This content is from: Mexico

Mexico yet to take a stance on taxation of transactions executed with cryptocurrencies

A thrilling year-end in the cryptocurrency space, where most virtual currencies raised their value in three digit percentages in a matter of months, is ushering in a new wave of investors looking for high-risk/high-return opportunities. This makes the issuance of guidance on the taxation of transactions executed with digital currencies a pressing matter.

While the Mexican government is no stranger to the complexities of transactions executed with digital currencies, it has focused its efforts in trying to lay down a much needed regulatory framework for the use of virtual currencies in order to counter money laundering or terrorist financing activities.

To that end, a Financial Technologies Law (FinTech Bill) was submitted to Congress by the Ministry of Finance, which was approved unanimously by the Mexican Senate early in December 2017. It has now been sent for review by the lower house of Congress (expected to pass during the first months of 2018).

The FinTech Bill regulates financial technology institutions (FTIs) and proposes that FTIs operate “virtual assets”, such as cryptocurrencies, while imposing measures to bring virtual currency exchanges through FTIs under the regulatory purview of Mexico’s Central Bank (Banxico). If the FinTech Bill comes into force in its current form, FTIs will require authorisation from Banxico to operate virtual currencies in Mexico. It is expected that Banxico will define which virtual assets may be traded in Mexico, as well as the groundwork for their operation, through secondary legislation.

Although this is unlikely to be viewed as a priority by the Mexican authorities in a presidential election year, it seems that in order to close the loop on the regulation of virtual currencies it is necessary to issue guidance on the taxation of cryptocurrencies and of transactions executed using these as means of payment.

It is important to distinguish between the different types of users of virtual currency. In general, two main types of users can be identified:

  1. Investors, which use cryptocurrencies as a new asset class for storing their wealth (i.e. expecting the asset to increase its value over time); and
  2. Those who use virtual currencies as a payment method to purchase goods or services (including other cryptocurrencies).

In the international tax context, most countries have taken one of two main approaches to regulate digital currencies: (i) treating digital currency as an asset or commodity, or (ii) passing legislation to recognise virtual currencies as legal tender.

As touched on earlier, the Mexican authorities have provided very limited guidance as to the legal nature of digital currencies and/or the taxation of transactions executed using these as a means of payment, but they have, however, confirmed that cryptocurrencies have no legal tender in Mexico as they are not government backed.  

The above is very relevant for Mexican tax purposes as it seems to discard the possibility of having to tax cryptocurrency as if it were a foreign currency for Mexican purposes. This results in not having to consider price variations of virtual currency as taxable income on an accrual basis (as would be the case for foreign exchange gains accrued by Mexican residents holding foreign currency) which, considering the volatility of virtual currencies, could have staggering consequences for their holders. This approach, however, is not beneficial for value added tax (VAT) purposes, as it implies that the trading of cryptocurrencies in Mexican territory could be subject to VAT, whereas the trading of currencies is generally VAT exempt.

In our view, in terms of the current Mexican legal framework, which was clearly not conceived having in mind the existence of cryptocurrencies, virtual currencies should be considered assets, as they are something that may be subject to appropriation.

Taxation of “investors” in digital currency should occur until they dispose of such assets (i.e. exchange them for cash), at which point they should compare the adjusted basis that they had in their virtual currencies (i.e. purchase price) against the fair market value of such assets as of the date of disposal in order to determine if they triggered a taxable gain or loss. It is important to note that foreign “investors” should not be subject to taxation in Mexico on gains realised from the conversion of virtual currencies into Mexican pesos, as such income should not be considered to derive from a Mexican source of wealth.    

In turn, the payment of goods or services using cryptocurrency should be viewed as a payment in kind for Mexican tax purposes, where the cryptocurrency used as payment should be considered sold by the acquirer of the goods or services, who should determine its taxable gain or loss upon transferring the cryptocurrency to the seller under the terms described in the previous paragraph.  

Specifically, an exchange of a cryptocurrency for another property (e.g. commodities, other cryptocurrencies, etc.) should be viewed as a barter trade for Mexican tax purposes, where both the asset that is being acquired and the cryptocurrency used for its payment are considered to be sold simultaneously.

Transactions settled in cryptocurrency are particularly complex from the VAT side, as Mexico imposes VAT on the transfer of goods if such transfer takes place in Mexican territory, which is somewhat unclear in the case of transactions settled in cryptocurrency.

VAT legislation provides that a sale is deemed to occur in Mexican territory if the asset being transferred is in Mexico at the time of shipment or, if no shipment is required, if the physical delivery of the asset takes place in Mexico. In the case of intangible assets, the sale is considered to occur in Mexican territory when both the purchaser and seller are residents of Mexico.  

In our view, cryptocurrencies should be considered intangible assets, as they are assets that lack physical substance, in which case their sale should only be subject to VAT in Mexico if both the purchaser and the seller are residents in Mexico, but this position remains to be confirmed by the tax authorities. It is important to note that this determination is particularly intricate in the cryptocurrency space, as buyers and sellers do not necessarily have visibility as to the residency of their counterpart.  

Investors should be aware that while no specific tax legislation has been issued regarding cryptocurrencies, under existing general tax principles, transactions settled using cryptocurrency may give rise to taxable events in Mexico. 

This article was written by Oscar López Velarde Pérez and Santiago Díaz Rivera Bravo of Ritch, Mueller, Heather y Nicolau, S.C. for International Tax Review.

Oscar López Velarde (

Santiago Díaz Rivera Bravo (

Ritch, Mueller, Heather y Nicolau, S.C.

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