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Mexico Tax and Financial Reforms 2022, the good, the bad and the ugly…


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Mexico Tax and Financial Reforms 2022, the good, the bad and the ugly…

The economic reform packages have been made official and were published in the Federal Register (Diario Oficial de la Federacion) on November 12, 2021 with additions, deletions and modifications to the tax laws to take effect in 2022.

Reduction of confiscatory tax withholding

Mexico has always had a sort of ridiculous tax well actually a tax withholding on savings, it really amounted to robbery at its highest level in 2020 at 1.45%.  The withholding is on the principal balance without regard to how much you actually earned!  So if you had a savings account paying 0.5% interest you would lose almost 1%, kind of a disincentive to savings and the only way to get the money back would be to file a tax return which many low income people are not obligated to do and which can have costs that would not justify the benefit of getting part of the withholding back.  The tax withholding for 2022 will lower to 0.08% down from 0.97% in 2021, now the modest income savers may actually see a few pesos in interest payments without having to file a tax return to get part of an exaggerated withholding back.

This we can file under something positive…

Implementation of a flat tax system…..

Mexico has always played a cat and mouse game with taxpayers who have been very creative with their write-offs in attempts to avoid the draconian tax rates where the IVA (VAT or GST for some countries) sales tax on goods and services is 16% and where the income tax rate is 35% so essentially you are giving over half your income (51%) to the Mexican government. 

The simplest tax system to date was the REPECO which was morphed years back (2013) into the Regimen de Incorporación Fiscal which was introduced to invite taxpayers to become part of the formal tax paying system with a 10 year phase in period with a 100% tax forgiveness the first year then 90% the second year and so on.  Also there were bimonthly tax filings and no annual returns simple enough to do without an accountant.  Taxpayers who did not issue facturas and had low incomes would be exempted 100% of the IVA tax for future years.

This simplified tax system had a limit of $2,000,000 of gross receipts and people with a professional license like doctors and attorneys or real estate agents were not able to use the system. 

The new tax reforms are abolishing the old Regimen de Incorporación Fiscal and creating a new system called Regimen Simplificado de Confianza (RESICO).  This new system looks good as it will not exclude professionals and is for people that earn $3,500,000 pesos gross or less.  The tax rates are from 1% up to $300,000 pesos, 1.1% up to $600,000 pesos and the highest tax rate is 2.5% for those earning 2,500,000 to $3,500,000.  This is a flat tax on earnings with no deductions so for those with few deductions, they will pay less tax, the government will not need to audit as there are no deductions and can focus on larger earners who try to evade taxes. 

Assume that under present system you earn $1,500,000 pesos gross and write off $500,00 so net income of $1,000,000 you would have a combined tax rate of 30% so pay $300,000 pesos in taxes on the $1,000,000 net.  Under the new system you would pay 1.5% on the $1,500,000 or $22,500 pesos, saving over $277,000 in taxes. This ignores IVA as most pay it anyways so no change.

The only problem here is that this new tax structure assumes that everybody gives out facturas to people or entities but those under the present Regimen de Incorporación Fiscal will pay higher taxes as they have not fixed a loophole which will hurt the lowest income taxpayers as the new law has no provision for an exemption of the IVA sales tax, so you have people who were previously in Regimen de Incorporación Fiscal with a blended tax rate of 11% for the ISR or income tax but no IVA sales tax of 16% assuming $300,000 pesos of income. 

Under the new system their ISR income tax will go down to 1% but now they will pay the 16% IVA sales tax for a total tax of 17% instead of 11% and that also assumes that they were finished with the 10 year period where they received tax breaks.  People in the first few years of the Regimen de Incorporación Fiscal will see huge tax hikes as they may be only paying an effective tax rate of 2-3% now but come next year will be paying 17-19%, a large hike for people who entered a program to help them. 

Now the government may find that with nobody writing anything off then nobody will ask for facturas as nobody will need them and that could cause some reduction in tax revenue.

This new part is a sort of wobbler, good for many but also the lowest income will be hit hard unless they amend the law and exempt IVA for the lower earners who do not issue facturas to others who write it off.  Professionals who already pay the IVA tax and who do not have large expenses or write offs will see a large tax savings under this program such as doctors, real estate agents, attorneys, accountants, architects, engineers, etc.

New AGAPE regimen where farmers, fisherman, livestock ranchers and similar can earn up to $900,000 pesos a year tax free. 

This seems to be great, help those in the food supply chain.

SAT mandatory tax ID number for all adults

Now it is the law that all people over 18 must have a tax ID number.  Ok, well they seem to ask for it when opening bank accounts, buying vehicles so seems like no big deal.  With the pandemic it has been hard to get appointments at a SAT office and each year they make it harder to do things online. 

Up until about 2 weeks ago in November, 2021 we could go online and sign people up to have them issued an RFC number (tax ID number) and get them a password and then they wouldn´t have to worry about driving into Guadalajara to the SAT tax office well if there were any appointments available.  Now all adults need an RFC number and there are no appointments and no ability to get the number online. 

