Refreshed tax code to bring in the new year 
Significant changes to Mexico’s taxation code, approved by Congress last year, take effect on January 1, 2014, as federal authorities seek to clamp down on tax evasion and widen the country’s taxable base.
“The bottom line is that they want to track everybody, how much they make and who gets paid,” says lakeside lawyer Spencer McMullen, who has been busy over the past few weeks familiarizing himself with the ins and outs of the new system.
While the new laws may not affect many foreigners who have retired to Mexico, anyone who works here or runs a nonprofit organization will need to be aware of them. Of special note, says McMullen, is the rule that from January 1 all accounting must be done through electronic means, with digital receipts issued via the Internet.
An important change, he says, is the elimination of the “small taxpayer” (Regimen de Pequeños Contribuyentes or REPECO) category, with a new fiscal regime called “Regimen de Incorporacion Fiscal.” This is primarily for individuals and small businesses who sell goods or provide services that do not require a professional qualification, with an annual income of up to two million pesos. (Real estate and construction companies are also prohibited from this category.)
“The idea is to make small business people file their taxes, provide the SAT (Mexico’s equivalent of the IRS) with a list of all their providers and declare their income as well as their expenses,” McMullen says.
These taxpayers are obliged to obtain an RFC (Registro Federal de Contribuyentes) tax ID number and electronically file bimonthly tax returns (for ISR, IVA and IEPS taxes).
Paper facturas are being eliminated. “This means that everyone will need to get an electronic factura provider or do the process themselves through the SAT website, no matter what their tax status” McMullen says.
He notes that those who opt into the new regime of Regimen de Incorporacion Fiscal will have to make a trip to the SAT office to obtain a password and an electronic signature so they can log in to the website and issue the electronic facturas via the Internet.
An advantage of the new category is that taxpayers will be able to claim gradual annual discounts on their income tax (ISR) over the next decade, says McMullen. For example, SAT gives a 100-percent discount in the first year, followed by incremental discounts of ten percent less annually until year ten (90 percent, 80, 70, etc.).
However, there are other inconveniences, he says. Any expenditure over 2,000 pesos may no longer be paid in cash and must be done by check or electronic means. “If it’s over 2,000 pesos in cash in one payment, they won’t let you deduct it,” he says.
Also for payments to employees to be deductable, they must be done not in cash if they exceed 2,000 pesos per payment . McMullen suggests that employers may choose to break up cash payments: instead of making a single 6,000-peso payment to an employee or provider, it may be preferable to make four 1,500-peso payments over the month. Employers will also need to give their staff electronic facturas for their wages if they want to deduct their wages.
The new legislation scraps the three-percent tax on cash deposits of more than 15,000 pesos made in Mexican bank accounts each month. Instead, banks will now be obliged to report cash deposits over this amount to the SAT.
For this reason, McMullen says, banks will require that new account holders – national or foreign – have an RFC number, even if they don’t pay Mexican taxes. This will be obligatory for anyone opening a new account, and existing account holders will likely be asked at some stage in the near future for their RFC numbers.
McMullen says obtaining an RFC number online is easy, but first one must have a CURP (Clave Unica de Registro de Población). Once obtainable from Civil Registry offices, these are now only given out to foreigners at Immigration (INM) offices when the applicant shows a current immigration document and passport. The RFC numbers are issued at https://siat.sat.gob.mx/PTSC/inscurp/.
McMullen says foreigners with bank accounts who don’t have an RFC number should get it sooner rather than later, adding that the new regulations should make foreigners careful about withdrawing significant amounts at ATMs on their U.S./Canadian credit or debit cards and then depositing the cash in their Mexican accounts.
“If the deposits are over the monthly limit, the banks will report them to SAT, which will presume that it is income money and send an invitation email (to their electronic mailbox) asking them to explain the discrepancy. They will have 20 days to respond to show that it is not income.”
Failure to respond, McMullen says, will mean the money is automatically regarded as income and subject to tax and collection procedures. Fines may also be levied.
Only cash deposits will be reported. Banks are not obliged to report cheque deposits or wire transfers, McMullen says.
Other “fiscal discrepancies” that the SAT will be investigating include a person’s Mexican credit card activity. “Any large cash payments to pay off credit cards will be reported to SAT,” McMullen says.
For this reason, he says no longer is it circumspect to use one’s Mexican credit card to buy an expensive item or plane ticket for someone else. “SAT will see how much spending you’re doing and calculate that you have more expenses that you declare income.”
As regards nonprofit organizations, McMullen says authorization from the SAT is now needed to receive donations. “If they don’t have this authorization then every donation they get will be taxable.”
Authorization is obtainable from the SAT’s legal department, he says.
“A lot of groups survive off their donations, and would not want to see 30 percent go to the taxman.”