E-COMMERCE ARRIVES TO REVOLUTIONIZE MEXICAN CUSTOMS

Javier Cendejas, executive director of Latitudex magazine, sat down with Carlos Arevalo, Director of DICEX Consultants, to answer some questions about the relationship between e-commerce and Mexican customs.

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Innovate or die!

In 2015, Amazon arrived in Mexico, offering the largest number of product categories and functions in a market outside the United States. This caused a revolution in the buying and selling of products online in our country. During these 8 years, how has the customs approach to e-commerce goods changed?

"The reaction of customs [...] has been to make adjustments," says Carlos. Currently, the customs system takes advantage of the T-1 key customs declaration, a regime that was created 20 years ago by the big courier companies: FedEx, UPS, and DHL. "I think something similar has to be done, but now for e-commerce. An exclusive chapter [...] focused on particular needs."

Carlos emphasized the fact that the current regime does not favor or, rather, is limiting for small and medium-sized companies, which are the ones who benefit the most from the growth of e-commerce. The current rules are designed for large corporations, which have the infrastructure and economic resources to cover import costs.

For example, there are import restrictions for certain items. Liquids, powders, goods in tablet form or any product that requires laboratory analysis, cannot enter on a T-1 customs declaration.

In the case of large companies that bring their products to be sold in Mexico, they are responsible for obtaining the necessary import permits. However, in the case of small and medium-sized companies, they use the services of couriers to ship their merchandise and it is these service providers who prefer not to deal with this issue.

These limitations hinder the growth of these companies that could contribute to the national economy, generating profits and jobs. We must not lose sight of the fact that e-commerce "gives the possibility to these medium and small companies to play in the world of international trade, when before they could not", assures Carlos.

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Who pays for e-commerce?

E-commerce is a convenience for sellers and buyers; however, it has created many challenges for the authorities. This form of commerce allows foreign companies to sell and deliver in Mexico, but...what about taxes?

In 2020, there was a big change in the tax reform as authorities realized that there was a gap where no one was paying VAT on items sold through e-commerce. The government created a figure of retentions that, although well, is a step forward, Arevalo sees this more as a reaction rather than a plan designed to generate more e-commerce and support SMEs.

Something that makes this issue even more complicated is drop shipping, a trading method where the seller makes a sale from his country, invoices from his country, but can deliver the product directly to the recipient's country and, therefore, does not generate VAT.

It was then that the existing figure that regulates courier companies was used. In this case, a global tax rate of between 19% and 20% is applied, depending on the value of the goods, "and it makes the importer in Mexico the courier company as a service provider," Arevalo explains.

Now, with the entry of the TMEC, there are different levels of global taxes. "[Customs] applies you a set of taxes in the same figure," Arevalo explains. These levels are:
Goods with value between $0 and $50 USD coming from the US or Canada - 0% duty.
Goods with a value between $51 and $117 USD from the USA or Canada - 17% tax.
Goods from any other country or with a value between $118 and $1000 USD - 19% tax.
Goods with a value between $1000 and $2500 USD (the maximum value accepted in the T-1 regime) - 20% tax.

Another factor to consider is the issue of tax deductibility and invoices. When purchasing a product online from a foreign seller, it is difficult for you to get an invoice to credit the VAT on your purchase. In this case, to receive an invoice, you would have to go through an import process, which requires a special permit and can be costly for SMEs that use e-commerce to make their sales.
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Gray areas

In addition to the lack of clarity on tax payments, in the absence of specific rules for e-commerce, customs and governments have run into many other gaps in the regulations.

Carlos comments, "[...] when the T-1 simplified import regime was created, you could not send [to Mexico] merchandise that you presumed was going to be commercialized". However, with the adjustments being made by the government today, the focus of these rules is more on the number of shipments being made than on the number of units of the same product being received. This is just one of the cases.

As a consultant, Carlos comments that these gray areas make customs processes more difficult. "We can have a very agile supply chain, but without customs it is going to get stuck because the regulation is not ready for this."

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And how do we do it?

Mexico can be, strategically, a great e-commerce hub thanks to its location. "Both for sellers in China and for potential buyers in South America and the United States," says Carlos. This is why we can take advantage of structures that already exist, such as the strategic bonded warehouse, to allow companies to have inventory in Mexico and be able to distribute throughout the Americas.

"What is a fiscally and legally correct solution for [SMEs] to be able to import to Mexico?" asks Javier.

Carlos comments that there are two clear solutions: incorporating a company in Mexico or, failing that, opening a branch that becomes a permanent establishment of the company in our country. "But this is not practical for small and medium-sized companies," Carlos reinforces, returning to his main argument. "I think it is pending in Mexico to regulate how to do it to properly tax a foreign company that wants to sell in Mexico but facilitating the business."

Having said that, Carlos mentions a couple of options that could be more viable for different types of businesses.

First, one could mimic, so to speak, the U.S. model of simplified imports. This country, thanks to the support of companies like Amazon, invites Mexican companies to bring their distribution centers to their territory. What Carlos suggests is to have a commercial intermediary in Mexico. "There are regulations that allow the foreigner to be the temporary importer of equipment to be used in Mexico. But for very specific purposes." This figure could work since sellers can continue working and invoicing from abroad, but with a joint and several responsible party in Mexico.

On the other hand, Carlos proposes to create a simplified regime designed with the specific particularities of e-commerce, allowing the flow of goods through strategic bonded warehouses.

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If e-commerce is incorporated into the customs regime of strategic bonded warehouses, it could be very successful. But to achieve this, customs must have a good control of what enters and leaves the country. Currently, it is trying to control it through the regime of courier companies, but we can no longer ignore the growth of e-commerce and the need to create specific rules to address it and thus encourage the growth of our SMEs and require other governments to do the same.

Listen to the complete chat between Javier and Carlos here:
https://open.spotify.com/episode/26AGwB6SO4gtjOQtq0DX1Z?si=OYzJddyVQXG7xf34WhJe4A

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