There is already gridlock and reports of corruption with people paying $3,000 pesos or more to get an appointment at SAT, it is poor planning to eliminate the online system to assign a tax ID number with an already overburdened system.

Minimum wage rise and consequences…

The good news for the poorest people is that the minimum wage for 2022 will go up a whopping 22% to rise from 141.70 pesos to 172.87 pesos in 2022. The bad new will be for people moving to Mexico.  Even though a federal decree has substituted the new UMA (Unidad de Medida y Actualización) for the old minimum wage (salario minimo), the consulates outside Mexico still insist on using the minimum wage index. 

With the 22% rise in the minimum wage that means a 22% rise in the qualifications to get a temporary visa.  With today´s (December 1, 2021) exchange rate being 21.27 pesos to the US Dollar, to qualify for a temporary visa you will need monthly income of 300 times minimum wage or $51,861 pesos per month or $2,438US.  This is a rise of about $440USD needed to qualify.  If you want to qualify by having investments / savings / assets the amount is $5,000 times the minimum wage or $40,637US minimum balance over the past 12 months.  This is a rise of about $7,327USD needed to qualify. 

The consulates outside Mexico are still not operating at full capacity and the online appointment system is broken more often than working, more people are being vaccinated and starting at looking to move to Mexico.  Beg, borrow or rob or find a way to get a consular appointment this month (consulates do not take the 2-3 weeks vacation like office inside Mexico) if the increases will hurt your qualifications.  Mexico is becoming a residence destination for the rich, just a few years back $2,500US was sufficient for permanent residency. 

When the immigration law came out in 2011 and implemented in 2012 they had set unreal and high standards for the temporary visa qualifications which they lowered in October 2014, hopefully they mandate the consulates use the UMA index or people will find another warm and inexpensive place to live or retire.

Lic. Spencer Richard Mc Mullen is an attorney and official court translator with offices in Chapala and Guadalajara, Jalisco serving the entire country of Mexico and helping people abroad. 

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Thanks for the heads-up, Spencer. I have a small business with no employees and have never issued facturas, but have also never had to pay IVA before. So now I guess I should be charging my upholstery clients an additional 16% starting in January. And I've always filed my bi-monthly tax declarations myself, but I might need to get help with it now. I used to just be able to go into the SAT office and always found them very helpful, but I've been trying to make an appointment for months and gave up. I guess I'm going to need to pay an accountant to walk me through what I don't understand now.

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Thank you for the update,  question so can a expat on a Permanente  with a RFC number with no Mexican income file a tax return and get some of the investment savings tax back as a refund.

what would the yearly  cost to file a tax return be about,

quote

Mexico has always had a sort of ridiculous tax well actually a tax withholding on savings, it really amounted to robbery at its highest level in 2020 at 1.45%.  The withholding is on the principal balance without regard to how much you actually earned!  So if you had a savings account paying 0.5% interest you would lose almost 1%, kind of a disincentive to savings and the only way to get the money back would be to file a tax return which many low income people are not obligated to do and which can have costs that would not justify the benefit of getting part of the withholding back.  The tax withholding for 2022 will lower to 0.08% down from 0.97% in 2021, now the modest income savers may actually see a few pesos in interest payments without having to file a tax return to get part of an exaggerated withholding back.

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9 hours ago, Intercasa said:

Mexico has always had a sort of ridiculous tax well actually a tax withholding on savings, it really amounted to robbery at its highest level in 2020 at 1.45%.  The withholding is on the principal balance without regard to how much you actually earned!  So if you had a savings account paying 0.5% interest you would lose almost 1%, kind of a disincentive to savings and the only way to get the money back would be to file a tax return which many low income people are not obligated to do and which can have costs that would not justify the benefit of getting part of the withholding back.  The tax withholding for 2022 will lower to 0.08% down from 0.97% in 2021, now the modest income savers may actually see a few pesos in interest payments without having to file a tax return to get part of an exaggerated withholding back.

So does this also apply to brokerage accounts we have here, like with Actinver? 

And if so, are we now going to have to file income tax returns here because of investment income?  We already pay tax on it in the U.S.

Thanks Spencer for the detailed update!

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18 hours ago, mudgirl said:

Thanks for the heads-up, Spencer. I have a small business with no employees and have never issued facturas, but have also never had to pay IVA before. So now I guess I should be charging my upholstery clients an additional 16% starting in January. And I've always filed my bi-monthly tax declarations myself, but I might need to get help with it now. I used to just be able to go into the SAT office and always found them very helpful, but I've been trying to make an appointment for months and gave up. I guess I'm going to need to pay an accountant to walk me through what I don't understand now.

sent you a pm  5:30 pm

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5 hours ago, Natasha said:

sent you a pm  5:30 pm

Didnt get any PM

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Hi Spencer. So what about people who are registered under "Régimen de las Personas Físicas con Actividades Empresariales y Profesionales". Will this regimen continue and is it only the Regimen de Incorporación Fiscal that is being abolished? 

Would it be possible for someone registered under the "Régimen de las Personas Físicas con Actividades Empresariales y Profesionales" to be eligible for the Regimen Simplificado de Confianza (RESICO)?

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