Mexican Tax Authority and Accounting Requirements

For several years now, the Mexican tax authority (known as SAT for its name in Spanish) has been investing important sums to modernize its structure and develop tools to better monitor taxpayers doing business in Mexico.

Probably its most important tool has been its investment in information technology. Today, taxpayers are controlled by the expenses they make, the revenue they record, their bank accounts, and their credit cards with just a few clicks in a computer.

Electronic filing.- Since 2017, companies had to file their initial chart of accounts adjusted to a catalog defined by the SAT. Then, on a monthly basis, companies have to electronically file their end-month trial balance. With this, the SAT is trying to monitor, almost in real time, a company’s performance and tax obligations. Furthermore, once the month’s financial information has been filed, all subsequent changes can be tracked, limiting the taxpayer’s ability to modify previous months’ information.

Electronic billing.- If you do business in Mexico, you will have to issue all your invoices in an electronic format. These are processed through a platform controlled by the SAT. Hence, the authority has access, in real time, to all invoices issued by all taxpayers in Mexico. This is a very efficient way to control taxable income recognition and deductions from companies. The SAT can correspond a company’s income with another’s deduction and if something doesn’t match, audits are sent to both parties involved. But probably the most powerful tool for the SAT, is the capability to cancel a company’s ability to issue invoices when an obligation is not met (very disputed in courts currently). The SAT can basically close the income flow, forcing the company to comply with all tax pending tax obligations.

The electronic bills facilitate the SAT’s control on income tax, value added tax and even all payroll taxes and social security payments since even payroll receipts for employees must be electronically processed through the same platform controlled by the SAT.

Other important requirements.- Among others, companies must follow these rules:

  • Taxpayers in Mexico must register its operations according to the Mexican Financial Reporting Standards or to International Financial Reporting Standards (IFRS).
  • Records must be in Mexican pesos and Spanish (English is allowed but if requested, everything must be translated).
  • The accounting records must be maintained at the legal address. This is important because it is common for companies to ignore this obligation and often leave their records elsewhere, such as in another address or at the accounting firm’s office.
  • The operations must be recorded within the following 2 months. (Companies must avoid getting behind in their records).
  • The law accepts a 3% inaccuracy, although it is not clearly stated.
  • The usual statements, journals and reports must be produced.
  • Inventory must be electronically controlled and valued with FIFO. An annual physical inventory must be carried out and reconciled as of December 31st.

These are only a few of the multiple obligations that companies must follow when doing business in Mexico. Obviously, the lack of compliance results in penalties which can be avoided when everything is kept on track.

While external audits are only mandatory in certain cases (for example, very big companies) it is always useful to increase the benefits of being reviewed and increasing the company’s internal control by also confirming that the company’s accounting and tax obligations are complied with.

We have several decades of experience helping our clients with all these obligations. Let us know if there is any way we can assist your investment in Mexico.

You might want to read this article: Identifying challenges of doing business in Mexico.