1. Foreigner Definition
2. Residents in Mexico
3. Residents abroad
4. Taxes
1. Income tax
2. Value-Added Tax
3. Corporate Tax at a Simple Rate
4. Special Tax on Production and Services
5. Cash Deposit Tax
5. Taxes Forms of payment
6. Federal Taxpayer's Registry (RFC)

Responsible Authority: Tax Administration Service. Ministry of Treasury. www.sat.gob.mx

1. 1. Foreigner Definition

Individuals or entities (companies, associations or partnerships, among others) that are governed by the legislation of another country in light of their nationality, domicile, residence, seat of operation, and other criteria, shall be deemed foreign nationals for taxation purposes.

In order to explain the applicable tax regime, foreign nationals are distinguished according to: residents in Mexico, and residents abroad.

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2. Residents in Mexico

Tax legislation deems the following persons as residents in Mexico:

• Nationals and foreign individuals who have established their residence in Mexico.
• When they have a residence in another country, they shall be deemed as residents in Mexico if they have their center of vital interests in the country; i. e., that more than 50% of the annual income of an individual is derived from a source of wealth located in Mexico, or, that the center of their professional activities is located in Mexico, among other cases.
• Individuals with Mexican nationality that are State officers or employees thereof, even when the center of their vital interests is located abroad.
• Entities (companies, associations or partnerships, among others) that have been incorporated pursuant to Mexican law, as well as those that have established in Mexico their main place of business or the seat of their management.

It is worth noting that Mexican individuals are deemed residents in Mexico, unless they prove that they are residents of another country.

 

Individuals

Individuals that are residents in Mexico pursuant to the foregoing, regardless of the fact that they may have a foreign nationality, shall pay taxes just as any other national individual that is resident in Mexico. Foreign nationals that are residents in Mexico, who receive income in this country, shall become taxpayers just as any other Mexican national and consequently must comply with the relevant obligations according to the corresponding income regime.

 

Entities

Entities that are residents in Mexico shall pay taxes, according to any of the following regimes:

• Entities-General Regime
• Non-profit Entities
• Entities-Simplified Regime

Refer to Residents in Mexico:
http://www.sat.gob.mx/sitio_internet/asistencia_contribuyente/principiantes/eres_extranjero/78_2157.html

 

In order to know how to pay taxes:
http://www.sat.gob.mx/sitio_internet/asistencia_contribuyente/principiantes/eres_extranjero/78_2161.html

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3. Residents abroad

Tax legislation deems the following persons as residents abroad:

• Nationals and foreign individuals who do not have their residence in Mexico. Notwithstanding the foregoing, if they have their residence in Mexico, they shall be deemed as residents abroad if they do not have their center of vital interests in this country; i.e., that more than 50% of their annual income is not derived from a source of wealth located in Mexico, or, that the center of their professional activities is not located in Mexico, among other cases, and
• Entities (companies, associations or partnerships, among others) that are not incorporated pursuant to Mexican law, as well as those that have not established in Mexico their main place of business or the seat of their management, but that maintain one or more permanent establishments in Mexico.

 

Individuals or entities that pursuant to the foregoing are resident abroad must pay taxes in Mexico in any of the following cases:

• When they obtain income from any source of wealth located in Mexico.
• When they have a permanent establishment in Mexico, for the income attributable to such establishment.

A permanent establishment shall be deemed any place of business where business activities are conducted partially or totally or where independent personal services are rendered. These places shall be, for instance:

• Branches
• Agencies
• Offices
• Factories
• Workshops
• Facilities
• Mines
• Quarries
• Any place of exploration, extraction o exploitation of natural resources.

 

The following shall be deemed business activities:

• Commercial activities.
• Industrial activities, i.e., the extraction, conservation or transformation of raw materials, the finishing of products and the manufacturing of goods.
• Agricultural activities, which comprise sowing, cultivating and harvesting activities, as well as the first sale of the products obtained, provided they have not been subject to industrial transformation.
• Livestock activities, which include raising and feeding of cattle, farm birds and animals, as well as the first sale of the products obtained, provided they have not been subject to industrial transformation.
• Fishing activities, which include raising, cultivating and caring of reproduction activities in connection with all kinds of marine and sweet water species, including aquaculture, as well as the capture and extraction thereof, and the first sale of the obtained products, provided they have not been subject to industrial transformation.
• Forestry activities, which are cultivation of forests and hills, as well as raising, conservation, restoration, development and use of vegetation thereof, as well as the first sale of the obtained products, provided they have not been subject to industrial transformation.

