When you start a freelance career or launch a new business, one of the first questions you’ll face is which tax regime you need to register under. Each regime applies to specific types of economic activities, so it’s crucial to understand which one fits your situation.
In this blog, we’ll break down the different tax regimes for individuals in Mexico and explain which activities are applicable under each. Read on to discover the best options for your needs.
1. Professional Services Regime (Régimen de Actividades Empresariales y Profesionales)
This regime is designed for individuals offering professional services independently, such as lawyers, doctors, architects, accountants, and more. Essentially, if you run your own business without being part of a company, this is the regime for you.
Additionally, the SAT (Tax Administration Service) has expanded this regime to include those in commercial, industrial, agricultural, and transportation activities. This means that owners of restaurants, mechanic shops, grocery stores, pharmacies, and similar businesses also fall under this category.
2. Business Activity through Digital Platforms
Introduced in 2020, this regime covers individuals earning income through digital platforms like Uber, Airbnb, and Mercado Libre. Whether you’re involved in passenger transport, package delivery, property rentals, or online product sales, this regime is tailored for you.
A key feature of this regime is that platforms automatically withhold and pay your income tax (ISR) and VAT, streamlining the process and eliminating the need for monthly filings. In the case your annual income exceeds $300,000 pesos, you must start to file monthly returns and pay between 2-35% of ISR depending on the income.
3. Rental Income Regime
If you rent out properties like apartments, houses, or commercial spaces, you should register under the rental income regime. In this case, you’ll need to handle various obligations, including maintaining accurate accounting records, issuing invoices, and you can also deduct relevant expenses, which reduces your taxable income.
4. Simplified Trust Regime (Régimen Simplificado de Confianza – RESICO)
Launched in January 2022, RESICO replaced the Fiscal Incorporation Regime (Régimen de Incorporación Fiscal) to simplify tax compliance for individuals engaged in business or professional activities who earn less than MXN 3.5 million annually. Individuals previously registered under the RIF regime were automatically transferred to RESICO.
This regime offers pre-loaded tax returns based on invoicing records and features lower income tax rates, ranging from 1% to 2.5%, compared to up to 25.4% in other regimes.
5. Sale of Goods Regime
This regime applies to individuals selling goods such as cars, real estate, or other assets. If this describes your activity, you must register with the SAT and file appropriate tax returns.
Similar to other regimes, you can deduct expenses related to your business activity, such as medical expenses, dental care, or mortgage interest, potentially securing a tax refund.
6. Salaries and Wages
This regime covers individuals who are employees of a company and receive regular wages. Employers handle tax withholdings, and employees are only required to file an annual tax return if they wish to claim deductions or receive refunds.
7. Interest Income
Individuals earning interest from investments through banks or financial institutions fall under this regime. Interest income must be declared to the SAT.
8. Lottery Winnings
If you win a lottery or any other form of a prize, you must declare it under this regime. Prize money is subject to taxation and must be reported.
9. Dividends
Shareholders who receive dividends from companies are required to declare this income under the dividends regime. This ensures tax compliance on profits distributed by the businesses in which they hold a stake.
Conclusion
Mexico offers a variety of tax regimes for individuals based on their economic activities. It’s essential to register under the appropriate regime to ensure you’re meeting your tax obligations and maximizing potential benefits, like deductions or lower tax rates.
You can be enrolled in more than one tax regime, but not all of them are compatible. For example, the RESICO regime and digital platforms cannot be combined, therefore we suggest always consulting with your accountant.
Need guidance on which regime is right for you? Mextax is here to help. Contact us for personalized tax advice!