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How To Pay 2.5% in Taxes with Mexico’s New Tax Law

By Rafael Reyes and Ruben Murillo

 

At Ventes Mexico, we help place qualified candidates with companies from around the world and many of the positions listed on our jobs page are paid on an independent contractor basis. So, if you are working remotely and have been paying 25% of your income to the government, you’ll be glad to find out about the recently passed tax law. 

 

This proposition is called The Simplified Trust Outline (Regimen Simplificado de Confianza) and it will allow income tax rates (ISR) to be reduced, which means individuals with lower income will only pay up to 2.5% of it or less and the payment process is now more efficient and virtually effortless. So, who does this new law apply to, what are its benefits, and how can you take advantage of them if you qualify?

 

Status of Independent Contractor & its benefits

As aforementioned, The Simplified Trust Outline applies to independent contractors working in Mexico, so the tax law only applies to independent contractors.  Independent contractors, not to be confused with freelancers, are quite similar to employees, for example: a work schedule is provided or at least an hourly requirement, you must adjust to any procedures the company may have, as well as work within their hierarchy. However, you are hired under a contractual amount of time, especially long-term. 

 

Unlike employees, as an independent contractor you are not eligible for benefits. However, you do get compensated with a higher salary as taxes don’t get deducted from your paychecks and companies will often find other ways to make up for the missing perks. Since you can count on a long-standing relationship, it’s important to note that you often must pay for your own medical insurance, and other benefits like sick or paid days off are fewer than as an employee. That’s where the new tax law definitely comes into play, allowing more money in your pocket for your expenses. 

 

The Simplified Trust Outline

The goal of this new tax law, as the name states, is to simplify the duty of reporting and paying income tax. This outline will base itself off of invoiced and collected income, which allows the accounting work of the taxpayer to be lessened without the need for a 3rd party. Also, the SAT (Tax Administration Service) , as it does annually, will do the calculations and offer the preloaded annual declaration that will be practically ready, only to be collected and paid. 

 

This streamlining went into place at the start of 2022, and it declares that, as an individual, if you make less than $3.5 million invoiced pesos annually your income tax rate will be between 1% and 2.5% depending on your exact income. During 2020, the income tax rate was at 25.4%, which is 10 times more than the maximum permitted by the Simplified Trust Outline. But, being that the rates are this low, taxpayers will not have the right to deductions of expenses.

 

Requirements for the SAT & Check current status

 

The tax identification number (RFC)  is required to pay taxes. This number is acquired at the SAT but in order to obtain it you will need a Unique Population Registry Code (CURP), which is an 18-digit social security number for Mexican citizens.

 

If you are unsure where you stand you would have to verify your status on the official SAT website. Once you reach what looks like a login page enter your password or your electronic signature (e.firma), you can check your Proof of Tax Situation and verify to which outline you belong. It is important to keep in mind that salaried workers will not participate in this and will continue under The Wage and Salary Regime.

 

This change, made on January 1st of this year, better accommodates all independent contractors that work inside Mexican borders. With the task of the payment being made simpler and rates being exponentially lower, most will agree with that statement. Furthermore, you now have a better ability to distinguish yourself as an independent contractor. 

 

So, it’s time to take the initiative! Click the following link to read more about The Simplified Trust Outline on Mexico’s official GOV page. Also, if you are currently interested in reaching the next step in your career, take a look at some of the jobs available on the Ventes Mexico job’s page.

 

This blog was written by the staff at Ventes Mexico LLC Ventes Mexico is a top-rated outsource recruitment firm located in Puerto Vallarta, Mexico.  Founded by an American, with 16 years living in Mexico, Ventes Mexico operates in the USA and Mexico.  The company specialized in remote staffing and headhunting.  Each of its employees are 100% bilingual (English/Spanish).

 

The blog written above is not designed to provide accounting advice.  It’s designed to provide information on new tax laws for independent contractors in Mexico.  Ventes Mexico LLC is not an accounting firm and we recommend you speak with an accounting professional in Mexico to determine the right strategy for your situation.

 

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