 

A permanent establishment in Mexico shall also be deemed to exist:

• When the foreign resident conducts business activities in Mexico through a trust.
• When he/she acts in Mexico through a person who exercises powers for the execution of agreements on his/her behalf and in his/her representation.
• When an insurance company receives income from the collection of premiums in Mexico, or when it issues insurance coverage against risks located in Mexico.
• When he/she acts through an independent agent, if not acting within the ordinary framework of his/her activities.
• When construction, demolition, maintenance and mounting services for real estate and other related activities are conducted in Mexico, provided they have a duration of more than 183 calendar days, consecutive or not, during a year term.

 

Refer to Residents abroad:
http://www.sat.gob.mx/sitio_internet/asistencia_contribuyente/principiantes/eres_extranjero/78_2158.html

 

Payment of taxes:
http://www.sat.gob.mx/sitio_internet/asistencia_contribuyente/principiantes/eres_extranjero/78_2161.html

 

Customs Law:
http://www.diputados.gob.mx/LeyesBiblio/pdf/12.pdf

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4. Taxes
1. Income tax (IT)

Foreign nationals that are residents abroad and they obtain income in Mexico shall pay this tax, or when they have a permanent establishment in Mexico, for the income derived from such establishment.

 

Based on the foregoing, individuals or entities must pay taxes in Mexico when they obtain income derived from the following:

• Salaries.
• Professional fees.
• Compensation paid to board members, administrators, statutory auditors and managers.
• Lease of real estate.
• Lease of moveable goods.
• Time share tourist service agreements.
• Sale of shares.
• Financial leases.
• Royalties, technical assistance and advertisement.
• Interest.
• Prizes.
• Artistic and sport activities, as well as public shows.
• Distributable surplus of non-profit entities.
• Dividends, profits, remittances and earnings distributed by entities.
• Real estate sale.
• Building site construction, installation, maintenance or placement of real estate, inspection or supervision.
• Other income from a source of wealth located in Mexico.

 

Aroyalty payment shall be deemed made when payment is received for the use and enjoyment of patents, certificates of invention, improvement or factory marks, copyrights, as well as the amounts received for the transfer of technology or information relative to industrial, commercial or scientific experiences; for the transmission of visual images, sounds or both, or for any similar right or property.

 

Income derived from technical assistance shall be deemed to exist when payment is received for the rendering of independent services that are provided with non-patentable knowledge that do not imply the transmission of confidential information.

 

Income shall be deemed to exist when the goods or rights for which royalties or technical assistance is paid are utilized in Mexico, or when the payment _ including advertisement- is made by residents in Mexico or foreign residents with a permanent establishment in the country.

 

The following shall be deemed,inter alia, interest:

• The yield of credits of any sort.
• Yield derived from public debt, bonds or debentures, including premium and prizes similar to the yield of such securities.
• Prizes paid in security loans.
• Discounts on the placement of securities, bonds or debentures.
• Commissions or payments made as a result of the granting or creation of security interest on credits, even when the latter may be contingent.
• Payments made to a third party as a result of the acceptance of surety, the granting of security interest, or for liability of any class.
• Earnings derived from the sale of securities placed among the general investing public.
• Earnings derived from the sale of shares of investment companies that are specialized in debt instruments.
• Interest shall also be deemed to exist upon income obtained by a resident abroad from the purchase of a credit right of any kind, whether current, future or contingent.

 

Exempt interest. No tax shall be paid when interest is paid by the foreign establishments of national financial institutions.

 

Income tax shall not be paid for the following interest:

• Those derived from loans granted to the Federal Government or to the Bank of Mexico.
• Those derived from bonds issued by the Federal Government or the Bank of Mexico, when purchased and paid abroad.
• Those generated by loans with a term of three years or more, granted or guaranteed by financial entities that are resident abroad and that are dedicated to export promotion, provided they are registered in the Bank's Registry, financing entities, pension and retirement funds, and foreign investment funds.
• Those generated by loans granted, or guaranteed pursuant to preferential conditions by financing entities that are resident abroad, to institutions that are authorized to receive deductible donations pursuant to the Income Tax Law.

When persons who are residents abroad obtain income fromdividends, profits, sent remittances and, in general, from earnings distributed by entities, the source of wealth shall be deemed to be located in Mexico when the person who distributes them resides in Mexico.

 

The following shall be deemed as other income for which Income Tax must also be paid:

• The amount of debts cancelled by the creditor or those paid by another person. The source of wealth shall be deemed to be in Mexico when the creditor who cancels the debt is a resident of the country, or a resident abroad with a permanent establishment in Mexico.
• Those obtained from granting the right to participate in a business, investment or any payment for the execution or participation in legal businesses of any nature. In this case, the source of wealth shall be deemed to be in Mexico when the business, investment or legal act takes place in the country, and is not a capital contribution made to a legal entity.
• Those derived from the payment of indemnities for loss of profits, and the income derived from penal or conventional penalty clauses. The source of wealth shall be deemed to be in Mexico when whoever makes payment is a resident of Mexico, or a resident abroad with a permanent establishment in the country.
• Those derived from the sale of a commercial loan. The source of wealth shall be deemed to be in Mexico when the commercial credit is attributable to a resident of the country, or a resident abroad with a permanent establishment in Mexico.

