Galvan Law
(Galván Abogados)
Law Firm in Mexico
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Taxes
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In Mexico, like in most countries, the tax collection system is formed of several contributions. According to the Federal Fiscal Code (this link will take you to the House of Representatives website library of the United Mexican States; there you may look for the referred code, ordinance or regulation, thus, in order to ensure it’s an up dated version), these are classified by Social Security Contributions, Betterment Levies, Fees, and Taxes. Taxes are the most common charges, that may be defined as a compulsory charge imposed upon a taxpayer, by the State, derived from a regulated activity considered to be levied by Law. Taxes are those contributions payable in cash or in kind, due to the State resulting from activities considered taxable by Law. See also: https://en.wikipedia.org/wiki/Tax
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Main taxes
Income Tax (ISR, for its initials in Spanish), taxes net income from individuals and legal entities. The amount payable is the result of subtracting expenses from the income. In the case of individuals, upon a progressive rate, and a flat rate for corporations. See also: https://en.wikipedia.org/wiki/Income_tax
Value Added Tax (IVA for its initials in Spanish), is imposed on goods and services and charged to the end consumer even when he is not the subject of the imposition. This is, the vendor or provider (subjects of the imposition) act as an intermediaries between the tax collection authority and the end consumer. In this way, IVA is charged on the price of a product or service at each stage of production, but without a cascade effect on the sales price since it may be reclaimed in each production stage. See also: https://en.wikipedia.org/wiki/Value-added_tax
Special Tax on Production and Services (IEPS for its initials in Spanish), is a tax imposed with the purpose to affect only a part of the population and only levies certain products (alcoholic beverages and beer, wrought tobacco, gasoline, diesel, soft drinks, junk food, among other). It is a tax that may also be reclaimed since it only levies certain goods.
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Withholding tax
Income Tax
When subjects offer professional services to legal entities (corporations, businesses), the latter must withhold, provisionally, 10% of all payments to providers, deduction free, and give the taxpayer a receipt for such retention. The retention must be payed to the Tax Collection Administration (SAT, in Mexico, Servicio de Administración Tributaria). Withheld tax may be reclaimed by the taxpayer on account of the recipient's final tax liability. The rate is 10% of total income. See also: https://en.wikipedia.org/wiki/Withholding_tax
Value Added Tax
Legal entities (corporations, businesses) must withhold the Value Added Tax over individual professional services, or for the temporary use of goods offered by individuals. The rate is two thirds of the resulting Value Added Tax.
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Kinds of taxes
Depending of the level of Government collecting, taxes may be Federal, State or Municipal. Examples: Federal Income Tax Value Added Tax Special Tax on Production and Services State Payroll Tax Stamp Duty (Tax for Land Purchases) Tax for Purchase of New Vehicles Municipal Property Tax Hotel Tax
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Social Security and Payroll Taxes in Mexico
Social Security The Mexican Social Security Institute's (IMSS, for its initials in Spanish) main goal is to give medical care to its affiliates as well as to provide them with economical aid in case of labor related accidents. As it is a government institution and in order to acquire the necessary resources to achieve its goals, it imposes monthly payments on employers, comprised of two levies: a) On the employees' income. Thus, the employer must withhold a certain amount from the employees' paycheck and transfer it to IMSS; b) On the employers' income, and is considered as an expense. The payment of the above mentioned Social Security quotas is made, monthly, on the 17th of the following month, this is, payments for the month of January must be made before 17th, February.
Workers Housing Fund
The National Institute for Workers Housing (INFONAVIT, for its initials in Spanish) was created to offer financial options (low interest credit or investment funds) to workers in order for them to be able to acquire or remodel their homes increase their patrimony in a sustainable manner throughout their labor life and into their retirement. In order to acquire the necessary resources to achieve its goals, it imposes payments, every two months on employers, comprised of two levies: a) On the employees', if any such employee has an active credit; Thus, the employer must withhold a certain amount from the employees' paycheck and transfer it to INFONAVIT. b) On the employers' income, and is considered as an expense. The payment of the above mentioned INFONAVIT quotas is made, every two months, on the 17th of the following month, this is, payments for the month of January and February must be made before 17th, March.
Retirement Savings Fund
The Retirement Savings System (SAR, for its initials in Spanish) is a complementary benefit to the Pensions System, that aims for workers to have enough money as of their retirement in order to cover their economical needs agreeable to their age and retiree circumstance. In order to acquire the necessary resources to achieve its goals it imposes payments, every two months, on employers. These payments are made directly by the employer to SAR and are equal to 2% of the employee's IMSS based salary. The payment of the above mentioned SAR quotas is made, every two months, on the 17th of the following month, this is, payments for the month of January and February must be made before 17th, March.
