After 2020's huge change in regulations pertaining to people doing business through digital intermediarires which had been cooking since 2015, 2022 will be year when a considerable tax reform bill will greatly change the way taxation is handled in Mexico.
Goodbye RIF, hello RESICO!
The main change for individuals comes with the disappereance of RIF (Régimen de Incorporación Fiscal) which was created in 2014 as a means of allowing small business owners to grow their businesses while getting several benefits that simplified their administration and reduced their tax burden. In reality, RIF was designed as a replacement for an even simpler system that got eliminated because it did not allow SAT to see millions of transactions that went on in the country. In any case, no taxpayer will live to see what happens when they pay tax under RIF for the 10 years they were allowed to, as it will disappear effective January 1st and it will be replaced by the new "Régimen Simplificado de Confianza" (Simplified Trust Regime, RESICO)
So, what is RESICO?
RESICO, at least by name, is a tax regime where trust is put on the taxpayer giving them a really reduced income tax rate and placing trust that they will comply with their fiscal obligations. However, it will be strongly based on issued and received facturas, which means authorities will actually place trust in their systems, rather than on the taxpayer.
Two of the biggest differences between RIF and RESICO are that RESICO will include services that require a degree to practice, and the yearly limit will be 3.5 million pesos, versus the current 2 million pesos for RIF.
It will offer taxpayers a flat income tax rate based on yearly taxable income as follows:
Income limit | Income tax rate |
Up to $300,000 | 1% |
Up to $600,000 | 1.1% |
Up to $1,000,000 | 1.5% |
Up to $2,500,000 | 2% |
Up to $3,500,000 | 2.5% |
No deductions will apply, either business or personal, as the tax rate will be very low. Monthly provisional payments will have to be done towards the yearly tax and a yearly return will have to be filed, where, as per normal, the final yearly tax rate will be calculated, and taxpayers will get a credit for the tax they paid on their provisional filings.
What about IVA?
IVA is another big difference as RIF taxpayers have been getting a preferential tax rate for transactions done with clients who do not want a factura (the general public) of a flat 2% or 8% (depending on the activity) minus that year's discount (as high as 100% for people on their first year). However, under RESICO, no IVA benefits will apply. This means that if your business activity is taxed at 16%, you will have to charge all clients 16%, regardless of whether they want a factura or not, and you will get a credit for IVA paid when paying for deductible expenses. This will have considerable implications for, for example, restaurant owners who will have to charge 16% but most of their purchases will be exempt from IVA (raw food, mainly).
Exclusions
Not everyone will be able to file under RESICO and this is where a lot of foreigners might be seriously affected by the tax reform as it excludes:
Partners or shareholders in entities/corporations or individuals who are related parties of entities/corporations. RIF only excluded members/partners in for-profit entities; this means also AC members will be excluded. However, when RIF was initially created, the law was written the same was as it is now for RESICO and then operating rules were added to allow members of non-profits to file taxes under RIF, so this might change.
Residents abroad with a permanent establishment in the country (this excludes all foreign tax residents, which RIF did not and is the main way this tax reform will affect foreigners as their only option will be the general regime for individuals who provide services/have entrepreneurial activities).
Individuals subject to preferential tax regimes.
Individuals who receive income through asimilados a salarios.
On the other hand, on the tax residency matter, it is important to bear the following in mind:
Mexico taxes worldwide income. Mexican nationals and Mexico tax residents have an obligation to report worldwide income in Mexico. Most foreign RIF taxpayers did not have to claim worldwide income here because their vital center of interest (where they make most of their income) is not in the country, so they were not fiscal residents in Mexico but residents abroad with one or more permanent establishments in the country.
Currently, there is no procedure to officially become a Mexico tax resident. I directly consulted with SAT officials on the matter, and, as of now, the only procedure they have is the opposite: to stop being a tax resident in Mexico, there is nothing that works the other way around. This does not mean there will not be enough cases once the reform goes into effect that SAT may not create a procedure to become a tax resident.
All taxpayers who did not initially get registered as Mexico tax residents when they obtained their RFC number and who have been filing under RIF will be automatically moved to the general system for individuals effective January 1st, and, as mentioned above, so far, there is no mechanism to become a Mexico tax resident and avoid this change.
Extension
Through what‘s called “transitory dispositions”, it has also been announced that taxpayers who have been filing under RIF will be able to continue to do so for the remaining years they had as long as they send a notice to SAT by January 31st, 2022.
If you have been filing income under RIF, you can schedule a call by clicking on the section below to discuss the tax reform’s implications.