Income Tax Law:http://www.diputados.gob.mx/LeyesBiblio/pdf/82.pdf

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2. Value-Added Tax (VAT)

In case of obtainment of income from the sale of goods or for the lease of real estate other than residential property, shall be subject to payment of Value-Added Tax. If the real estate is leased with furniture, or in the case of hotels or hostels, Value Added Tax shall also be paid.

Individuals or legal entities that make payments to residents abroad for the rendering of services that are utilized in Mexico, for the use and enjoyment of tangible and intangible assets, among others, shall be deemed importers, and shall pay the tax that is generated pursuant to the Value-Added Tax Law.

Value-Added Tax Law:http://www.diputados.gob.mx/LeyesBiblio/pdf/77.pdf

Fiscal Code of the Federation:http://www.diputados.gob.mx/LeyesBiblio/ref/cff.htm

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3. Corporate Tax at a Single Rate (CTSR)

Individuals and legal entities who live in Mexico, as well as residents abroad with a permanent establishment in this country, must pay the Corporate Tax at a Single Rate generated for the income obtained, regardless the place where the activity takes place and according to the following activities:

• Alienation of godos,
• Rendering of independent services,
• Grant of use of temporary goods.

 

Residents abroad with permanent establishment in the country must also pay the Corporate Tax at a Single Rate for the income derived from such establishment and in agreement with the abovementioned activities.

 

Corporate Tax at a Single Rate Law:http://www.diputados.gob.mx/LeyesBiblio/abro/lia/LIA_abro_01oct07.pdf

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4. Special Tax on Production and Services (STPS)

Individuals and legal entities must pay this tax for the sale and importation of alcoholic beverages and beer, alcohol, denatured alcohol, and uncrystallizable honey, tobacco, gasoline, and diesel.

This tax shall also be paid for the rendering of the following services:

• Commission, mediation, agency, representation, brokerage, consignment and distribution, regarding the sale of alcohols, beers and tobaccos. The STPS shall not be paid for those goods sold that are not obliged to the payment in terms of the Law.
• When gambling and raffles are carried out in agreement with the Federal Law of Gambling and Raffles and its regulations, those carried out by decentralized organizations or institutions, as well as games and contests where the prize is obtained by the participant's dexterity in the use of machines, where electronic visual images (numbers, symbols, shapes, etc) are utilized and are made in the country.

STPS is an indirect tax since the taxpayer does not pay it directly, it is transferred to his/her clients (except for importation of goods). Taxpayers shall only report it to the SAT.

Special Tax on Production and Services Law:http://www.diputados.gob.mx/LeyesBiblio/pdf/78.pdf

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5. Cash Deposit Tax

Individuals and legal entities must pay this tax in regard to all deposits in cash, in foreign or national currency, made in any nominative account in institutions of the financial system.

This tax is applied to the amount that exceeds 25,000 pesos in cash deposits carried out in institutions of the financial system, whether for one deposit or the sum of several deposits per month. This tax is calculated by multiplying the amount that exceeds 25,000 pesos by a 2 percent rate.

The 2 percent tax must also be paid when acquiring a cashier's check in cash regardless the amount.

Deposits in favor of individuals or legal entities through internet transference will not be considered as cash deposits, through or by account transfer, credit titles or any other document or system agreed with institutions of the finance system according to the applicable laws, even though such deposits are charged to the same institution that receives them.

Consult Cash Deposit Tax:http://www.sat.gob.mx/nuevo.html

Cash Deposit Tax Law:http://www.diputados.gob.mx/LeyesBiblio/ref/lide/LIDE_orig_01oct07.pdf

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5. Taxes forms of payment

Foreign nationals, who must pay taxes in Mexico, generally comply with this duty if the person who makes payments to them withholds such taxes and pays them to the Tax Administration Service.

In this regard, persons who are residents in Mexico, or if they are residents abroad but have a permanent establishment in this country, and those who make payments to residents abroad, shall be obliged to conduct the withholding of taxes.

Withholding is the amount that individuals or entities, which make payments to residents abroad, shall reduce due to income tax.

Although persons who conduct the withholding are not constituents, they are obliged to make the payment for which the taxpayer is responsible for.

In those cases when the person from whom foreign nationals obtain income does not fall within the foregoing assumptions, and consequently does not conduct the withholding, the taxpayers themselves shall make the payment directly to the Tax Administration Service.

When the person who makes payments withholds taxes, he/she shall pay such taxes on a monthly basis no later than on the 17^th of the month following that on which the withholding was made. Payment shall be made via internet or by payment at a bank teller, as applicable.

When payment is to be made by the taxpayer who obtains the income, he/she shall do so at the authorized office, within the 15 days following receipt of such income.

