Legal Reforms we think you should know about
Published Jan 29, 2014 - (Updated Sep 3, 2015)
- The “small taxpayer” bracket, known as REPECOS, was eliminated. Under the old system, REPECOS paid income tax based on gross income, which provided benefits such as a tax rate of only 2 to 5 percent, no need to deal with provider or client facturas and simplified accounting and filing requirements. Former REPECOS now must sign up under a new category and pay income tax at a rate of 0 to 35 percent (depending on income). Furthermore, the tax payer will be required to collect and give facturas, and the accounting, reporting and filing requirements are more complex. To minimize the shock of this change, the government is giving a 100 percent discount on income tax and IVA for 2014. This discount will be reduced at a rate of 10 percent each year (90 percent for 2015, 80 percent for 2016 and so on), but the IVA discount is only for 2014. If you were in the REPECO category in 2013, you need to speak with your accountant as soon as possible to get set up in a tax new category.
- All deductible expenses now must be documented via an electronic factura, e-factura. Paper facturas (deductable invoices) are no longer permitted —with some minor exceptions. The rules for giving or receiving e-facturas are also substantially different from the rules for paper facturas. Your business needs to be authorized to grant e-facturas, and you need to make sure the e-facturas you receive comply with the new rules.
- Your email address is now also your tax address. Because the tax authority has had problems locating the physical address of tax payers to notify them of tax requirements or audits, you now must provide both a physical address and an email address. The tax authority will require an email verification of this address via a response to an email sent by them. This reform will make it easier for the government to contact you, and we foresee that tax notifications via email will increase the number of requirements the governments sends out. Please note that just because you are sent a tax notification requiring you to provide information, you are not legally required to provide it unless their request is based on an expressed written legal statue that applies to your case. Do not just give out information without first checking to see if you legally have to provide it! Receiving a notification does start the clock ticking on the time you have to respond, so we highly recommend that you get immediate tax advice from a tax attorney upon receiving a notification.
- There are no more full exemptions on the sale of your primary residence. If you owned a home that was considered your primary residence in Mexico for five years or more prior to the sale, the full sales value used to be exempt from income tax. This exemption no longer exists. If you sold your primary residence prior to living in it for five years, you used to be exempt on the first $500,000 USD (approximately) of gain. This amount has now been reduced to approximately $250,000 USD. Note that the house must still qualify as your primary residence in Mexico to take this exemption.
- Rules regarding the temporary importation of foreign cars have also changed. If you have a Visitor visa or a Temporary Resident visa, you are allowed one car in the country for the term of your visa. All other forms of visas (including Permanent Resident and Student) do not allow you to have a foreign car in Mexico under a temporary car import.
- If you are in the business of importing merchandise to Mexico (and are a registered importer), you can now process the importation of your goods without having to go through a customs agent.
- The flat tax (IETU) has been eliminated, to the delight of many real estate developers. For the last couple of years, businesses were required to pay a flat tax of 17.5 percent of gross sales if the net income tax you had on those sales was less than 17.5 percent of the sale.
- Real estate developers no longer can consider only payments received on a sale as income. Unfortunately, this reform will require that real estate developers show the total value of a sale in the month the sales agreement is signed as income, even if the property is paid for in partial payments over the following months or years.
- IVA is now 16 percent in all states of Mexico. Prior to the reform, certain areas of Mexico, including all of northern and southern Baja, paid a lower IVA rate of 11 percent.
- In 2014 Mexican banks will start notifying the US government of US citizens who have a bank account in Mexico.