Mexico has a history of being a very complex country for compliance due to accounting and legal regulations. In fact, it was ranked by the Financial Complexity Index 2018 as the ninth most complex in the world. A new regulation called the Federal Revenue Law 2019 came into effect on 1 January 2019, which has new changes that businesses must be aware of to be fully compliant.
There are five changes which will have an impact on companies:
1. Universal tax offset
Under the old system, when there was a favourable balance from any of the taxes, the taxpayer could apply the balance to pay other taxes. The modification in the Federal Revenue Law, Article 25, section VI, stated that universal compensation is eliminated and the favourable balances can only be offset against the same tax, as a credit against upcoming months or as a refund, which can take up to six months.
The main impact of this change will be cash flow. If a favourable balance is an asset, it is not immediately reflected in the cash flow, because the company will have to cover tax obligations. Companies can plan ahead by having the withholding payments funds which are made to suppliers and employees. This would allow for a positive cash flow when paying contributions.
2. Anti-money laundering
The Tax Administration Service (SAT) recognized that there is an increased number of taxpayers performing vulnerable activities and they are not in compliance with obligations stated in the anti-money laundering laws. A new self-regularization programme allows for all companies that fail to comply with their AML obligations between 1 July 2013 and 31 December 2018 the option to self-correct and avoid administrative penalties. One caveat to this is that they are up to date with their obligations for 2019 and have a previous authorization from SAT to apply to this programme.
SAT expects that taxpayers will provide the required information on a monthly basis and that each company has policies to check the risk levels within their vulnerable activities.
3. Multiple Informative Return (DIM)
Since the implementation of the Digital Tax Receipt (CFDI), the workload needed to present returns has been reduced. There is no need to present different annexes. Currently, Annex 4 is required and applies to the financing of residents abroad. Annex 9 is applicable for operations with related parties and Annex 10 is applicable for trust operations.
The main change in the law is related to Annex 9. Besides the reporting of the purchase of party-related goods, the reporting of resulting operations, like exchange fluctuation, is now required.
4. Electronic invoicing 3.3
The Federal Revenue Law added new controls for billing to provide greater control over the operations presented by taxpayers, both issuers and recipients. The SAT will have the power to supervise taxpayers. With electronic invoicing 3.3, there is a new code which is linked to the product key and the zip code of the company that issues and receives the goods. This new version is effective from January 8.
This new control requires that those taxpayers that have applied the benefit of the VAT reduction for operations in the border area, must also be registered in a registration roll previously authorized by the SAT.
5. Annual report
The annual reports of legal entities will be generated on a new platform where the company is required to present information on their tax status (ISSIF) and the informative report. This report only applies to permanent facilities, operations with residents abroad or with related parties. The terms to submit the annual report are until 31 March for legal entities and 30 April for individuals.
There is much progress with digitalization of processes in Mexico and although it seeks to simplify tax compliance, improve tax control and solve issues of prior systems, it also creates more complexity. Companies need to monitor these changes closely and comply with the obligations to successfully operate their businesses.
We can help
TMF Mexico has the local experts that understand the new tax laws and how to keep your company compliant. Accounting and tax processes are full of risks and challenges for any company which is why it is important to have the right partners. Since regulatory requirements are ever-changing, we work with each company individually to provide a flexible and scalable solution for their specific business. How can we help you? Talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.