Overview Mexico

Mexico

Besides Chile, Mexico is Latin America`s country with the most free trade agreements: altogether 13 agreements have been reached with 52 states, such as the North American Trade Agreement (NAFTA) with Canada and the US as well as one with the EU that was implemented in 2000. Mexico is LATAM`s most important receiving country for German imports. Currently, there are approximately 1900 companies with German capital totaling almost 35 billion USD registered with the Mexican Ministry of Economics. These companies are active in the sectors of automotive, pharma, chemistry and electronics as well as a series of small and medium sized companies working on high-tech solutions.

 

e-Invoicing

Since 2014 companies have to use the e- invoicing system CFDI (Comprobante Fiscal Digital a través de Internet). The invoicing system itself is not being implemented though the state but through third party providers called PACs (Proveedor Autorizo da Certificación). Since the end of 2017, companies additionally have to supply the so-called Complementos-de-Pagos documents which detail all inpayments to the tax authority. Accounting books also have to be deposited electronically. Invoices have to be archived for up to 10 years.

Process

Accountability and Digital Certificates
The invoice must be registered in a system that saves the exact date of issuing. The sender of the invoice needs a state-certified digital certificate (Sello Digital Certificado) in order to generate the CFDI 3.3.e The invoice Needs an additional digital signature (FIEL).

Certification of the CFDI
A state-authorized e-Invoicing provider (PACs) verifies the validity of the invoice and ads a certification number. Within 72 hours the invoice will be forwarded by him to the Mexican government.

The idea behind the time-accurate invoice and payment tracking is the payment of the VAT which has to take place within a certain time period and not, as is the case in Brazil, after the delivery of the goods. Prior to the new regulation the Mexican tax authority SAT (Servicio de Administración Tributaria) could not track partial payments or decide if it deals with an invoice or an actual payment. This led to companies paying their invoices without the VAT and then cancelling the invoice in order to avoid paying the VAT.

Creating the Pagos documents is mandatory for the following constellations:

  • Goods/services that require the payment of the VAT
  • Down payments (Anticipos), independent from the actual delivery of the goods
  • Partial payments
  • Payments without the exchange of Money

In order to hinder further tax evasion measures the SAT has introduced a real time auditing system. Using this system the SAT has an exact overview over sales, prices and actual profits of a company. Even re-audits for already controlled companies through the SAT is possible.

 

Compliance

The strict tax rules in Mexico are the political reaction to the high degree of corruption and tax evasion. Mexico only ranks 139 out of 180 countries on Transparency International`s Corruption Perception Index last year. The fact that approximately 60% of all Mexican workers do not pay taxes results – according to Labor Minister Alfonso Navarrete – in yearly damages of 3-4% of the GDP. In order to finance the programs under the Nieto government ne tax laws and Compliance rules were introduced.

The reforms are based on the General Law on Administrative Accountability as well as the National Anti-Corruption Law (Sistema Nacional Anticorrupción) from 2017, which improve the cooperation of federal, state, and municipal level in fighting corruption. Therefore the introduction of Compliance programs became mandatory for companies. If the programs do not correspond to the regulations set out in the named laws, companies and their functionaries can suffer from high penalties. Prior to the introduction of the new law only public officials could be hold responsible.

The provisions of the law refer to both resident and non-resident companies as well as their subsidiaries and employees if they are working with public officials in Mexico. The company can be held accountable for all actions of its employees.
The respective sanctions were also increased: penalties can rise up to 600% of the gained advantage or up to 6 million USD if no financial advantage has been obtained. Moreover, companies can be temporarily or permanently banned from public procurement, or even dissolved in cases of severe crimes. Self-denunciation and the implementation of an effective Compliance program can significantly reduce such sanctions.

 

Criterium Mexico
Legal basis General Law on Administrative Accountability (2017),

National Anti-Corruption System (2016)

Compliance program duty? yes
Standards ·         Appointment of Compliance Officer

·         Compliance handbook

·         Code of Conduct

·         Monitoring

·         Whistleblower mechanisms

·         Integrity training

·         Prevention against risky staff

Compliance program as mitigating factor? Yes, also in case of self-denunciation
Sanctions ·         Penalties up to 200% of the obtained advantage

·         Temporary disqualification for public procurement for up to 10 years

·         Cancellation of licenses, concessions, rights and administrative authorizations

·         Dissolution of the company

·         Prison sentences

 

 

Tax Law & Taxes

Parallel to Brazil`s tax system taxes can be levied on the federal, state and municipal level. According to the Income Tax Law (Ley de Impuesto sobre la Renta – LISR) both resident judicial and natural persons are being taxed on the world income principle, non-resident tax payers only based on their income generated in Mexico.

 

Tax type Tax base Rate
CIT*

(Impuesto sobre la Renta, ISR)

Goods and services 30%

 

Withholding Tax Capital gains of foreign companies 10%
Capital Gains tax

(Impuesto sobre la renta del capital)

Capital Gains 25-35%
VAT

(Impuesto al Valor Agregado, IVA)

Goods and services 16%
Property tax

(Impuesto sobre adquisición de inmuebles y transmisión de dominio)

Real estate 1-5%
Payroll Tax

(Impuesto sobre nóminas)

Payment to the employees 1-3%
Employee Gain Sharing Tax Income 10%
Residence Tax Residence 5%
Transmission Tax Transfer of real estate 2-4% of the value
Tax on oil extraction and production Oil extraction and production unclear

*group taxation (regimen opcional para grupos de sociedades) possible for connected companies if the mother company owns 80% of the subsidiary`s shares

Since October 2010 a double taxation agreement between Mexico and Germany is in place.

An explanation of all relevant technical and tax terms is available here.

 

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