Mexico 2014 Tax Reform Passed by Senate Oct 31 2013


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Mexico 2014 Tax Reform Passed by Senate Oct 31 2013

  1. 1. Mexico 2014 Tax Reform Passed by Senate on 31 October 2013 Nuricumbo + Partners Audit • Finance • Risk • Strategy • Business Development
  2. 2. Outline 1 Background 2 Federal Tax Code 3 Income Tax Law 4 Value Added Tax Law 5 Special Tax on Production and Service Law 6 Federal Fees Law 7 Customs Law 8 Contact Information
  4. 4. On 5 September 2013 the Federal Government presented its proposal for tax reform. The main objectives of this reform are: - Increase tax revenues by about 5 points as a percentage of GDP or about 240 billion MXN. - Finance a universal pension and unemployment insurance system. - Eliminate special treatments for certain industries. - Eliminate certain taxes such as IETU and IDE. - Reduce dependency on oil income.
  5. 5. The bill was passed by Congress on October 16, 2013 with 317 votes in favor and 164 against the measure.
  6. 6. The bill was passed by the Senate on October 31, 2013 with 73 votes in favor and 50 against the measure.
  7. 7. The main changes approved by this legislation are the following:
  9. 9. TAX ADDRESS PROPOSED Taxpayers can be notified at any address where they can be located. PASSED When taxpayers have not disclosed their address to the tax authorities, they can be notified at the address they have disclosed to financial entities or to savings and loans cooperatives, when they are users of their services.
  10. 10. TAX MAILBOX PROPOSED Taxpayers with access to the tax mailbox can be notified of any administrative act or resolution via this channel; using digital documents. PASSED Passed as it was proposed, but implementation will be gradual. Tax mailbox will be mandatory for corporations starting on 30 June 2014 and for individuals on 1 January 2015.
  11. 11. ILLEGAL USE OF TAX DOCUMENTS Tax documents will lose their legal validity when they support non-existent operations. Authority will be able to assess taxes after a time period for clarifications has expired. Digital certificates will also lose their validity when a taxpayer cannot be located, or when the certificates have been used to support transactions that are non-existent, simulated, or illegal.
  12. 12. FORMS OF TAX PAYMENT The following methods will be accepted for paying taxes: • Checks issued by the same bank where the payment is made. • Wire transfers. • Credit and debit cards, in accordance with specific operating procedures that will be subsequently published.
  13. 13. PERSONAL LIABILITY PROPOSED Partners or shareholders will be personally liable for any taxes that remain unpaid after the company’s assets or equity have been depleted. PASSED Partners or shareholders will be personally liable for any unpaid taxes only when they have had control over the management of the company, and only for those taxes generated during the time period when they had such control.
  14. 14. TAX DOCUMENTS FOR AUTOMOBILES PROPOSED Digital tax documents should contain information similar to that found on documents issued by manufacturers, assemblers, importers and sellers of automobiles. PASSED Digital documents will contain such information as stated above plus number of automobile ID and code of automobile ID.
  15. 15. TAXPAYER SELF-CORRECTION When taxpayers file incomplete or erroneous information, they will have up to 30 days after notification by the tax authority to complete or correct such tax filing.
  16. 16. TAX COMPLIANCE REPORT PROPOSED To eliminate the figure of an independent accountant’s opinion on tax compliance. PASSED The independent accountant’s opinion on tax compliance will be optional but only for taxpayers with annual income higher than $100 Million MXN. Accountants will be subject to additional controls and will have to renew their registration next year.
  17. 17. PRECAUTIONARY SEIZURE PROPOSED Establish specific limits for precautionary seizures conducted by tax authorities. PASSED The authority will be able to conduct precautionary seizures for the amount of unpaid taxes as determined by the tax authority itself.
  18. 18. PROFIT MARGIN ESTIMATE Tax authorities will have the ability to estimate the tax profit of tax payers using a general margin of 20% on gross income, or using specific margins detailed in this article, depending on their type of business.
  19. 19. TAX SECRET Tax authorities will be allowed to publish on their website the name and tax ID of those taxpayers that have not complied with their tax obligations. This will include unpaid tax liabilities, unsecured tax liabilities, unlocated taxpayers, tax crime sentences, and tax write-offs.
  20. 20. CONCLUSIVE AGREEMENTS Taxpayers may request a conclusive agreement with the tax authority, as long as the fact-gathering phase of the procedure has been fully completed. Conclusive agreements must be processed through the Taxpayer Defense Attorney Office (Prodecon).
  21. 21. TAX CRIMES It will be considered a tax crime to “leave” or “disappear” from the tax address without giving notification to the tax authorities.
  22. 22. TAX EXECUTION PROCEDURES PROPOSED A term of 15 days will be granted to comply with certain procedures such as liquidate tax liabilities, file defense recourse, secure tax interest, etc. PASSED The terms was extended to 30 days.
  23. 23. STATUTE OF LIMITATIONS A term of ten years has been established as statute of limitation for tax matters, including unpaid taxes.
  24. 24. INCOME TAX LAW
  25. 25. IMMEDIATE DEDUCTION FIXED ASSETS The option for immediate deduction of fixed assets has been eliminated. All fixed assets will now have to be depreciated in accordance with the depreciation rates established in this law.
  26. 26. DEDUCTION OF GROCERY VOUCHERS Grocery vouchers (vales de despensa) are a common benefit offered by companies in Mexico. Paper vouchers will no longer be tax deductible. For this benefit to be deductible, it will have to be given via debit cards preauthorized by the tax authorities.
  27. 27. SOCIAL SECURITY Social security contributions that are the responsibility of the employee but paid by the employer will not be deductible for the employer.
