If your company, based abroad, has conducted business or incurred expenses in Mexico, it’s highly likely that you’ve paid Value-Added Tax (VAT) on invoices from local suppliers. What you might not know is that this money isn’t lost. Your company has the right to request a refund from the Mexican Tax Administration Service (SAT).
Navigating the VAT refund process can seem complex, especially for a company that doesn’t regularly operate in the country. However, with the right information and proper guidance, you can recover a significant amount of money that your company has paid.
Is it possible to recover VAT?
Yes, Mexico’s VAT Law allows it. According to Article 3 of this law, foreign-resident companies without a permanent establishment in Mexico have the right to request a refund of the VAT transferred to them when acquiring goods or services.
This right applies to a wide range of expenses, from those incurred during business trips and per diem allowances to the purchase of materials or the hiring of consulting services needed to explore or begin operations in the country.
Key requirements for a refund
For the SAT to accept your VAT refund request, your company must meet a series of strict requirements. Not having the correct documentation or data can result in an immediate rejection. The main requirements are:
- Legal Representative in Mexico: Your company must appoint a legal representative residing in the country to carry out the process before the SAT.
- RFC Registration: The foreign company must have a valid Federal Taxpayers’ Registry (RFC). In many cases, a special temporary RFC is processed for this purpose.
- Valid Invoices (CFDI): It is crucial that all expense invoices (the Digital Tax Receipts via Internet, or CFDI) meet all tax requirements, including that the recipient’s RFC is your foreign company’s and not your legal representative’s.
- Proof of Payment: Documents that prove the VAT was effectively paid must be attached.
- Mexican Bank Account: The SAT refunds the favorable balance to a bank account in the foreign company’s name at a Mexican financial institution.
The step-by-step application process
Once all the documentation is ready, a formal VAT refund request is submitted to the SAT. The process involves:
- Documentation Preparation: Gathering and verifying each of the invoices (CFDI), proofs of payment, and other required documents.
- Submission of the Request: The application is submitted electronically to the SAT, attaching all necessary annexes.
- SAT Review: The tax authority reviews the application and documentation to validate that everything is in order. This process can take several days, and the SAT may request additional information.
- Authorization and Deposit: If everything is correct, the SAT authorizes the refund and deposits the amount into the company’s bank account in Mexico.
Why is this crucial for your company?
Recovering VAT isn’t just a simple procedure; it’s a smart financial strategy. By requesting a refund of these amounts, your company reduces its operating costs in Mexico, improving its profitability and facilitating its entry into the market. It’s a fiscal right you shouldn’t ignore, as it can represent a considerable sum of money.
Navigating this process without prior experience can be complicated and lead to errors that result in the denial of the refund.
If your company is looking to recover VAT in Mexico, don’t leave this process to chance. Contact us at TaxID for personalized advice and to ensure your refund application is successful.
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