Client Alert- Mexico Issues Decree Granting 100% Excise Tax Relief for Certain Video Games Beginning in 2026

On December 31, 2025, the Mexican Federal Executive published a Decree providing a full tax incentive under the Special Tax on Production and Services (Impuesto Especial sobre Producción y Servicios or IEPS) applicable to the sale and digital distribution of certain video games classified as violent, extreme, or intended for adult audiences (18+).

This measure effectively neutralizes the impact of the IEPS reform enacted on November 7, 2025, which introduced an 8% IEPS levy on these categories of video game content as of January 1, 2026.

Who May Benefit

The incentive applies broadly to participants in the video game value chain, including:

• Sellers of Physical Video Games
  Businesses engaged in the commercialization of physical video games containing adult or violent content sold directly to consumers in Mexico.
• Digital Service Providers and Platforms
  Mexican and foreign residents—whether or not they have a permanent establishment in Mexico—who offer access to, downloads of, or intermediation services for such video games through digital platforms.

Scope and Mechanics of the Incentive

The Decree grants a tax credit equal to 100% of the IEPS otherwise triggered by these activities. In practical terms, this eliminates the economic burden of the newly enacted IEPS, provided a key condition is met:

• The tax may not be passed on to consumers.
  Any increase in the final price attributable to IEPS would disqualify the transaction from the incentive.

The credit may be applied directly against the IEPS liability but cannot be refunded or offset against other federal taxes.

Importantly, the Decree relieves eligible taxpayers from the formal IEPS compliance obligations associated with these transactions. Under a reasonable interpretation, this includes the elimination of the obligation to file IEPS returns in connection with the incentivized activities, thereby reducing administrative burdens.

The Mexican Tax Administration Service (SAT) retains authority to issue general administrative rules clarifying the operational details of the incentive.

 Administrative and Compliance Relief

In addition to the economic benefit, the Decree introduces several compliance simplifications:

• Waiver of IEPS Formal Obligations related to the incentivized activities.
• Protection Against Digital Blocking Measures otherwise applicable under the IEPS Law for non-compliance.
• No Notice Requirement for the application of tax incentives under Article 25 of the Federal Tax Code.
• Income Tax Treatment: The tax credit is expressly excluded from taxable income for Mexican income tax purposes.

Important VAT Considerations

The Decree does not affect obligations under the Value Added Tax (VAT) regime. Digital service providers must continue to comply fully with Mexico’s VAT rules applicable to digital services, including registration, collection, reporting, and payment obligations under the VAT Law.

Final Remarks

This incentive represents a significant policy shift aimed at mitigating the fiscal impact of the IEPS reform on the video game industry, while also reducing compliance friction for both domestic and foreign market participants. Companies operating in or targeting the Mexican market should carefully assess pricing structures, contractual arrangements, and internal compliance processes to ensure eligibility.

For additional information, please contact: Sergio Legorreta at [email protected] with any questions or more specific situations.

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