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5 things you must know about commissions and VAT on credit card payments

October 1, 2021

VAT and commissions: two major problems for many entrepreneurs and business owners. If that is your case, here are five things that will help you overcome your fear of receiving payments by credit card and other methods, besides managing your transactions properly.

First of all, what is VAT?

This is the cost added to a product when it is transformed in a productive process, as almost everything you acquire (except raw materials). Both individuals and corporations must pay Value Added Tax (VAT) when performing these activities:

  • Disposal of assets
  • Independent services rendering
  • Temporary use or enjoyment of goods granting
  • Goods or services importation

Maybe you do not perform these activities, but if you want to use a bank terminal or a credit card reader for cell phones, you must know that each transaction generates a commission, which is subject to the payment of VAT. In other words, you pay this tax indirectly, because taxes are also paid directly.

Direct tax: this tax is applied directly to the person; the most obvious example is the ISR, applicable directly to monetary profit.

Indirect tax: this tax is transferred to other people, so it does not affect the pocket of the person who pays it, this is where VAT comes in.

How to understand VAT?

Value Added Tax Law provides the best reference to find out how it works in Mexico. Also, we recommend consulting the SAT website to learn about other taxes related to the sale of goods or services provision.

This tax is paid indirectly if you have a business, since all the products you offer must have this amount included. That is, your customers pay it when they make the transaction. All you have to do is that your retail price should already include this cost and not add it when they ask you for an invoice. 

It can be said that VAT is like a payment that is transmitted when someone sells that product, in other words, you paid the VAT, your buyer will pay it to you, and if your buyer sells it, whoever bought it will pay it to your customer.

So, VAT is added to the cost of the product, and must subsequently be paid and declared to the tax authorities (SAT).

What are commissions?

A commission is the amount you are charged for receiving a service, in this case the acceptance of debit or credit card payments. The institution or company offering this service charges the commission to cover its operating expenses.

Economipedia defines commission as the total value of a transaction, which from the customer's point of view; it is a fee, an amount to be paid when performing a certain transaction.

Then, how can I calculate the money I will receive for each card transaction?

It depends on the commission established by the company or financial institution where you contracted the service, plus the VAT percentage. Here is an example of Clip's commissions:

For each transaction, the commission is 3.6% plus VAT (VAT is applied to the commission). Suppose you have a sale of $1,000, the commission plus VAT would be $41.76 (it may vary) and you would receive $958.24 in your account.

Many companies have a commission calculator on their website to make this task easier.

Please remember that every transaction you make with your Clip terminal, no matter if it is a credit, debit, voucher, national, foreign, virtual bank, Visa, Mastercard or American Express card, a commission of 3.6% + VAT will always be applied to the amount you are collecting.

Do not increase the cost of charging with credit cards

Certain businesses charge their customers more money for using a card -in order to compensate for commissions-, but customers can denounce this to the bank because it is not correct, according to Condusef. This is a bad practice because customers think that the product or service is cheaper with cash.

Terminals, regardless of whether they are mobile or bank terminals, usually state in their terms and conditions that this practice is prohibited and they may even withdraw the service in case they receive complaints about this practice. This post explains more about costs and card charging.

Before selling, it is important to calculate the price of your products or services to generate profits and cover your business expenses, including transparency for your customers.

Is it possible to reduce commissions in Clip?

This is a question we are frequently asked, with a simple answer: yes. There is a way to reduce commissions per transaction in Clip, you just have to offer phone recharges to your customers, so that you add credit balance and it is applied directly to the commissions in each transaction.

There is a complete post explaining this process, so you can reduce your commissions. But for now it is the only option to do so, but remember that accepting a card not only means that all your sales will be by this means, it also represents an increase in your sales because you have the opportunity to offer interest free months on larger purchases.

Also, the use of Clip terminals allows you to access custom-made loans for businesses; deposit your money in 4 hours with Clip Portfolio and even accept payments when the buyer is not in the store.

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