Written for Mexico. This analysis applies to Mexican federal tax law — ISR (income tax), IVA (VAT) and SAT rules — and cites Mexican statutes. Amounts are in Mexican pesos (MXN).
"I don't charge IVA" is the phrase that confuses half of corporate Mexico, because it describes two fiscally opposite situations. The company at the 0% rate charges no VAT and recovers all the VAT it pays. The exempt company also charges no VAT — and loses everything it pays, turned into cost. Knowing which side of the wall you are on (and whether you can move sides) is worth whole points of margin.
The good side of the wall: the 0% rate (art. 2-A LIVA)
That is where unprepared food lives (the basket of products intended for human consumption, with the law's specific exceptions), non-industrialized animals and vegetables — yes: the sale of live plants, vegetables and flowers under section I is at the 0% rate —, patent medicines, the listed agricultural inputs and services, and exports (art. 29). They all share the superpower: full crediting of the VAT on their purchases (freight, packaging, energy, machinery, advertising — all at 16%) against sales that generate no VAT payable. Structural result: a recoverable monthly credit balance. And there is an extra prize: food, medicine and agriculture qualify for the 20-day expedited refund (procedure sheet 71/CFF) when the requirements are met.
The bad side: exempt (arts. 9 and 15 LIVA)
That is where medical services rendered by professionals with a degree (art. 15, section XIV) and hospital services in certain cases live, along with the sale of housing and land, interest in specific cases, and education with official recognition. The exempt taxpayer charges no VAT, but art. 5 denies it the crediting: the 16% it pays on non-listed medical equipment, commercial rents, inputs and services stays as cost. A large private hospital thus "loses" tens of millions a year — not from poor management, but by design of the law. What can be managed is the structure.
Do you know how much of the VAT you pay you're losing?
For mixed companies (taxable + 0% rate + exempt), the crediting-proportion calculation under arts. 5 and 5-C LIVA is where the money is won or lost — and where the SAT adjusts most. We audit your proportion, your product classification and your structure, and tell you how much cash flow is recoverable.
The three classification battles that are worth money
Food or not food? The border between a product intended for human consumption (0%) and one that is not (16%) — supplements, beverages, prepared products — is the territory of SAT criteria and court precedents; classifying a catalog of hundreds of SKUs correctly is a project, not a filing. The restaurant is not at the 0% rate: food prepared for on-site consumption is at 16% — the industry that sells inputs to the restaurant is at 0%. The mixed taxpayer and its proportion: whoever sells taxable and exempt (a clinic with a pharmacy, a developer with commercial units and housing) credits only the proportion corresponding to taxable/0%-rate acts — the monthly calculation of the factor is exactly the working paper the authority asks for first in any VAT review.
Frequently asked questions
I sell ornamental plants and flowers — am I really at the 0% rate?
Non-industrialized vegetables are at the 0% rate (art. 2-A, section I LIVA). If you also sell pots, prepared soil, gardening services or arrangements with added value, you enter a product-by-product analysis — the mix is what has to be classified correctly.
I'm a physician with an office — can I recover the VAT on my equipment?
Professional medical services are exempt, so the VAT on your purchases is not creditable — it is a cost (and deductible for ISR with the VAT included). The structure of the practice (exempt services vs. separable taxable activities) is the only thing that can move that needle, with serious analysis.
Are veterinary products and pet food at 0%?
Processed pet food is taxed at 16% by express exception; veterinary medicines and other inputs have their own treatment. It is the perfect example that VAT classification is done product by product, not by intuition.
Let's talk about your case
The first step is always the same: an honest diagnostic of where you stand. Write to us on WhatsApp or call — a reply the same business day.