Payroll Tax
All employers in all Mexican States must pay the Payroll Tax (ISN, for its initials in Spanish). This tax goes from 0.5% to 3.0% over the employee's monthly paycheck, depending on the State.
The payment of the above mentioned amount to ISN is made, monthly, on the 17th of the following month, this is, payments for the month of January must be made before 17th, February.
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Fiscal Planning
Fiscal Planning comprises any and all strategy applied by taxpayers in order to reduce, eliminate or defer tax payments, always, within the constraints of the Law and having all supporting documents to prove the legality of the process. Fiscal planning is a corporate activity that is practiced in most countries of the world due to the ever more important weight of public finances. It is a precautionary process where corporate structure and activities for each taxpayer are analyzed in order to develop activities aiming towards accounting, operational and fiscal efficiency, avoiding tax evasion at all times. Fiscal planning is any taxpayer's right since it is born from the unrestricted right of each individual's free will and freedom to chose how to conduct his own activities. In order to avoid Tax Fraud, when implementing fiscal planning, taxpayers must be very careful no to move outside the Law's constraints considering that a wrong decision, outside said constraints, regardless of the fact it might have been taken due to a poor study or analysis may result in fines and even jail time.
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Double Taxation Treaties
Mexico, as a part of these treaties, aims at: 1) Eliminating international double taxation; 2) Voluntarily waver its right to tax income obtained in another Nation by its residents; 3) Opening the possibility to member States to reclaim taxes derived from income of its taxpayers; 4) Benefiting foreign investment through fiscal incentives or proffered withholding rates; 5) Opening the possibility to reclaim a percentage of capital investment against taxes payable by the investor in his country of residence; 6) Preventing tax evasion and tax fraud by means of fiscal information exchange mechanisms between tax authorities to each member State; and 7) Preventing fiscal discrimination against taxpayers of one State member in another through higher tax rates than those applicable in the taxpayers country of residence.
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Fiscal, Administrative and International Commerce Litigation
Our litigation department's services aim at resolving conflicts derived from illegal impositions from fiscal authorities, customs and the like in the Federal, State and Municipal level, as well as to fight laws that could be unconstitutional through the corresponding Courts of Law. Our services include fiscal audits and reviews from Federal, State and Municipal levels or Customs. We represent our customers defending their interests related to authorizations, criterion confirmations and asset recovery. Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
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Business Law
Galvan Law offers counseling regarding business law, from contracts and agreements to joint ventures and incorporation. Whether you need a simple structure to build your business upon or a complex organization to allow you financial and fiscal strategies, Galvan Law has the answer for you. If you're already incorporated and you want to change your articles of incorporation, have a due diligence performed or get your legal and fiscal duties up to date, Galvan Law can do it for you. In this section we will give you some general orientation regarding the kind of associations you can incorporate. We will always recommend you seek counsel from a specialist, like ourselves.
(Civil) Associations: Regulated by Local Civil Law by State. We will use definitions from the Federal Civil Code for the United Mexican States Código Civil Federal para los Estados Unidos Mexicanos, (this link will take you to the House of Representatives website library of the United Mexican States; there you may look for the referred code, ordinance or regulation, thus, in order to ensure it’s an up dated version) because we consider that they are common to all other codes within the Mexican territory. Civil Law recognizes two kinds of associations: the Civil Association, that comes to live when several individuals agree in uniting, in a not so temporary manner, in order to pursue a common goal, not forbidden by Law and mainly not for profit. This kind of structure is ideal for philanthropic and for social care. When the associates unite in order to pursue a common goal for profit, but not seeking commercial speculation, we have a Civil Society or Partnership (as per its literal translation from Spanish Sociedad Civil). Maybe, in order for you to figure out if it is the kind of association you’re looking for you should take into account one of their fundamental features, the fact that the associations obligations will be warranted unlimitedly, jointly and severally by the managing associates; the other associates, unless otherwise agreed, will be bound up to the amount of their participation. What separates associations from the next category is their speculation oriented nature.
Mercantile Corporations: The Ley General de Sociedades Mercantiles (this link will take you to the House of Representatives website library of the United Mexican States; there you may look for the referred code, ordinance or regulation, thus, in order to ensure it’s an up dated version), recognizes seven types of corporations. Their main differences are defined bye the partners’ obligations. For example, for a Collective Name Corporation (as per its literal translation from Spanish Sociedad en Nombre Colectivo) all partners will be responsible unlimitedly, jointly and severally for all and any corporate obligations. While in a Limited Liability Corporation, partners are liable up to the value of their stock. LLC is the most common form of incorporating. La forma más recurrente es la Sociedad Anónima en su modalidad de Capital Variable.
