How does value added tax affect manufacturing in Mexico?

15 Jul 2014


For foreign companies with a manufacturing operation in Mexico, value added tax (VAT) affects cash flow more than cost. VAT is assessed on all goods that are imported into Mexico and the vast majority of purchases of goods and services carried out in Mexico. VAT is calculated by multiplying the transaction, fair market value, or computed value of a good or service by 16% which is payable to Mexico’s treasury department. Established mechanisms exist for VAT reimbursement as well as exemption. Among the most recent changes in VAT assessment and payment is a certification by Mexico’s treasury enforcement division known as SAT which essentially grants an exemption on VAT for imported goods to companies that meet a certain criteria.