Everything you need to know about taxes in Mexico

Taxes must be paid by all individuals and businesses that have a physical presence in Mexico; but, what exactly are taxes and how do they function? Keep reading to find out more.

Everything you need to know about taxes in Mexico
A complete guide to the Mexican tax system and its nuances. Photo by Kelly Sikkema / Unsplash

Taxes is a word that scares many people, but understanding what they are and how they work before the Tax Administration System (SAT) is not as complicated as it seems.

Taxes are a contribution (payment) in money or kind, of a mandatory nature, with which we cooperate to strengthen the country's economy. Taxes, in all countries' economic systems, serve to provide resources to the government so that it can achieve the objectives proposed in its planning.

The payment of taxes before the Tax Administration System (SAT), serves to provide the Mexican Government with sufficient resources to finance the public needs of its citizens.

What types of taxes are in Mexico?

Federal Taxes: These are concentrated on the economic activities carried out within Mexico and include Income Tax (ISR), Value Added Tax (VAT), Special Tax on Production and Services (IEPS), and Tax on New Automobiles (ISAN).

State Taxes: These are taxes specific to each of the states, that is, each locality determines the taxes that are levied; therefore, it is important to verify them in detail.

Municipal Taxes: These are contributions in favor of local governments, such as property taxes, maintenance taxes, as well as taxes for street lighting or public roads, among others.

It is important to take into account that investments or savings also generate taxes since they are associated with the profits obtained from financial products.

What is the function of the SAT with the taxes of Mexicans?

The Tax Administration Service (SAT) is in charge of regulating the payment of taxes since it has the task of applying the tax legislation and overseeing that individuals and companies pay their contributions for the public expenditure of the State. It is important to take into account that there are different types of tax regimes, as well as different ways of paying taxes:

Referenced payment: The Tax Administration Service (SAT) provides a capture line, with which you can go to any bank to make the payment directly at the window, obtaining a receipt.

Payment with card or app: A simple and useful way, is to make the payment by card, either credit or debit card, some banks offer the option of tax payment from the banking apps, which can save a lot of time, plus it is the fastest way.

What are the dates when taxes must be paid?

Let's remember again that the payment of taxes is an obligation of all individuals and companies living in Mexico, the most relevant dates of the year are:

January and February: Property tax (Predial)
From January to March: Local vehicle tax (Tenencia).
April: Annual tax return for individuals. This is one of the most important dates.
July to December: Verification.

It is important to know that there are different tax payments, so it is recommended to have a calendar indicating which are these important dates and not to forget them, since not paying them could result in penalties before the Tax Administration System (SAT).

The dates for the payment of taxes can be reviewed on the official page of the Tax Administration Service (SAT) which can be found at the following link: https://www.sat.gob.mx/personas/calendario

What is an individual and why do you file taxes in Mexico?

What is an individual?

The SAT website explains that a natural person is an individual who performs any economic activity whether he/she is a seller, merchant, employee, professional, etc., who has rights and obligations. In other words, it is any person who receives income from the work activity he/she performs.

Among some of the most important characteristics are that they can have dual nationality, acquire tax obligations when they reach the age of majority, or have begun to work in the formal market and for this one must register as an individual before the SAT to comply with this obligation.

Individuals can receive financing, credits, or loans, according to their salary and the credit history that each person has created. Now that you know what an individual is, let's move on to the next question:

Why should I file a tax return?

The purpose of the declaration before the SAT is to know about the tax situation of the individuals by the tax authority, to establish the tax that must be paid, although it can happen that contributions were overpaid, and then it is the SAT who must return it to the taxpayer.

In other words, the declaration gathers all the obligatory payments that individuals must make before the State, the amount and the form indicated by the laws, such as the Constitution, which establishes the obligation of Mexicans to contribute to the public expenditure of the country, through the payment of taxes.

When do individuals file the annual tax return?

Have obtained income for rendering professional services
Rented real estate
Performed business activities
Obtained benefits from the sale and acquisition of goods.
If they received interest income
If they received income over 400 thousand pesos during the year.
Those who received income from two employers,
Those who received income from liquidation, indemnification, pension, or retirement.
Those who receive rent from any real estate
Those who have won a prize

What happens if you do not file your annual tax return?

You should know that April 30 is very important for individuals because it is the deadline for them to file their annual tax return with the SAT, an official document in which taxpayers report their operations during the year that ended.

The SAT requires this report so that individuals report their operations as taxpayers for the tax authority to increase public revenue. For taxpayers, it is of utmost importance, since it allows them to know the performance of their company or the economic activity in which they operate.

So these are the reasons why all individuals must comply with their tax obligations and if they do not do so, they may be subject to fines for not filing their annual tax return in due time and form and for each of the unfulfilled obligations.

What are the fines if you do not file your return?

The common ones range from 1,400 to 17,370 pesos.
For not filing the annual tax return, from 1,400 to 34,730 pesos.
If they are late, they range from 14,230 to 28,490 pesos.

Fines must be paid by individuals in due time and form or they will be subject to additional penalties. Fines are not the only thing that may be affected in the event of non-payment, delays, or errors in the annual tax return, as this may damage the credit history.