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VAT tax
exemption, is it worth it?
A 0% VAT tax law that has been passed for
the country of Mexico.
There have been many questions and
misconceptions, so here follows some tips on how to make the process more
manageable and bring to light some of the ins and outs of this new law.
As of January 1, 2004, foreign meetings
that are operated in the country of Mexico are exempt of VAT (Value Added Tax).
In our areas of Cancun and the Riviera Maya, that is 10% of the total 12% room
tax that is added to room rates. The 2% city tax does remain and is charged in
full.
This exemption also applies to rooms booked
2 days prior to and 2 days after your main program dates.
What is defined as a meeting in order to
qualify for the VAT exemption?
A
Meeting is defined by the Mexican government in article 29 (VII) of the VAT law
as one of the following:
•
International Congress:
Any professional meeting to discuss and exchange professional, cultural, sports,
religious, social, governmental or academic points of view on items of interest.
•
Convention:
Any association or business meeting held for the purpose of discussing
commercial matters among the participants with respect to a market, product or
trademark.
•
Exhibition:
Any commercial or cultural event
gathering members of a business,
professional or
social sector organized for the purpose of showing products or services.
•
Fair:
Exhibition of products or services which takes place in a specific area for the
purpose of marketing them and promoting business.
Is Incentive travel and Award trips exempt from VAT?
At this time, Incentive groups and Award
trips are NOT exempt from VAT. There have been discussions about the government
considering extending this promotion to incentive and award programs, although
nothing has been confirmed, so the exemption is only valid for Meetings as
defined above.
What is defined as an Incentive or Award trip?
Incentive and Award travel is defined by
the Mexican government in article 29 (VII) of the VAT law as the following:
•
Travel and lodging granted as
Prizes, Incentive or Awards to individuals for the performance of their work or
otherwise, regardless of the designation or name given to them.
What is required to obtain 0% VAT?
In
order to qualify for the exemption, your event must be coordinated and paid for
by a foreign Event Organizer located outside of Mexico. In addition, the
government requires copies of the following documents from all group
participants:
•
Copy of the signed tourist card
participants receive on their flight which is stamped in immigration upon
arrival to Cancun, and,
•
Copy of their official
identification (passport, or drivers license together with birth
certificate) .
What does the Mexican government define as an
Event Organizer?
An
Event Organizer is defined by the Mexican government in article 29 (VII) of the
VAT law as the following:
•
Any foreign institution,
association, body or company, in whose name the convention, congress, exposition
or fair is carried out, regardless of whether they will be assisted by local
service providers in carrying out such events.
Are copies of the above mentioned documents
optional?
These
requirements are not optional, and are non negotiable.
How can obtaining the required documents be
made easy?
Hotel
and DMC staff are happy to assist our clients with obtaining these documents
from participants upon arrival.
We are
not however responsible for insuring that all documents are handed in, or the
costs
of supplying copy machines, this is the clients responsibility. In our
experiences, it is better to make copies of documents upon check-in to the
hotel. As your participants will need these documents to leave the country, we
understand how important it is to them that they are not misplaced, so the best
way is while they are checking in at the hotel to have copy machines available
to make the respective copies.
Most
programs will have a pre-registered group check-in area assigned to them, so
this just takes a few seconds more of their time and their documents are
returned to them immediately.
If you
have not considered a group check-in area for your program and are planning on
taking advantage of the 0% VAT, we highly recommend you program one with your
hotel in order to make this process easier and less time consuming.
When do documents need to be presented to the
hotel?
The
hotels group auditor will require all documentation as soon as possible. At the
end of the group arrival day is best as they must verify with the government tax
officials all of the above mentioned copies along with the hotel contract and
rooming list in order for the exemption to be approved.
How can this process be simplified?
It is very helpful to hotel and DMC staff to have
the final flight manifests and rooming lists for your program as
soon as possible so they can start to plan. The more time they have to plan and
to know exact numbers of participants and arrival patterns, the easier it will
be for them to provide a smooth check-in experience, therefore, giving you and
your client the quality and service that you deserve.
Normally, the manifests/rooming lists is
required no later than 30 days prior to group arrival date. An email or mail
blast to your group participants advising ahead of time that copies of these
documents will be required during their check-in so that they are prepared is
also very helpful.
From experience we have found that this is
truly the most effective and painless way to handle this transaction of
documents for all parties.
How does this affect your hotel contract
and services?
Properties generally have their own
corporate contract verbiage in regards to the 0% VAT tax exemption because the
required documents which are needed in order to qualify cannot be obtained until
group arrival to the destination. Furthermore, It is still unclear if other
hotel services are indeed exempt from 0% VAT, so please make sure that you
discuss and verify with your hotel any information or questions and if your
program qualifies prior to confirming and booking. Typical inclusions are
lodging, contracted food and beverage at the hotel, audiovisual and translation
services.
How does the exemption work for
all-inclusive hotels?
All inclusive properties have their own
bases for the exemption. Remember that an all inclusive rate includes all
gratuities for hotel staff and daily food and beverage, so these amounts are
backed out before calculating the exemption.
Does the VAT Tax exemption apply to
DMC’s?
Unfortunately the 0% VAT law does not apply
to DMC services.
Is there an expiration date for the exemption?
There has not been any time limit put on this
exemption law. The 0% VAT tax law is currently in effect, but can change or
expire at any time by the Mexican government.
Benefit or Hassle?
The Mexican government has created this
exemption to make a Mexican program more attractive than other competing
destinations. If the program is big enough it is definitely worth the
effort providing the program qualifies.
It takes just a bit of extra work upon arrival
day, but overall the 10% saving on the room rate which generates extra value for
your dollar, and offer more to your clients. |
