With Mexico’s tax reform coming, is this blue ocean market still worth entering?

With Mexico’s tax reform coming, is this blue ocean market still worth entering?


Recently, some sellers received an email about the Mexican tax reform, stating that the Mexican tax reform will officially take effect on June 1, 2020, which has aroused heated discussions among the seller community.

 
The email stated that due to Mexico's tax reform, sellers on the Mexican site now have to start registering for VAT. Recently, there have been rumors that it costs 100,000 to 150,000 RMB to register a tax number on the Mexican site , which shocked many sellers.
              
The original email is as follows↓↓↓
              

Original email

Dear seller friends,


We would like to communicate with you through this email about the Mexican tax reform mentioned in December 2019 and its impact on your account. The Mexican tax reform will officially take effect on June 1, 2020.


Starting June 1, 2020, Amazon will act as your income tax and VAT agent in Mexico, in accordance with Mexican law, and withhold income tax and value-added tax (VAT) generated by your actual sales activities on Amazon Mexico. Specifically, Amazon will withhold VAT and income tax generated by your monthly sales on a monthly basis. Your Federal Registration Certificate (RFC) will determine the amount Amazon withholds each month. You need to make sure that the RFC number associated with your account on Amazon Mexico is real and valid, and consistent with your account information.


According to the email, starting from June 1, Amazon will withhold income tax and value-added tax generated by sellers' actual sales activities in Mexico. Amazon will also calculate the seller's total monthly sales to determine the amount of income tax withholding applicable to the seller's balance.
 
Value Added Tax (IVA) applies in the following situations: Selling in a Mexican online store, shipping from an address in Mexico, and shipping to a address (destination) in Mexico.
 
Income tax (ISR) applies to: Mexican income tax applies to sellers who sell goods in Mexico, sell goods in or outside of Mexico, and hold inventory in Mexico.
 
If the seller does not provide Amazon with a valid RFC ID: Sellers’ sales will be subject to 100% VAT withheld, of which 20% income tax applicable to sellers’ sales revenue will be withheld, and both will be remitted by Amazon to the Mexican government.
 
This means that if you register for a PFC tax number after Amazon has paid your income tax on your behalf, the overpaid taxes will not be refunded.
 
Therefore, the most important thing for sellers on the Mexican site at present is to provide Amazon with a valid RFC ID to ensure that they will not be charged high rates of income tax and value-added tax.

             

▲ The screenshot comes from the communication group

 
In response to this, the sellers said that it was very heartbreaking. Even the service providers have not found a good solution yet.
 
If the cost of registering a tax number for the Mexican site is really RMB 100,000-150,000, then the operating costs of the sellers on this site will increase significantly.
 
Sellers on the Mexican site: The tax reform has made the already poor families even worse off.
 
However, there is no official news confirming the price cost of registering for Mexican VAT. Some sellers also said that this is a crisis but also an opportunity. As the threshold is raised, there will be fewer competitors.

             

▲ The screenshot comes from Weibo user @知木的碎碎念Tony

 
Cross-border e-commerce is often like this, with challenges and opportunities coexisting, and success or failure is not only related to strength, but also has an important relationship with every choice you make.
 
So after the implementation of Mexico's tax reform policy, is it still necessary to persist in this blue ocean market?
 

For sellers, Amazon North America has a good consumer base and huge market potential, and is recognized as a treasure site, while the Mexican site is a blue ocean market that has yet to be developed. It has similar consumer habits and the same seasonality and best-selling categories as the United States. You only need to register a North American account to easily synchronize the products on the US site to the Mexican site.
 
Mexico is a free market economy, and its economic strength ranks second in Latin America, second only to Brazil. Its current population has reached 130 million, and its Internet penetration rate has reached 56%. The number of Internet users exceeds 70 million, of which 38 million are online shoppers. Its cross-border shopping rate is also increasing, and has now surpassed Brazil.
 
The survey shows that many Mexican netizens choose to shop on overseas websites: because the categories are richer, the prices are more favorable (41% of clothing categories are vacant, 29% of all categories are vacant, and 25% of overseas online shopping has more price advantages), and niche selections are also very popular.
 
In terms of consumer categories, Mexican consumers particularly like to buy clothing accessories and electronic products online. Among all online shoppers, nearly two-thirds have made cross-border purchases. Among them, Mexican consumers are very receptive to Chinese brands. Mexico's e-commerce consumption continues to grow, making it one of the most attractive markets for domestic and overseas sellers.
 
It can be seen that Mexico, as the second largest e-commerce market in Latin America, has huge development potential and is ready to go. It may be a good choice for sellers to choose the Mexican site.
 
In summary, the market situation in Mexico is positive, but with the coming tax reform, the operating costs of sellers may increase. Sellers still need to carefully consider which is more important.
 
What do you think about this? Please leave a message in the comment area~

Text✎ Yi Xin/
Statement: When reprinting this article, the title and original text must not be modified, and the source and original link must be retained.


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