Cooperative Corporations:
It is a form of social organization formed by individuals pursuing common interests, founded upon solidarity, individual effort and mutual help, in order to satisfy individual and collective needs through economical, production, distribution and consumption of goods and services. This kind of corporation has its own regulation: Ley General de Sociedades Cooperativas (this link will take you to the House of Representatives website library of the United Mexican States; there you may look for the referred code, ordinance or regulation, thus, in order to ensure it’s an up dated version).
To choose what structure is better for your purposes may be confusing. Remember, both, associations and corporations must be submitted upon a Notary Public to be effective. Regardless, Galvan Law, will walk you through all the legal nuisances and loopholes. Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
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Business establishment
Making a company and starting a business are two different things, whether you’re into food, trading, services, or other form of business. To start a business you do not need to incorporate. What is fundamental in setting an establishment is to comply with municipal, state and federal regulations. Among the most important, you need to look into zoning and development plans, allowed activities for your area, special permits (such as alcohol licenses and authorizations required for certain medical practices), civil protection (fire department), consumer protection rights regulations, non discriminatory practices, sanitary prevention regulations and then some. Compliance with all these regulations and its definition is beyond the scope of the site, however, feel free to get in touch with us for further counseling. If you already run a business you should be sure to comply with all applicable regulations (municipal, state and federal) and to have your permits and licenses (if any) in order. We insist that you get adequate counseling in these matters from a professional of your choice. If you wish, we can give you that counseling. Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
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Property Law
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Buying
Buying real estate is an important decision. Usually, it’s about forming our patrimony or a long term investment and we will spend an important part of our savings. Ordinarily, and the right way to go, is to have a Notary Public take care of all matters regarding the transaction. However, we recommend you take notice of the following:
It is always helpful to ask neighbors if they know the alleged owners and find out as much as possible about the property. The Notary Public will, after all, take care of the whole transaction, including the sales agreement, taxes and recording the operation upon the Registry. Galvan Law has Notary Public associates in the whole country. We'll be glad to get you in touch with one of them. Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
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Selling
To sell you will need your property title and to have your property taxes and utilities paid for. As above mentioned, the transaction must be followed by a Notary Public. If the operation is to take place between individuals and the destiny of the estate is for living purposes (this is, non commercial or industrial uses) having receipts for domestic services (water supply, electricity, telephone, cable or satellite TV) will be helpful to prove the domestic nature of the property, thus, excluding us from the obligation of paying revenue taxes. In occasion, before taking the operation upon a Notary Public, agreements are executed upon individuals. Whilst not illegal, this may be cause of future encumbrances due to the lack of legal formalities. Cash transactions are not suggested in these operations, we recommend check or wire transfers to avoid responsibility from carrying out transactions with money from unlawful sources according to the law: Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita (this link will take you to the House of Representatives website library of the United Mexican States; there you may look for the referred code, ordinance or regulation, thus, in order to ensure it’s an up dated version). If you are being advised by a Realtor, be sure to check on his background in order to establish it is trustworthy. Galvan Law has Realtor associates in the whole country. We'll be glad to get you in touch with one of them. Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
According to Mexican Law, a sales agreement is valid since the moment the parties have agreed upon the thing and the price, even if lacking payment or delivery. Therefor it is of upmost importance to get trustworthy counsel in these transactions to avoid trouble. Once a sales agreement has been executed, the property has been transferred. Therefor, such agreement must be submitted upon a Notary Public in order to comply with legal formalities. Even if we can call ourselves owners of our property with the foundation of a simple sales agreement upon individuals, the Law requires such transaction to be submitted upon a Notary Public and recorded upon the Public Property Registry in order for it to be effective. In conclusion, if you executed an agreement to acquire real estate, but did not submit it upon a Notary Public, you should do so. If, for any reason (death of any of the parties, or any other contingency) the Notary Public is unable or forbidden to take over the transaction, Galvan Law will get you through. Galvan Law has Notary Public associates in the whole country. We'll be glad to get you in touch with one of them. Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
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Public Registry issues
Often enough, the Public Property Registrar makes mistakes in the recording process of transactions. Correction of these mistakes is achieved by a litigious process. Common mistakes and situations involve, among others:
Download your service request, fill it in and send it to contact@galvanlaw.mx, through WhatsApp or our Elfsight contact form.
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Articles
This section is dedicated to publishing articles of multidisciplinary interest. Aside from the writs from Galvan Law’s associates and friends, there are links to other Internet sites. The views expressed are those of the authors and do not necessarily reflect the policy or views of Galván Law. Articles are kept in their original language, this link will take you to the Spanish section of this page where you can read them.
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