Physical Nexus in Mexico: What Creates a VAT Obligation

What creates a VAT obligation through physical nexus in Mexico.

Updated 3 months ago

If your business has any physical presence in Mexico, whether that is an office, employees, or inventory stored in a warehouse, you likely have a VAT registration requirement. This article explains what types of physical presence create nexus in Mexico and what your obligations are.

What Is Physical Nexus?

Physical nexus means your business has a sufficient in-country presence that triggers a legal obligation to register for and collect VAT. In Mexico, there are no minimum sales thresholds. Any qualifying physical presence creates an immediate registration requirement.

Physical Presence Categories and Whether They Create Nexus

Physical Presence Type	Example	Creates Nexus?
Mexico-incorporated company	Company incorporated in Mexico City	Yes
Fixed place of business (branch, office, warehouse)	French company with a Mexico City office	Yes
Employees permanently based in Mexico with authority to make or receive supplies	Business development manager in Mexico	Yes
Remote employees with no sales authority	Remote software developers in Mexico City	No
Warehouse or fulfillment center used for business inventory	Inventory stored in a Guadalajara warehouse	Yes
Physical retail store	Company leasing a storefront in Mexico City	Yes
Manufacturing or production facility	Car assembly plant in Reynosa	Yes
Active servers performing automated business functions	Servers deployed in a Mexico City data center	Yes
Servers used only for passive data storage	Archived video content stored on local servers	No
Trade show or exhibition with sales activity	Exhibiting at a Mexico manufacturing trade show	Yes
Trade show or exhibition without sales activity	Exhibiting at a food trade show	Yes
Consignment stock at a customer's premises	Components placed at a Mexican manufacturer's facility	Yes
Drop shipping arrangements	Selling electronics shipped directly to Mexican customers	Yes
Service or customer support center	Technical support center in Mexico City	Yes
Representative office for preparatory or auxiliary activities only	Representative office in Cancun with no sales activity	No

Key Rules to Know

Mexico-incorporated companies must register for VAT before making any sales, ideally from the moment of incorporation.

Other fixed establishments in Mexico must also register before sales begin.

All other qualifying physical presence types trigger nexus immediately. There is no minimum threshold. A registered agent and proof of domicile, such as a utility bill, are required to register.

Registration Timing

Getting the timing right matters. Here is when registration is required based on your situation:

Mexico-incorporated businesses: Register within 30 days of incorporation, ideally before any sales are made.
Non-resident businesses selling digital services: Register within 30 days of the first sale into Mexico. Note that you cannot register preemptively "just in case."
Businesses importing physical goods into Mexico as the importer of record: Registration is required before any goods enter the country. If the courier service is acting as importer of record instead, the tax obligation shifts to the courier or the consumer.

Remote Employees: What You Need to Know

Remote employees in Mexico are a nuanced area. Here is how to think about it:

Employees performing only standard employment duties without authority to bind the company generally do not create nexus on their own.
However, if the employee has authority to make business decisions, enter into agreements, or make supplies on behalf of the company, this can create nexus for the employer.
Clear employment contracts that limit business authority help document the distinction.

Digital Presence

Having a website that Mexican customers can access does not, by itself, create physical nexus. However, digital services provided remotely to Mexican customers do create VAT obligations. And servers located in Mexico create nexus only when they perform active, automated business functions, not when they are used solely for passive storage.

Need Help?

Understanding how your business activities translate to Mexico nexus can be complex. Kintsugi is here to help you navigate these requirements with confidence. Reach out to our support team or explore our related articles on VAT registration and filing in Mexico.