In October of 2013 both houses of México’s Congress passed President
Enrique Peña Nieto’s Tax Reform, although somewhat diluted. Those
changes go into effect January 1, 2014. I have felt I should speak to
this major change, but have been concerned that readers may just read
the article, take it as gospel, and quote me as the “authoritative
source.”
So, before I begin let me shout loud and clear, I am not giving legal or tax advice. I am not qualified to do that. What I want to do is let my readers know of changes in various areas of the law, so they can ask questions of their accountants, if they believe they may be impacted by a change.
Owner Liability:
If you own a business, you should be aware that under the new law the tax liability of shareholders or members of a business will be proportionate to their ownership interest. Each partner and shareholder having control in the decision making of a Mexican legal entity will be jointly responsible for unpaid taxes and will be required to post a bond or otherwise guarantee tax credits under litigation, according to their percentage share ownership in the legal entity.
Dividends:
There is an additional 10% income tax on corporate dividends paid. The tax is assessed upon the recipient of the income, including foreigners. Because this tax is considered a withholding tax, an international tax treaty may come into play and result in a reduction in the tax liability pursuant to one of the 56 double tax treaties Mexico has in force. This new tax will apply only to profits made in 2014 and subsequent years.
Capital Gains on Stock:
There is a 10% capital gains tax on individuals from the sale of shares of capital stock that are publicly traded on Mexico’s stock exchange.
Capital Gains on Real Estate:
The law exempts from taxation capital gains on the sale of an individual taxpayer’s home, including expatriates who have a Residente Permanent visa, provided the gain from the sale does not exceed a certain cap. Under the law, the cap is set at the equivalent of 700,000 “Investment Units” as of the date of the sale.
Mexico’s Investment Units (UDIS) are units used to settle mortgage obligations or commercial acts. Banco de México (Banxico) publishes the value in pesos of the Mexico’s Investment Unit (UDI) for each day of the month in the Official Federal Gazette.
On or before the 10th day of each month Banxico publishes the value of the Mexico’s Investment Unit for the 11th through the 25th of the month, and on or before the 25th of each month it publishes the value of the Mexico’s Investment Unit for the 26th of that month through the 10th of the following month.
With the current Investment Units index, the cap is 3,535,486 pesos (US$268,697). You can find the current UDI at this website. Just type in 700,000 and scroll down to Mexican peso (MXN).
Small Business Reporting:
The past procedure for small businesses reporting their income (REPECO) will be eliminated. Up until 2014, small businesses reported their gross earnings every two months. (For January, that will still be the case in order to report earnings for the November – December months.) Now the reporting procedure will be handled in the regular tax system. This means that earnings will need to be reported, as will deductions and facturas (invoices). The tax rate does not change, i.e., between 2% and 35%, but the reporting will.
Non-Profit Organizations:
Tax-exempt non-profit organizations will have to be authorized by the Tax Administration Service (SAT) to receive donations in order to continue their preferential tax treatment.
Corporate Income Tax Rates:
The new law maintains the current 30% tax rate, but eliminated the scheduled reductions in 2014 and 2015.
Electronic Facturas:
One of the most controversial of the new business regulations is the requirement for electronic facturas and the elimination of paper facturas. This also includes giving all employees online facturas rather than paper facturas when they get paid. Many establishments and SAT will probably not be ready for this new requirement.
Individual Income Tax Rates:
In addition to the individual tax rate of 30% there are additional income rates for individuals based upon their income;
Personal deductions are limited to an amount equal to four annual minimum salaries (94,550 pesos) or 10% of the taxpayer’s income.
Value Added Tax:
Value Added Tax (VAT) rate in all border areas will increase from 11% to 16% and although food and medicine escaped efforts to tax them, pet food got caught and will be subject to the VAT.
Junk Food:
A new 8% tax on non-basic foods having a caloric count of 275 calories or more for each 100 grams will go into effect. Among these products are items such as snacks, confectionery, chocolate, and other cocoa products, custard puddings, sweets, peanut and hazelnut cream, milk sweets, prepared foods from cereals, ice cream, and popsicles.
Soft Drinks:
A tax of one Mexican peso per liter will be imposed upon soft drinks.
Customs (Aduana):
The mandatory use of customs agents for any value of goods to be imported will be eliminated. The use of an agent will be optional, which may mean they will be more competitive in terms of rates and the quality of their service.
Tax on Bank Deposits:
Beginning in 2007, there has been a tax on large monthly cash deposits: 2% on the amounts of deposits exceeding 15,000 pesos, which was increased in 2010 to 3% on amounts exceeding 15,000 pesos. Those taxes have now been eliminated. But, banks will be required to report to the SAT any deposits over 15,000 pesos and any payment of a credit card debt equal to 20,000 pesos or more made at any given time.
Banks will also require people to register with the Federal Taxpayer’s Registry (RFC) and obtain a tax ID number in order to open a bank account.
Time for Tax Appeals:
The time in which to file an administrative appeal to contest a proposed tax liability was reduced from 45 business days to 30 business days. A taxpayer still has the right to challenge a tax liability determination directly before the Tax and Administrative Court without first filing an administrative appeal.
If you think a particular transaction may have tax consequences, please check with an accountant. Do not get your “tax opinions” from forums, friends, or yours truly.
