How the Mexican Tax Authority is Assisting Small-Medium Sized Mexican Businesses

Mexico SAT Tax SMB
How the Mexican Tax Authority is Assisting Small-Medium Sized Mexican Businesses

According to the National Institute of Statistics and Geography, there are more than four million companies in Mexico, with Small and Medium Businesses (SMB) making up more than 99.8% of them. In addition, Mexican SMBs generate 52% of the country’s Gross Domestic Product (GDP) and 72% of its employment.

Mexico Business – Difficulties In Operating in Mexico as a SMB

According to Forbes Mexico, around 82.5% of SMBs fail less than two years after having been set up because they are unprofitable. Although it is only natural for a proportion of companies to fold within the first two years, the rate of failure for Mexican SMBs is abnormally high. According to analysts, the two main reasons for this are their lack of ability to grow and their inability to properly manage their fiscal obligations.

The recently implemented electronic accounting system, which is mandatory for all taxpayers, presents challenges for SMBs. On the one hand, most SMBs do not include tax payments in their cash flow, and on the other, it obligates them to digitalize their accounting records, which means it is very likely it will increase costs due to the technological investment required. For this reason, many companies chose to outsource their financial services.

New Tax Resolution To Assist SMBs

Tax resolution Mexico Small medium sized businesses
SAT has created a program to improve access for SMBs to loans

However, taking into account the importance of SMBs in the economy and the problems they face in fiscal matters, the Tributary Administration System (SAT, for its Spanish acronym) issued a new tax resolution that entered into force in January in 2016. This resolution introduces two measures that should benefit SMBs. Firstly, it allows companies with an annual income of up to 100 million Mexican pesos to deduct 100% of investments made in new fixed assets from their income taxes. Secondly, it created a program to improve access for SMBs to loans according to credit ratings based on information owned by SAT.

In addition, SAT launched an automated Value Added Tax (VAT) refund program for SMBs that submitted their tax returns in March of 2016. With these refunds, which represent 7.2% of their monthly income, SMBs will be able to finance their operations. This program’s main aim is to simplify SMBs’ tax collection services and free company resources so that they can add value instead of spending money on compliance procedures. Initially, three out of ten taxpayers will be pre-qualified to access the automatic refund. With this measure, taxpayers will no longer need to request the refund and submit the corresponding paperwork, but rather, the system will automatically generate a refund proposal and will transfer the amount to the taxpayer within five working days, in contrast to the 23 to 180 days for standard tax refunds.

Finally, it is as important for SMBs to understand their fiscal obligations as it is to be aware and take advantage of the benefits it offers them. This will allow them to establish an effective fiscal management strategy within their organizations.

Biz Latin Hub can help with company formation in Mexico

At Biz Latin Hub, our multilingual team of company formation experts can provide the support you need to start a business in Mexico. With our full suite of back-office support services, including legal, accounting, and recruitment assistance, we can be your single point of contact for establishing a legal entity and doing business in Mexico, or any of the 15 other countries around Latin America and the Caribbean where we are present.

Reach out to us now to discuss how we can support you in achieving your business goals.

Or read about our team of expert authors.

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