments and imports are taxed at the same rate.

The 8% Border Zone Rate

A presidential decree reduces the effective IVA rate to 8% in designated border zones along Mexico’s northern and southern frontiers. The discount is meant to keep border-region businesses competitive with neighboring countries. It is not part of the permanent tax code; it depends on a decree the government renews periodically. The most recent extension took effect January 1, 2026, continuing both the IVA and income tax incentives for qualifying border areas.2KPMG. Mexico: Extension of Tax Incentives for Border Regions and Fuels Confirm the decree is still active before relying on the lower rate.

The 0% Rate

Mexico applies a 0% IVA rate to a significant number of transactions. A 0% rate is not the same as an exemption, and the difference matters. When you sell at the 0% rate, you charge no IVA to your customer, but you can still claim credits for all the input IVA you paid on your purchases and expenses. You recover your costs without burdening the buyer.1PwC Tax Summaries. Mexico – Corporate – Other Taxes

The main categories taxed at 0% include:

  • Unprocessed animals and vegetables, and most food products for human or animal consumption (with exceptions for beverages other than milk, caviar, smoked salmon, chewing gum, and certain other items)
  • Patent medicines and pharmaceutical products for human and animal use
  • Goods shipped out of Mexico and certain export-related services, including some maquiladora activities
  • Books, newspapers, and magazines when sold by the publisher
  • Tractors, irrigation equipment, hydroponic greenhouses, and related agricultural machinery and supplies
  • Fertilizers and pesticides for agricultural or livestock use
  • Non-carbonated, non-flavored drinking water in containers of ten liters or more

A common mistake is treating these items as “exempt.” They are not. A business that mistakenly classifies its 0%-rate sales as exempt will fail to claim input VAT credits it is entitled to.

Exempt Transactions

Exempt transactions differ from the 0% rate in one critical way: when your sales are exempt, you cannot recover the input IVA you paid on related purchases. The tax you paid to suppliers becomes a permanent cost. For businesses that deal exclusively in exempt goods or services, IVA is baked into their operating expenses with no offset.

Mexico’s IVA law exempts several categories of services and transactions:

  • Education services provided by institutions with official government authorization or recognition, including preschool
  • Medical services rendered by licensed professionals
  • Sales and rentals of residential real estate, along with residential construction
  • The sale of land itself, as opposed to buildings
  • Interest paid by banks, commissions on retirement fund administration, mortgage loan commissions for residential properties, and transactions involving credit instruments such as equity shares
  • Urban, suburban, and metropolitan public land transportation (rides arranged through digital platforms like Uber do not qualify)
  • Agricultural risk insurance, housing credit insurance, and life insurance products including annuities
  • Services provided by organizations authorized to receive tax-deductible donations

The digital platform carve-out is worth noting. A city bus ride is exempt from IVA, but the same trip booked through a ride-hailing app is not.

Who Has to Register

Mexico has no VAT registration threshold. Even a single taxable sale triggers the obligation to register with SAT and begin collecting IVA. This applies to both Mexican residents and foreign businesses that make taxable supplies in Mexico.

When the Buyer Withholds IVA

In several situations, the buyer rather than the seller is responsible for withholding IVA and remitting it to SAT. The rules add complexity, but they exist to secure collection in transactions where the seller might otherwise be hard to track.

The common withholding scenarios include:

  • Mexican businesses that buy or lease tangible goods from foreign companies without a permanent establishment in Mexico must withhold IVA on those payments1PwC Tax Summaries. Mexico – Corporate – Other Taxes
  • Mexican corporations must withhold IVA on payments to individuals for independent professional services, commissions, and property leases
  • Businesses must withhold IVA when paying for ground transportation of goods
  • Digital platforms acting as intermediaries withhold 50% of the IVA from Mexican legal entities selling through them, or 100% if the seller does not provide an RFC (tax ID). For non-resident sellers without a permanent establishment in Mexico, the withholding is always 100%1PwC Tax Summaries. Mexico – Corporate – Other Taxes

Monthly Filing and CFDIs

IVA is calculated and filed monthly as a definitive tax. Unlike income tax, where monthly payments are provisional and reconciled at year-end, each month’s IVA return stands on its own. Payment is due by the 17th of the month following the reporting period. If the 17th falls on a non-business day, the deadline shifts to the next business day.1PwC Tax Summaries. Mexico – Corporate – Other Taxes

Every transaction that generates an IVA obligation must be documented with a Comprobante Fiscal Digital por Internet (CFDI), Mexico’s mandatory electronic invoice. As of January 2026, CFDIs must reflect real and truthful transactions; if a CFDI does not correspond to an actual supply of goods, provision of services, or other valid transaction, it is presumed false.3KPMG. Mexico: Updates to Electronic Invoicing (CFDI) Included in 2026 Tax Reform Keep supporting documentation for each invoice: the underlying contract, proof of delivery or service completion, and evidence of payment.

Without a valid CFDI, your customer cannot claim the input VAT credit for the transaction. Buyers will refuse to do business with suppliers who cannot issue compliant CFDIs, which makes invoicing a commercial requirement, not just an administrative one.

Foreign Digital Service Providers

Foreign companies that provide digital services to consumers in Mexico, including streaming platforms, app stores, online advertising, and digital marketplaces, must register with SAT, collect the 16% IVA, and remit it directly. Mexico published an updated list of VAT-registered nonresident digital service providers in January 2026, signaling continued enforcement.

When a digital platform acts as an intermediary and collects payment on behalf of sellers, it takes on withholding duties. The platform withholds 50% of the IVA from Mexican corporate sellers, or 100% if the seller fails to provide an RFC. For non-resident sellers without a Mexican permanent establishment, the platform withholds 100% of the collected IVA.1PwC Tax Summaries. Mexico – Corporate – Other Taxes If payment goes to a bank account outside Mexico, the withholding is 100% regardless of the seller’s residency.