Mexico’s Executive branch on September 8 presented the proposed 2021 budget to Congress, modifying various tax laws (Proposed 2021 Tax Law). Mexico’s House of Representatives has until October 20 to approve the 2021 budget and Proposed 2021 Tax Law, which the Senate then must pass by October 31. Any approved tax law changes will become effective on January 1, 2021, unless otherwise specified.
Consistent with President Obrador's commitment not to raise taxes during his first two years in office, the Proposed 2021 Tax Law does not include rate increases or new taxes. Instead, the proposed tax law changes continue his Administration’s emphasis on tax collection by enacting broader recharacterization and tax assessment powers. The Proposed 2021 Tax Law also clarifies and amplifies the Value Added Tax (VAT) treatment of digital services.
The Proposed 2021 Tax Reform pivots toward strengthening the tax authority's assessment powers. Companies with investments in Mexico should review the FFC modifications for compliance in the current environment and under the increasingly strict procedural rules and intensifying penalties. Additionally, persons providing digital services to Mexican users should understand the VAT law’s proposed changes, including the potential business disruption of internet blockage, in the event tax formalities are not duly met.