Extensive reforms have been made to Mexico´s tax laws

Very extensive reforms have been made to Mexico´s tax laws and have been finalized in November, 2013 and will become effective on January 1, 2014 not giving give people a lot of time to prepare.

There will be problems. First, because all the appointment times at the SAT offices (Mexico’s tax department) are filled for quite a while, and second, because some of the changes will affect banks and businesses quite a bit. I think it’s going to be a messy transition as many will be unable to comply in time with only 2 weeks left until the government goes on vacation and returns January 2nd when the new laws take effect and even then there may be delays of weeks for people to be able to get appointments at the tax office to set themselves up or make changes.

There are new IVA sales taxes.
It’s now going be 16% nationally (whereas it’s been about 11% in the border areas), and it will include taxes on soda, chewing gum, and pet food throughout Mexico. Those weren’t included in the past. So, people with pets should stock up at Costco before the new year. Dog shelters will be especially hard hit as well as those people who have 3, 5 or 10 dogs. And, for people driving back from up north after Christmas, or coming back from nationalizing their vehicles at the border, they’ll want to fill up their tanks near the border, where the gas tax will still be 11% until the end of the year.

Will anything change at customs (Aduana)?
Yes, temporary importation of certain goods will also start being taxed. That could open the door in the future for a tax on the temporary importation of vehicles. Not yet, though. And, the mandatory use of customs agents for any value of goods to be imported has been eliminated. The use of an agent will be optional, which is a good thing because then they’ll have to be more competitive in terms of rates and quality of service.
Also, customs is going to be checking the value of imported goods more closely and communicating with the countries where merchandise is leaving to check declared values. People may be more likely to get caught if their car nationalization pedimento say the car is worth 10,000 pesos, but it is clearly worth much more.

What about new banking regulations?
Starting in 2007, there had been a tax on large cash deposits: 2% on the amounts of deposits exceeding 15,000 pesos, changed in 2010 to 3% on amounts exceeding 15,000 pesos. Those taxes have now been eliminated. But, banks are now required to report to SAT any deposits over 15,000 pesos, and any payment of credit card debt of $20,000 pesos made at a time. SAT may also audit you and compare your credit card expenditures to your declared income. They can then contact you to explain these transactions within a certain time frame. If you don’t respond within that time frame (say, 20 days), they could establish liens and levies. And, of course, you wouldn’t respond if the address they have for you is old. So, it will become very important for people to make sure their bank has up-to-date home addresses and email addresses. That’s especially true for snowbirds. They’ll need to check their email frequently while they’re gone.

Also, banks will require people to have an RFC (tax ID number) in order to open a bank account. They have enabled the ability to get an RFC number online but people first need a CURP number which has to be processed through immigration, but that could take time to set up. With offices closing for the holidays, people may have problems in January and would have to wait until February to open the account as they need their CURP first although the Guadalajara immigration office processes them same day and Chapala does not so Chapala residents who do not want to wait should apply for their CURP number in Guadalajara.

Anything new for businesses?
Yes, the current process for small business reporting (REPECO) will be eliminated. Currently, small businesses report their gross earnings every two months. For January, that will still be the case in order to report earnings for the November – December months. After that, there will be more paperwork. The process will come through the regular tax system. That is, earnings will need to be reported, and so will deductions, and facturas (invoices) – just like big businesses do today. And the tax rates will be between 2% and 35%. Not only will there be more paperwork, but there will also need to be greater mastery of Spanish. My office will help people by getting them set up and familiar with the new system.

Another change is the elimination of the business IETU tax (single-rate flat tax started in 2007).

And, non-profits will start being required to be authorized by the SAT to receive donations which would allow them to continue preferential tax treatment. That’s obviously going to be critical for them. They should probably start that process immediately in order to not lose their preferencial status due to delays in authorization by SAT.
The most controversial of the new business regulations is probably the requirement for electronic facturas and the elimination of paper facturas and to give all employees online facturas (CFDI) rather than paper facturas when they get paid in order to be able to deduct their wages. Many businesses may not be ready by January 1st, so that’s going to create a lot of problems.

What about tax changes for investors and real estate owners?
Mexico has caught up to many other countries and will tax capital gains on the sale of stock at a rate of 10% as well as tax dividends at the same rate of 10%.

For real estate sales there will be a maximum capital gains tax exemption pegged using the UDI index (investment units) with a new limit of 700,000 which equates to about 3,500,000 pesos so any gains over that amount from a sale will be taxed, the prior limit was 1,500,000 UDIs with that exemption waived if someone could prove they lived in the home for the preceding 5 year period.

That’s a lot of changes.
There are more. Those are just the ones that I think will affect expats the most. SAT is also firming up the tax code in other ways. They did some research to determine where and why they lost tax court cases in the past, and have now plugged some of the advantages taxpayers had in court. I’ll know more next week (1st week of December), so I can give you an update then when I go to another 5 hour tax update class.

Spencer