Refer to foreign individuals or entities for tax purposes, kinds of taxes and forms of payment, in: http://www.sat.gob.mx/sitio_internet/asistencia_contribuyente/principiantes/eres_extranjero/default.asp

Fiscal Code of the Federation:http://www.diputados.gob.mx/LeyesBiblio/ref/cff.htm

Federal District Tax Code (Código Financiero del DF in Spanish):http://cgservicios.df.gob.mx/prontuario/vigente/r44311.htm

Miscellaneous Fiscal Resolution for 2007-2008:http://www.sat.gob.mx/sitio_internet/informacion_fiscal/legislacion/52_9536.html

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6. Federal Taxpayer's Registry (RFC)

Residents abroad, who obtain income in Mexico, with or without a permanent establishment in this country, shall apply their registration in the Federal Taxpayer's Registry (RFC), even though their income's source is different from the establishment they own.

If you intend to set up a business, incorporate a company, work on your own, or lease real estate, you must decide whether the person will conduct its economic activities as an individual or a legal entity, since legislation provides different treatment for each one, and this is the basis for the procedure and requirements that must be met for registration before the Federal Taxpayer's Registry (RFC) and the obligations that will be assumed.

For instance, as regards individuals, there are several regimes according to the activity to be conducted and the amount of income. In the case of legal entities, the tax regime and the corresponding obligations are different for profit and non-profit companies.

 

Individuals

If you are going to set up a business, incorporate a company, lease real estate, or work on your own, you must register before the Federal Taxpayer's Registry (RFC) dependent of the Tax Administration System (SAT).

For this purpose, you shall file the procedure at the Local Taxpayer's Assistance Office of the Ministry of Treasury according to your domicile, enclosing the documents required for this procedure. In these offices you will obtain personal advising and orientation, on the different areas of service for taxpayers, in order to motivate and support the correct and timely fulfillment of your tax obligations. The personal assistance offices you can attend are:

• National Consulting Center (CNC).
• 66 Local Taxpayer's Assistance Offices (ALSC), located in different cities of Mexico.
• Offices Out of Seat (MFS) and SARE (Expedite Business Start-Up System) offices located in Malls, Chambers Associations, Government Centers, Culture Houses and Municipal Offices.
• Mobile Offices (UM) that cross the country and you can find them in places where there are no Tax Administration System offices, as well as in common places where these offices can be settled for public orientation. (To locate them, dial the Local Taxpayer's Assistance Offices Number that corresponds to your domicile).

 

The interested person shall submit the documents indicated in theTax Procedures Requirements Guide. The Tax Identification Certificate and the Certification of Registration will be delivered within 15 days after their application, however these documents can be obtained immediately by filing the specific requirements established for this modality in such Guide.

 

The procedure for registration before the Federal Taxpayer's Registry for individuals, has the following benefits:

• Attention through an appointment, thereby eliminating waiting time,
• Elimination of the use of tax forms,
• Possibility of immediately obtaining a Tax Identification Certificate,
• Immediate delivery of a Certification of Registration,
• You may personally verify that the data with which you have been registered in the system is correct,
• Tax orientation for the compliance of the obligations assumed.

For individuals registration in the Federal Taxpayer'ss Registry (RFC), see:http://www.sat.gob.mx/

 

Legal entities

If you wish to manufacture, sell goods or render services through a company or partnership, you must do the following: legally create or incorporate the company or partnership. To that effect you must appear before a notary public or a commercial notary, who shall indicate to you the requirements to be met, and thereafter obtain the articles of incorporation, which is the document that evidences the existence of the company or partnership, necessary for registration in the RFC.

For this procedure there is a quick and simple system, which consists in that the notary public or commercial notary before whom the company or partnership was created may register it automatically provided such notary public or commercial notary is a public attester. In this case, you will be delivered a temporary Tax Identification Certificate, which you will be able to use during three months while the SAT delivers to you a definitive certificate.

If the notary public or commercial notary you appeared before does not participate in the aforementioned program, you may register the legal entity with the relevant Tax Help Desk according to its registered address, by submitting the documents indicated in theTax Procedures Requirements Guide.

Once you have conducted this procedure, you will be delivered your Tax Identification Certificate, and Registration certificate. With this certificate you must appear before an authorized printer in order to create your invoices, receipts and sales slips, which you shall deliver to customers. In the case of sales slips, you may print them with any printer.

Registration before the Federal Taxpayer's Registry (RFC) for legal entities, see:
http://www.sat.gob.mx/sitio_internet/informacion_fiscal/tramites_fiscales/guia_tramites/125_6015.html

 

Registration before the Federal Taxpayer's Registry (RFC) for legal entities through a public attester, see:
http://www.sat.gob.mx/sitio_internet/informacion_fiscal/tramites_fiscales/guia_tramites/125_6133.html

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