If you are looking to invest in Mexico and would like to start a business as an individual, then this article will be of interest to you.
Individuals engaged in business activities can meet their tax obligations with a tax regime that allows for growth.
Such is the case with the Regime for Small Taxpayers (SP: Regimen de Pequeños Contribuyentes or REPECO).
This tax regime was created under the premise of facilitating or streamlining tax compliance for those taxpayers with little administrative capacity under an equitable tax system commensurate with their ability to pay.
Let us take a look at some of the relevant points pertaining to this regime, which could be of benefit to you.
Who can pay taxes under the REPECO?
REPECO is a tax alternative for those individuals conducting business activities who only sell goods or provide services to the general public, provided that the their business-specific income in addition to the interest accrued in the prior calendar year does not exceed $ 2 ,000,000.00 pesos.
Furthermore, those individuals who consider that their fiscal-year income will not exceed the limit referred to in the foregoing paragraph may also opt to pay taxes under this regime.
Who cannot pay taxes under the REPECO?
- Individuals who obtain income by means of a commission, mediation, agency, representation, brokerage, consignment, distribution or public entertainment events, or who obtained more than 30% (thirty percent) of their earnings from the sale of goods of foreign origin.
- Individuals who opted out of this regime and then wish to return.
- Individuals who had paid taxes under the business and professional activity or mid-market regime, before having paid taxes under the REPECO.
- Individuals conducting business activities through a fideicomiso (a trust whereby property [real or personal, tangible or intangible] is held by one party for the benefit of another).
If I started out not paying taxes under the REPECO, can I subsequently pay taxes under this regime?
Yes. You can change over to the REPECO provided you comply with the following two contingencies:
- You had paid taxes under the business and professional activity or intermediary (middle-man) regime, before having paid taxes under the REPECO, for the two previous fiscal years, including the start-up of activities.
- The income for each of said fiscal years did not exceed $2, 000000.00 pesos.
When could I not pay taxes under the REPECO?
In the following assumptions:
- When the business-specific income, in addition to interest accrued, obtained in the period that has elapsed since the beginning of the fiscal year and up until the month at issue exceeds $2,000, 000.00 pesos;
- Upon failure to submit to the Tax Administration Service (SP: Servicio de Administración Tributaria or SAT) disclosure statements (returns) regarding income earned in the immediately-prior fiscal year; being obliged to submit said declaration (return) no later than February 15 of each year.
- When you no longer pay the tax in accordance with the Section on the Regime for Small Taxpayers.
- Those taxpayers who haad paid under the business and professional activities or mid-market regime for more than two fiscal years subsequent to the start-up of their activities.
What are the fiscal obligations under the REPECO?
- Register with the Federal Taxpayers Registry (Registro Federal de Contribuyentes or RFC).
- Keep track of your daily income.
- Keep invoices for newly acquired fixed-asset property/goods used in your business when the purchase price exceeds $2,000.00; said invoices must meet fiscal requirements.
- When purchasing goods of foreign origin, documented proof of same shall be kept.
- Provide your customers with copies of the bills of sale, keeping the originals of same.
- No later than February 15 of each year, submit disclosure statements (returns) regarding income obtained in the immediately-prior fiscal year. When taxpayers use tax-receipt type cash registers, they will not be required to submit this statement (return).
- Submit their returns quarterly (which shall be definitive) whereby taxes shall be assessed and thereby paid under the terms of Section VI, Article 139 of the Income tax Law (SP: Ley del Impuesto Sobre la Renta or LISR).
- Pay the assessed tax at authorized state offices.
- Submit payments no later than the 17th of the next ensuing month for which the payment is due. However, each state may extend the payment periods to a bi-monthly, quarterly or semi-annual basis, taking into account the industry or the territorial area of the taxpayers.
- When there are workers, the employee profit sharing (abbreviated PTU in Spanish) shall be the amount resulting from multiplying the income tax payable by a factor of 7.35%.
What benefits do I have by paying taxes under the REPECO?
- You will pay taxes on a fixed payment or flat rate basis, so you do not have to calculate taxes.
- The flat rate or fixed payment includes Income Tax (SP: Impuesto Sobre la Renta or ISR), the Flat Rate Business Tax (SP: Impuesto Empresarial de Tasa Unica or IETU) and the Value Added Tax (VAT)).
- You will be released from having to submit bills of sales for transactions up to $100.00.
Who determines the flat rate or fixed payment?
The government of each state of Mexico.
As discussed in this article, the REPECO is an exclusive regime for individuals conducting business activities. The article further: explains that the tax payment under this regime is a flat rate determined by each state, which includes the ISR (income tax), the IETU (flat rate business tax) and the VAT (value added tax); talks about the amounts payable for each of said taxes; and discusses that, as such, the tax and administrative charges or levies are radically reduced for the businessman, thereby leading to a simple and uncomplicated initial growth of your company.
We suggest that you, dear reader, call us so that we may provide you with comprehensive legal and tax counsel, where we can discuss these issues and advise you as to whether this is the ideal tax regime for your business.
 IDC Journal. Article on “Repecos o Intermedio, ¿cuál le conviene?” (REPECO or Mid-Market Regime. Which is in your best interest?) . Published September 3, 2009.
 Article 137 of the Income Tax Law (Ley del Impuesto Sobre la Renta or LISR).