25 Jan Tax Reform 2022
In November, the Tax Reform for 2022 was published, which modifies, adds, and repeals several tax rules in the Federal Fiscal Code, Mexican Income Tax Law, and the Value Added Tax Law, among others.
To most relevant matters, which will be effective on January 1st, 2022, are the following:
Federal Tax Code
Mergers & Spin-offs –
The “Business Reason” will be a mandatory requirement for a merger, and therefore, if the tax authority, during an audit or verification process, considers that the merger or spin-off does not have a “business reason” or another requirement established by law, the operation can be considered as a transfer or sale for tax purposes. In addition, the “division of losses” among the corporations spined-off would only operate if both companies have the same commercial activity.
To verify the merger or spin-off, tax authority may inspect the “relevant operations” carried out within 5 years prior to and subsequent as of the merger or spin-off.
Residents abroad –
Individuals and legal entities that do not evidence the change of their tax domicile will not lose their status as Mexican residents for tax purposes for a period of five years, if their new domicile is located on a territory in which the income is subject to a “REFIPRE”. However, if such territory has an international treaty that enables administrative assistance in order to notify, levy and collect taxes, as well as a tax information exchange agreement with Mexico, the statutory 5-year limitation term will not be applicable.
Report on financial statements –
Once again, Corporations are required to prepare financial statements report by a Certified Public Accountant, when the annual taxable income exceeds the amount of MXN$876 million, or if the relevant company is listed in the Stock Market.
Joint and several liability –
The amendments include new scenarios through which companies will be jointly and severally liable for the acquisition of “negotiation” and for Corporations that have omitted to provide information to tax authorities, regarding sales between foreign residents without permanent establishment in Mexico, among others.
Shareholders Modification Notice –
Regarding the Shareholders Modification Notice as a result of changes in the capital structure, taxpayers shall now include: (i) the percentage of participation of the shareholder or member, (ii) company´s main activity and (iii) the person who has the Corporation effective control.
Mexican Income Tax Law
Transfer Pricing –
Taxpayers may use other methods to calculate and obtain price ranges. The term “foreign” related parties were repealed, so the rules regarding related parties would be applicable without making a distinction to national third parties. Another important issue is the modification of the local transfer pricing informative statement term, which now will be the same deadline as the Report on financial statements (May 15th).
Additionally, the possibility to request a particular resolution to comply with tax obligations with respect to transfer prices and avoid a permanent establishment in foreign countries was repealed for maquiladora companies and for shelter companies. In other words, maquila companies which intent to have access to the existing benefits, shall only use the “Safe Harbor” modality, using an assets and costs base taking as reference the highest amount.
Residents abroad –
Regarding comparable operations, foreign residents who earn income from sources located in Mexico must determine the income and deductions arising from transactions with related parties, observing the prices and profit margins which they would have obtained through operations between independent parties.
About income from acquisitions of residents abroad, the Tax Reform includes several modifications. When the appraisal carried out by tax authorities exceeds more than 10% of the amount of the consideration in a sale purchase transaction, it will be the obligation of the transferor to pay the tax if the other party is a resident or a resident abroad with permanent establishment in Mexican territory.
In credit operations and debts contracted with related parties abroad, the interest withholding rates of 10% and 4.9% will not be applicable. However, Tax Authority, following the reform, could issue general rules for the application of this withholding rate.
Related to income from damages of residents abroad, any payment derived from a trial or arbitration award will be considered taxable income. The person making such payment must withhold in order subsequently pay it to tax authority.
In the designation of a legal representative of foreign residents, it is now a requirement (i) the obligations of being a joint and several obligors and (ii) having sufficient assets to respond for the payment of the taxes of the represented party resident abroad.
Good Faith Simplified Regime for Legal Entities -
The reform eliminates the Tax Incorporation Regime (“RIF”) and adds a chapter referred to as “Good Faith Simplified Regime for Legal Entities”, which will apply to Legal Entities whose annual income does not exceed the amount of MXN$35 million. Under this regime, taxpayers will be able to obtain different benefits in different matters such as the calculation of their income, the payment of their taxes, deductions, among others.
Good Faith Simplified Regime for Individuals -
As of 2022 individuals may pay taxes under the new “Good Faith Simplified Regime for Individuals”. Under this regime, individuals who obtain annual income of max. MXN$3.5 million and who are taxpayers under the Business and Professional Activities regime, will be able to access to tax benefits such as low rates depending on the amount of their income.
Value Added Tax Act
VAT paid on imports –
New rules are applicable to the customs import declaration (Pedimento). The Pedimento must include the name of the taxpayer that will credit the value added tax and do the corresponding VAT payment. If importers (taxpayers) fail to include this information, VAT will not creditable.
VAT on expenses and investments in pre-operating period –
Taxpayers will be required to report to Tax Authority the month in which they initiate their activities.
VAT crediting in respect of non-target activities –
Various provisions for VAT crediting were modified, among others, now the VAT related to investments of “acts or activities not subject to the tax” will not be creditable.
If you have any additional questions or comments, please do not hesitate to contact us.
Contact
Rafael Sánchez Acosta
rsanchez@cuestacampos.com
Franscela Sapien Olea
fsapien@cuestacampos.com
The above is provided as general information prepared by professionals with regard to the subject matter. This document only refers to the applicable law in Mexico. While every effort has been made to ensure accuracy, no responsibility can be accepted for errors or omissions. The information contained herein should not be relied on as legal, accounting or professional advice being rendered.