Mexico has high taxes

Overview Mexico

Mexico

Along with Chile, Mexico is the Latin American country with the most free trade agreements: there are a total of 13 agreements with 52 countries, including the North American Free Trade Agreement (NAFTA) with the USA and Canada and one with the EU, which has been in force since 2000. Mexico is the most important recipient country for German exports to Latin America. In addition, around 1900 companies with German capital of almost USD 35 billion are currently registered with the Mexican Ministry of Economic Affairs. The companies come primarily from the automotive, pharmaceutical, chemical and electronics sectors, with many small and medium-sized companies also active in the field of high-tech solutions.

 

e-Invoicing

Since 2014, companies in Mexico have been required to use e-invoicing CFDI (Comprobante Fiscal Digital a través de Internet) use. The invoicing process itself is not carried out by the state, but by certified third-party companies, the PACs (Proveedor Autorizo ​​da Certificación). Since the end of 2017, the Complementos-de-Pagos Document of all incoming payments to the tax authorities SAT (Servicio de Administración Tributaria) reported and business books are electronically filed. In the meantime, invoices have to be stored for up to 10 years.

 

process

Accountability and Digital Certificates
The invoice must be registered in a system that records the exact time it was issued. Senders of the invoice require a digital certificate approved by the Mexican tax authorities in order to receive the CFDI 3.3 to generate.

Certification of the CFD
One recognized by the Mexican government e-Invoicing Providers (PACs) verifies the legality of the invoice against the SATthat a 32-digit certification number is attached to the invoice for authorization (UUID - universally unique identifier) adds. With the help of the UUID, the SAT can track all relevant CFDI documents and related payments. If the invoice is not authorized, the SAT adds a rejection code to the XML file instead of the UUID. The PAC must forward the invoice to the Mexican government within 72 hours.

The idea behind precise billing and payment tracking is the payment of sales tax, which must be made within a certain period and not - as in Brazil, for example - only after the physical delivery of the goods. Before this regulation was introduced, the Mexican tax authority SAT (Servicio de Administración Tributaria) was unable to track any partial payments or to distinguish whether it was an invoice or an actual payment. This resulted in companies paying their invoices without sales tax or having invoices canceled after they were paid so the customer could avoid paying sales tax.

The creation of the Pagos documents is mandatory for the following constellations:

  • Payments Associated with Government Sales Tax
  • Down payments (Anticipos)regardless of whether the goods have already been delivered
  • Partial payments
  • Payments without exchange of money

In order to prevent further tax evasion methods, the SAT has also introduced an electronic auditing system in real time. This gives the SAT an accurate overview of a company's sales, prices and actual profits. The SAT even allows re-audits for facts that have already been checked.

 

Compliance

The strict tax policies in Mexico are the political response to the high level of corruption and tax evasion in the country. Among the LATAM countries, Mexico ranks 139 out of 180, one of the last places in Transparency International's Corruption Perception Index from 2017. According to Labor Minister Alfonso Navarrete, the fact that around 60% of Mexican workers do not pay taxes results in an annual loss from 3-4% of GDP. To fund the programs under the Nieto government, tax laws and compliance rules were reformed accordingly.

The cornerstone of the reforms is the General Administrative Accountability Act and the National Anti-Corruption System (Sistema Nacional Anticorrupción) from 2017, which are to coordinate the cooperation between the federal government, the federal states and the municipalities with regard to the fight against corruption. Correspondingly, companies were obliged to introduce compliance systems. If these do not meet the requirements of the law, high fines must be expected for the company and its officials. Before the law was introduced, only public officials could be held liable.

The provisions of the law apply to companies based inside and outside Mexico as well as their subsidiaries and employees, provided they have contact with public officials in Mexico. The company can be held liable for the behavior of individual employees.

The sanctions have also been tightened accordingly: the penalty can amount to up to 200% of the benefit obtained or 6 million UDS, provided that no financial benefit has been obtained. In addition, the company can be prevented from acting in whole or in part, temporarily or permanently, or even dissolved in the event of particularly severe violations. However, liability can be significantly reduced through a voluntary disclosure or through the implementation of an effective compliance system.

 

criteriaMexico
Ranking TI Corruption-PReception Index 2017 (out of 180)139
Statutory

basis

General Law in Administrative Accountability (2017),

National Anti-Corruption System (2016)

CS obligation?Yes
Standards· Introduction of a compliance officer

· CS manual

· Code of Conduct

· Monitoring

· Whistleblower mechanisms

· Integrity training

· Prevention against recruitment of risk takers

Special treatment for CS implementation?Yes,

even with voluntary disclosure

Punish· Penalties up to 600% of the benefit achieved

· Temporary disqualification of up to 10 years for state contracts

· Cancellation of licenses, concessions, rights or administrative authorizations

· Dissolution of the company

· Prison sentences

 

 

 

Tax law and types of tax

As in Brazil, the federal, state and local governments can levy taxes in Mexico. According to the Income Tax Act (Ley de Impuesto sobre la Renta - LISR) Both resident legal and natural persons are taxed according to the world income principle, non-residents only with their income from Mexican sources.

 

Tax typeElevationheight
Corporation tax *

(Impuesto sobre la Renta, ISR)

Profits from trade or services30%

 

Withholding taxInvestment income from foreign firms10%
Capital gains tax

(Impuesto sobre la renta del capital)

Investment income25-35%
value added tax

(Impuesto al Valor Agregado, IVA)

Goods and services16%
Real estate transfer tax (Impuesto sobre adquisición de inmuebles y transmisión de dominio)Property registered in the land register1-5%
Payroll tax (Impuesto sobre nóminas)the salary paid to the employed workers1-3%
Property tax

(Impuesto predial)

Employee profit-sharing taxincome10%
Residence taxSettlement5%
Transfer taxTransfer of real estate2-4% of the value
Taxes on oil exploration and productionOil exploration and productionnot clear

* Group taxation (regimen opcional para grupos de sociedades) of related companies is possible if the parent company owns 80% of the subsidiary

 

A double taxation income between the Federal Republic of Germany and the United Mexican States has been in force since October 2010.

You can find an explanation of all key tax and technical terms here.