So, before I begin let me shout loud and clear, I am not giving legal or tax advice. I am not qualified to do that. What I want to do is let my readers know of changes in various areas of the law, so they can ask questions of their accountants, if they believe they may be impacted by a change.
Owner Liability:
If you own a business, you should be aware that under the new law the tax liability of shareholders or members of a business will be proportionate to their ownership interest. Each partner and shareholder having control in the decision making of a Mexican legal entity will be jointly responsible for unpaid taxes and will be required to post a bond or otherwise guarantee tax credits under litigation, according to their percentage share ownership in the legal entity.
Dividends:
There is an additional 10% income tax on corporate dividends paid. The tax is assessed upon the recipient of the income, including foreigners. Because this tax is considered a withholding tax, an international tax treaty may come into play and result in a reduction in the tax liability pursuant to one of the 56 double tax treaties Mexico has in force. This new tax will apply only to profits made in 2014 and subsequent years.
Capital Gains on Stock:
There is a 10% capital gains tax on individuals from the sale of shares of capital stock that are publicly traded on Mexico’s stock exchange.
Capital Gains on Real Estate:
The law exempts from taxation capital gains on the sale of an individual taxpayer’s home, including expatriates who have a Residente Permanent visa, provided the gain from the sale does not exceed a certain cap. Under the law, the cap is set at the equivalent of 700,000 “Investment Units” as of the date of the sale.
Mexico’s Investment Units (UDIS) are units used to settle mortgage obligations or commercial acts. Banco de México (Banxico) publishes the value in pesos of the Mexico’s Investment Unit (UDI) for each day of the month in the Official Federal Gazette.
On or before the 10th day of each month Banxico publishes the value of the Mexico’s Investment Unit for the 11th through the 25th of the month, and on or before the 25th of each month it publishes the value of the Mexico’s Investment Unit for the 26th of that month through the 10th of the following month.
With the current Investment Units index, the cap is 3,535,486 pesos (US$268,697). You can find the current UDI at this website. Just type in 700,000 and scroll down to Mexican peso (MXN).
Small Business Reporting:
The past procedure for small businesses reporting their income (REPECO) will be eliminated. Up until 2014, small businesses reported their gross earnings every two months. (For January, that will still be the case in order to report earnings for the November – December months.) Now the reporting procedure will be handled in the regular tax system. This means that earnings will need to be reported, as will deductions and facturas (invoices). The tax rate does not change, i.e., between 2% and 35%, but the reporting will.
Non-Profit Organizations:
Tax-exempt non-profit organizations will have to be authorized by the Tax Administration Service (SAT) to receive donations in order to continue their preferential tax treatment.
Corporate Income Tax Rates:
The new law maintains the current 30% tax rate, but eliminated the scheduled reductions in 2014 and 2015.
Electronic Facturas:
One of the most controversial of the new business regulations is the requirement for electronic facturas and the elimination of paper facturas. This also includes giving all employees online facturas rather than paper facturas when they get paid. Many establishments and SAT will probably not be ready for this new requirement.
Individual Income Tax Rates:
In addition to the individual tax rate of 30% there are additional income rates for individuals based upon their income;
- 32% for taxable income exceeding 750,000 pesos
- 34% for taxable income exceeding 1 million pesos
- 35% for taxable income exceeding 3 million pesos
Personal deductions are limited to an amount equal to four annual minimum salaries (94,550 pesos) or 10% of the taxpayer’s income.
Value Added Tax:
Value Added Tax (VAT) rate in all border areas will increase from 11% to 16% and although food and medicine escaped efforts to tax them, pet food got caught and will be subject to the VAT.
Junk Food:
A new 8% tax on non-basic foods having a caloric count of 275 calories or more for each 100 grams will go into effect. Among these products are items such as snacks, confectionery, chocolate, and other cocoa products, custard puddings, sweets, peanut and hazelnut cream, milk sweets, prepared foods from cereals, ice cream, and popsicles.
Soft Drinks:
A tax of one Mexican peso per liter will be imposed upon soft drinks.
Customs (Aduana):
The mandatory use of customs agents for any value of goods to be imported will be eliminated. The use of an agent will be optional, which may mean they will be more competitive in terms of rates and the quality of their service.
Tax on Bank Deposits:
Beginning in 2007, there has been a tax on large monthly cash deposits: 2% on the amounts of deposits exceeding 15,000 pesos, which was increased in 2010 to 3% on amounts exceeding 15,000 pesos. Those taxes have now been eliminated. But, banks will be required to report to the SAT any deposits over 15,000 pesos and any payment of a credit card debt equal to 20,000 pesos or more made at any given time.
Banks will also require people to register with the Federal Taxpayer’s Registry (RFC) and obtain a tax ID number in order to open a bank account.
Time for Tax Appeals:
The time in which to file an administrative appeal to contest a proposed tax liability was reduced from 45 business days to 30 business days. A taxpayer still has the right to challenge a tax liability determination directly before the Tax and Administrative Court without first filing an administrative appeal.
If you think a particular transaction may have tax consequences, please check with an accountant. Do not get your “tax opinions” from forums, friends, or yours truly.
No comments:
Post a Comment