Navigating Mexico: It’s that Dreaded Tax Season Again
By JUAN DE JESÚS BREENE
If you live and work in Mexico, April 30 is your date with destiny, at least in terms of fiscal inevitability.
That is the deadline Mexico’s federal law gives you to file your taxes if your yearly earnings inside the country amount to 400,000 pesos or more.
For most people, ´preparing a tax return — in any country — typically ranks right up there with getting a tooth extracted or a bad hangover.
But while the process for most bureaucratic procedures in Mexico can be terribly complicated, which I even wrote about a few weeks back, filing your federal income tax return is surprisingly quite easy.
First, some context: Withholding tax on both earnings from salary or bank interest are automatically collected upfront. It is not like the case in some countries where you declare your dependents and expenditures, and your final tax bill could be way off, leaving you a hefty amount left to pay.
In Mexico, your taxes have already been collected before you even submit your declaration, withheld from each paycheck and each monthly bank statement if you have earned interest.
The amount withheld guarantees that you are covered for what you owe within your tax bracket, along with a small overage margin.
More good news: Because the withholding covers expected tax obligations — and then some — almost all individual taxpayers will have a return coming back, directly into the bank account they designate, usually within two to three weeks from the date they hit “send.”
There is a caveat: If you do not declare, you will not get the amount owed and the federal government can legally keep it.
Mexico’s federal withholding tax (ISR) is high and deductions are few and far between. In fact, there are really not many for individuals.
They include: medicine purchased only if hospitalized, children’s kindergarten through grade 12 tuition, mandatory bus fees, if your school requires it, doctor visits and hospitalization costs.
If any of these deductions apply to you, they have already been calculated each time you obtained an official invoice, or factura, as long as the invoice is registered to your official tax ID number, your registro federal de causantes (RFC).
While April 30 is the deadline to file, April 1 is the first day you can actually go into the system and declare. However, typically beginning in March, you can see your return and get an idea of what will be returned to you.
And here’s the beauty of Mexico’s tax system: In Mexico, your return is already pre-loaded, your earnings and interest itemized, with the tax calculated, the amount which was withheld listed that you “overpaid” and ready for you to click “submit” as long as there are no corrections. In other words, rather than the taxpayer having to gather all kinds of statements, your employer, banks, hospital and schools have already submitted this information to the Mexican IRS, known as the Tax Administration Service (SAT).
For a business, it is worth it to pay an accountant to make your declaration since there are a plethora of deductions and variables. However, for an individual, a persona física, there is no reason to pay an accountant. Frankly, I have never understood why most individuals here use an accountant.
Yes, after submitting, you will receive an official statement which can be used if you file taxes in another country. Many countries offer foreign earned income exclusion if you have lived outside of your “home” country for a certain number of days of the year.
The first year you declare, it may take 30 minutes to set everything up.
Like in all systems, you will be required to set up an account with a personal profile and password, a link to your bank account and upload a few other things to prove who you are. The SAT will issue you a coded file on a USB (and has already done so if you have used an accountant in the past). This is the equivalent of your signature.
If your Spanish is not good, you might want someone who has been through the process to help you. But literally, in subsequent years, it takes less than five minutes to file your tax return.
And that is a big advantage over the IRS.