Understanding Taxes in Mexico: A Comprehensive Guide
Understanding Taxes in Mexico
1. What are Taxes?
– Taxes are benefits in cash or in kind prescribed by law and generally binding on individuals and corporations to contribute to public expenditure.
– They represent the portion of the national income that the state appropriates to meet public needs.
2. Sources of Taxes
– Taxes originate from the Expenditure Budget, outlined in a document called the Revenue Law of the Federation.
3. Characteristics of Taxes
- Obligatory payment
- Established by law
- Proportionate and equitable
- Applicable to individuals and corporations
- Compliance with legal provisions
- Utilized for public expenditure
4. Elements of Taxes
Object: Tax matters stipulated by law as a credit event for the entire tributary relationship.
Subject: Those involved in an active and decisive role in the determination and payment of tax.
- Assets: The entity with the power to require tax payment.
- Liabilities: The natural or legal person liable for payment.
Each Fiscal Thing: The amount stated as a measure, number, weight, etc., on which the tax concept is applied for calculation.
Fee: Quantity in kind or cash.
Base: Quantity on which the tax is determined by the subject.
Fee: Lists and quotas for a specific tax purpose.
5. Fundamentals of Taxes
Legal precept supporting administrative or judicial action.
6. Constitutional Basis (Article 31 & 73)
Article 31, Fraction IV: Outlines the obligation of Mexicans to contribute to public expenditure of the federation, federal district, or state and municipality where they reside, in a proportionate and equitable manner as per the law.
Article 73: Grants the power to tax to the federal, state, and municipal governments. The federal body in charge of imposing taxes is the Congress of the Union. Taxes are established solely by law, and only the Congress of the Union can legislate on taxes under federal jurisdiction.
7. Revenue Law of the Federation
This document outlines the sources of monetary resources for the state to conduct its public function, including taxes, goods, rights, and benefits.
8. Specific Tax Laws (Examples)
- ISR (Income Tax)
- IVA (Value Added Tax)
- IDE (Special Tax on Production and Services)
- IEPS (Excise Tax)
- IETU (Flat Tax)
9. Tax Code of the Federation
– This law establishes concepts and procedures for obtaining revenue and regulates the application of tax laws in case of gaps or duplications.
– It serves as a set of basic laws on taxation applicable to all federal taxes, subject to modification by special laws.
Purpose:
- Regulate tax payment obligations.
- Prosecute legal violations.
10. Regulations
Administrative legal acts originating from the President of the Republic, providing detailed rules and procedures for efficient and faster application of tax laws in specific cases.
11. Criteria (Not Defined in Original Text)
This section requires further clarification.
12. Subjects of Taxes
The subject of the tax is a person actively involved in determining and paying taxes.
Two Categories:
- Perpetrator: The entity with the power to require tax payment (federal, state, or municipal government).
- Taxable Person: The person or entity required to pay a specified service to the Treasury.
13. Types of Contributions
- Illness and maternity
- Risk of work
- Disability
14. Returns and Compensation
Return (Article 22): Tax authorities refund amounts paid in error, including withheld contributions and indirect taxes.
Compensation (Article 23): Taxpayers can offset amounts owed against those in their favor, provided they derive from federal taxes (excluding import taxes), are managed by the same authority, and have no specific destination.
15. Types of Taxes in Mexico
Three main categories: Federal, State, and Municipal.
16. Moment of Infliction of Contributions (Article 6, Chapter One, CCF)
Contributions are caused by legal or factual situations under current tax laws during the period they occur. They are determined at the time of causation and according to the provisions in force at that time.
17. RFC (Federal Taxpayer Registry)
The RFC is the entry in the SAT’s Federal Taxpayer Registry.
18. Requirements for Vouchers (5 Examples)
- Printed name or corporate name, address, and RFC.
- Folio number.
- Folio number, date, and place of issue.
- Quantity and type of goods or description of services.
- Date of printing.
19. Fiscal Year
For tax calculation purposes, the fiscal year typically coincides with the calendar year. For businesses starting after January 1st, the fiscal year begins on the start date of operations and ends on December 31st of that year.
20. Residence and Tax Domicile
Residence: Individuals who have established their household in Mexico. If an individual also has a household in another country, they are considered residents in Mexico if their center of vital interests is in Mexico.
Tax Domicile:
- Individuals in Business: The premises where their principal place of business is located.
- Legal Persons: The location of their main business administration in the country.
21. Fiscal Year (Repetitive – See Question 19)
This question is a repetition of question 19.
22. Disposition of Assets
The act of transferring ownership of property or rights, involving legal and tax consequences for both parties involved.
23. Definition of Business
– The tax system between the SAT and individuals or entities for profit.
– A regime under which individuals engaged in commercial, industrial, agricultural, livestock, and forestry activities can pay their taxes.
24. Obligation to Keep Accounting
Persons registered in the Federal Taxpayer Registry are obligated to keep accounting records to disclose their financial movements to the IRS.
25. Division of Companies (Article 15, CCF)
The conversion of all or part of the assets, liabilities, and capital of a company resident in the country (escindente) to another company or companies resident in the country (split).
26. Tax Liability of a Taxpayer
- Submit written offers.
- Report phone number, names, addresses, and RFCs of involved parties.
- Describe the business activity and reasons.
- Indicate if the facts have already been raised.
- Indicate if the taxpayer is subject to the powers of SCHP.
- Contribute to public expenditure.
- File tax returns.
- Issue tax receipts.
- Enroll in the RFC.
27. Powers of Tax Authorities
- Provide free assistance and troubleshooting to taxpayers.
- Disseminate general rules.
- Exercise powers granted to the SCHP and SAT.
28. Article 10 of ISR
Moral persons (corporations) must calculate income tax by applying a 28% tax rate to the result obtained in the fiscal year.
29. Purpose of Tax Rates in Income Tax Law (Not Defined in Original Text)
This section requires further clarification.
30. Business Hours and Days for Visiting Tax Authorities
7:30 to 18:00 hrs. Notifications can be completed outside of business hours without affecting their validity. Verification of assets and goods transport can occur 24/7. Administrative procedures and notifications can be enabled and seized on any day and at any time.
Types of Contributions (Repetitive – See Question 13)
This question is a repetition of question 13, with added details about social security contributions.
31. Purpose of Tax (Not Defined in Original Text)
This section requires further clarification.
32. Cumulative Income
The sum of all business sales, plus other income such as financial products, gains on sales of fixed assets, prizes, inheritances, and legacies.
33. Deductions Allowed by the Income Tax Act
Purchasing Administrative Expenses: Stationery, rent or lease, fuel or lubricants, electricity.
Selling Expenses: Selling commissions, travel expenses, car insurance, and toll booths.
Other Deductions:
- Returns, discounts, or rebates.
- Cost of sales.
- Investment expenses.
- Repealed investments.
- Losses from bad loans and accidents.
- Creation of reserves for pension funds, pensions, etc.
- Fees paid by employers to IMSS.
- Accrued interest.
- Annual adjustment for inflation.
- Advances and income paid to listed persons.
- Deduction of advances for expenses.
34. Determining and Calculating Income Tax
The difference between cumulative income and allowed deductions, with a 28% tax rate applied to the result.
35. Tax Loss
The difference between cumulative income and allowed deductions when the latter is greater than the former.