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3. ASSESSMENT OF TAX

11. For the purposes of assessment, the taxpayer must file a declaration, but the requirements as to filing and the computation of the taxable income differ under the various schedules. Although required to file declarations, business men, industrialists and agriculturists are not required to pay income tax if their annual income does not exceed 10,000 pesos.

12. For the purposes of the law, the term “income” (ingreso) means every receipt in cash, in valuables or in credit which, under any of the provisions of the law, modifies the wealth of the taxpayer and is susceptible of being used by him without any obligation to return its value. The term “income” does not include receipts in the form of new acquisitions of capital, provided these acquisitions do not proceed from profits obtained in the year of taxation.

Schedule I. — Commerce

13. This schedule includes taxpayers which habitually or occasionally perform acts of commerce (Law, Articles 6 to 13). To clarify this rule, the administration issued a circular which states that foreign enterprises not maintaining stocks of merchandise in Mexico but effecting, through agents or representatives in Mexico, sales of merchandise situated abroad to be delivered abroad to the purchaser are not subject to tax on income derived from such transactions. The representative or agent in Mexico, however, is taxable on his commission, brokerage or other remuneration under this schedule (Circular No. 14, of August 24th, 1925; JIMENEZ, page 158).

14. The tax is computed on the difference between the items of income received by the taxpayer and the expenses, deductions and allowances for amortisation or depreciation pertaining exclusively to the enterprise authorised by the Regulations.

15. Taxpayers engaged in commerce, deriving an income greater than 100,000 pesos, must present at the tax office of the jurisdiction in which they are domiciled or have their principal establishment in Mexico a final return within three months following the date on which they close their annual accounts. If the annual income is 100,000 pesos or less, they will submit biennial declarations during the month of January of even years (pares). The declaration must be accompanied by the following documents:

16. In the returns, the taxpayers will give assurance that the information contained in the summary corresponds exactly to the entries in their books of account and to the documents used in making up the books, and that they have taken exact note of all the stocks and that all the costs are calculated in accordance with the Regulations.

17. Companies must deliver to the local tax office, once only, a résumé of the data required by paragraphs I to VIII of Article 95 of the Commercial Code. Companies engaged in insurance, bonding or banking, and other companies with a share capital must present a copy of their general balance-sheet and a profit-and-loss statement, as of the close of the period included in the return.

18. Allowable Deductions. — To compute the taxable profit, Article 28 of the Regulations provides that, from the gross income of the period included in the declaration, the following amounts may be deducted:

The agents or representatives of foreign enterprises which are engaged exclusively in the purchase of goods for exportation must declare the total amount of their purchases. Similarly, the travelling salesmen, commission agents or employees of foreign companies must declare the total amount of sales made through them. For this purpose, they must keep a special book of orders in which will be noted in chronological order the operations made through them, a description of the merchandise sold, the sales price, the name and domicile of the purchaser and the number of the invoice, if any. They will keep their correspondence in accordance with the requirements of the Commercial Code.

Schedule 2. — Industry

19. This schedule includes taxpayers engaged in any kind of an industrial enterprise. This schedule also applies if the owner of a mining concession exploits the mine himself (Circular No. 21-11-125 of April 1st, 1929; JIMENEZ, page 267). The taxable income is computed in accordance with the rules applicable to the commercial enterprises under Schedule 1, and the requirements concerning the declaration and supporting documents are the same.

20. Allowable Deductions. — From the total gross income received during the period for which the declaration is made, the following items are deductible:

Schedule 3. — Agriculture

21. This schedule applies to taxpayers engaged in any kind of agriculture. The net income is computed in accordance with the rules applicable to commerce in Schedule 1.

Schedule 4. — Credits

22. The taxpayers included in this schedule are those who normally or occasionally receive the following items of income:

23. Exemptions. — The following, however, are excluded from liability:

24. Allowable Deductions. — The tax is imposed on the gross amount of the income included under this schedule except that, in the case of leasing commercial, industrial or agricultural enterprises, the taxpayer may deduct from the leasing value the allowable deductions for amortisation or depreciation for the leasing of real or personal property.

25. Payment of Tax. — The tax must be paid by the creditor, and any agreement to the contrary is void. The creditor who receives interest on a loan, represented by a public instrument, or which is payable at a fixed period greater than one year must give a stamped receipt in duplicate of the amount received, and must file, in the months of January and July, a statement of the interest obtained in the preceding half-year, together with a copy of each of the contracts and of the receipts given.

26. If the loan is for a year or less, and is represented by a private document, the tax is paid by cancelling stamps on the same document. If the creditor extends the term of the loan for a year or less, the tax is paid by cancelling stamps on the same document. If the loan is for an indefinite time, the creditor will stamp the document for an amount equal to the tax corresponding to the interest of a half-year, and if the loan continues beyond this time without a new document being made, the tax is payable by stamping within the first fifteen days from the beginning of each new half-year.

27. If the document representing a loan does not specify the rate of interest payable, or indicates a rate lower than 6 per cent or states that the creditor will receive no interest, the tax will be computed at the rate of 6 per cent annually on the capital. Exceptions to this rule include deposits made to guarantee contracts, provided no interest is payable thereon, deposits made in courts and those made in the Treasury of the Federal Government, of the States and of the municipalities. In the case of Mexican and foreign bonds, and bonds issued by banks and by public service enterprises and bearer bonds issued in conformity with the law on companies, the agreed interest serves as basis for the tax.

28. In the case of current accounts, the tax is calculated on the interest due half-yearly, or for the period of less than a half-year that the account has run. If the debtor credits interest to the account of the creditor, he must send him a notice and cancel affixed stamps to the value of the tax. This rule applies in the case of interest on current accounts, the tax being retained by the debtor.

29. When the taxpayer resides abroad, the debtor will retain the amount of the tax and deliver it to the Public Treasury, except that public service enterprises and those whose debts are guaranteed by the Federal Government may obtain an exemption from this obligation if they prove to the Finance Department that, in accordance with contracts concluded abroad and because of their economic situation or other reasons of this character, they are not in a position to effect the withholding; in this case, however, such interest may not be deducted in computing the taxable profits (Reg., Article 52).

30. Credit institutions, banking companies, exchange and stock brokers who make payments for the account of others or receive, on commission for collection, coupons, dividends, bonds or any other instrument of credit, are required to retain the tax and are jointly liable with the recipient for the payment.

Schedule 5. — Participations in Concessions

31. This schedule applies to the following taxpayers (Law, Articles 26 and 27):

32. The tax is levied on the gross income at the rate of 10 per cent. Taxpayers included in paragraphs (b) and (c) above pay the tax rate of 10 per cent on the excess of the transfer price over the price of the concession or the rights of exploitation.

Schedule 6. — Wages and Salaries

33. This schedule applies to taxpayers who, regularly or occasionally, receive wages, salaries or any other form of compensation for their personal services (Law, Articles 28 to 30). Salaries paid by foreign Governments to diplomats, consuls and other official representatives are exempt. The tax is levied on total monthly income less certain allowances for dependents: taxpayers resident in the Republic are allowed to deduct for one dependent, 20 pesos; for two, 25 pesos; for three, 30 pesos; for four or more, 35 pesos. Taxpayers residing in the Federal District, in the cities near the United States, in Tampico, Vera Cruz, Tuxpan, Progreso, Merida and certain other neighbouring places, as well as those residing abroad are granted higher allowances for dependents, as follows: for one, 40 pesos; for two, 50 pesos; for three, 60 pesos; for four, 70 pesos.

Schedule 7. — Professions

34. This schedule applies to the following:

Allowable Deductions. — The net income is computed by deducting from gross income the following:

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