  28. 28. AUTOMOBILES Deductibility limit is lowered from $175,000 MXN to $130,000 MXN per automobile (without VAT). Car rentals will be deductible up to a ceiling of $200 MXN per car, daily.
  29. 29. RESTAURANT MEALS Deductibility of restaurant meals will be limited at 8.5% of the bill. In order to obtain this deduction, meals will have to be paid by credit or debit card , purchasing card or other electronic devices approved by the tax authorities.
  30. 30. MINING INDUSTRY Investments made during the pre-operational phase will no longer be deductible in one fiscal year.
  31. 31. MAQUILADORA INDUSTRY The benefits of the Maquiladora tax regime will only be applicable to companies who are exporters. Service companies will not be allowed to apply the benefits of the Maquiladora tax regime. New companies will have up to four years to decide if they become permanent maquiladoras in the country. During that period, they will qualify for most of the benefits of the maquiladora tax regime.
  32. 32. INCOME TAX RATE Income tax rate for individuals increases up to 35% Individuals with annual income above $500,000 MXN will be subject to a 31% rate. Those with annual income above $750,000 MXN will have a 32% rate. Those above $1M MXN will have a 34% rate and those above $3M MXN will be subject to the top bracket of 35%.
  33. 33. LIMITS ON PERSONAL DEDUCTIONS 10% of individual’s total annual income (including exempt income) or 4 annualized minimum salaries (approx. $86K MXN), whichever is less. Donations to non-profit entities authorized by the tax authorities will not be subject to this limitation. Benefits that represent exempt income for the employee will only be deductible up to 41% by the employer (although they will be fully deductible for purposes of calculating the mandatory profit sharing). Stricter rules are introduced to control donations made among related parties.
  34. 34. SALE OF REAL ESTATE PROPERTY Income generated on the sale of a property will be exempt up to a limit of 0.7 millions of UDIS (approx. $3.5M MXN). The rest will be taxable at normal applicable rates.
  35. 35. TAX INCORPORATION REGIME This regime aims to incorporate individuals with income up to $4M MXN into the formal side of the economy. It provides certain advantages such as reduced administrative load and slightly lower tax rates. Tax payers can live under this regime for up to six years. Then they will have to move to the normal regime.
  36. 36. PROFITS ON STOCK TRADING Profits derived from trading stock of public companies will be subject to a tax rate of 10%.
  37. 37. IETU / IDE The Impuesto Empresarial a Tasa Única (IETU, which was similar to an alternative minimum tax) has been eliminated. The Impuesto a los Depósitos En Efectivo (IDE, which taxed bank deposits made in cash) has been eliminated.
  39. 39. NEW ITEMS SUBJECT TO VAT - Chewing gum - Dog, Cat and other pet food.
  40. 40. EQUALIZATION OF VAT RATE The special 11% VAT rate that was applicable to the cities considered part of the “border zone” has been eliminated. Now the general 16% VAT rate is applicable to the entire country.
  41. 41. TEMPORARY IMPORTS (IMMEX) Temporary import of goods will no longer be VAT exempt. It appears a certification program will be established in order to create a way of exempting some large importers from this new measure.
  43. 43. TEMPORARY IMPORTS (IMMEX) Temporary import of goods will no longer be exempt from this tax, in order to make it consistent with the change in the VAT law. It appears that a certification program will be established in order to create a way of exempting some large importers from this new measure.
  44. 44. SUGARY DRINKS A new tax of $1 MXN per liter will be applied on all sugary drinks or powder used to produce this type of drinks.
  45. 45. JUNK FOOD A new tax of 8% on junk food has been established, including snacks, candies, chocolates, creams, and ice cream.
  46. 46. ENVIRONMENTAL TAXES Generation of fossil energy will be taxed. Natural gas is exempt. Pesticides are taxed at rates that go from 6% to 9% depending on toxicity.
  48. 48. MINING INDUSTRY An additional rate of 7.5% is established on the profits of mining companies. An additional extraordinary rate of 0.5% is established on the sale of gold, silver and platinum.
  49. 49. CUSTOMS LAW
  50. 50. FREE WAREHOUSING Goods can be imported and warehoused free of charge for up to two days in the tax authorities warehousing facilities. In the case of warehouses located in maritime traffic destinations, the term will be seven days.
  51. 51. ELECTRONIC PREVALIDATION Authorization to provide pre-validation services will not be granted to companies or individuals acting as importers, exporters or customs agents.
  52. 52. LEGAL REPRESENTATIVE Requirements of the legal representative of companies that handle import/export goods without intervention of a customs agent: - To be an individual current in all tax obligations. - To be a Mexican national. - To prove existence of a working relationship with the importer or exporter. - To prove experience or expertise in the matters of foreign trade.
  53. 53. CANCELLATION OF CUSTOMS PERMIT More details were added on scenarios or causes by which an individual would lose his or her customs permit: - To allow a third party to use the customs permit for a profit. - To provide custom services to companies or individuals not registered in the Importers Databases.
  54. 54. FINES AND PENALTIES Specific fines are established for cases where the value and/or description of goods and its transport or method of marketing is misrepresented by the Customs Agent. Penalties range from $1,420 MXN (approx. $110 USD) to $30,000 MXN (approx. $2,300 USD).
  55. 55. Contact Information We would be happy to discuss these and any other legal changes with you which arise from the ambitious reform program proposed by the Federal Government. At present, Mexico offers great opportunities and we would love to become your strategic partner in this market.
  56. 56. Contact Information Address: Plateros 16 – 504, San Jose Insurgentes 03900, Mexico City Tel. Office: + 52 (55) 5339 5839 Mobile: + 52 (155) 5453 6309 E-mail: Web: Skype: nuricua