Author: TaxDAO
1. Introduction
United Mexican States (Spanish: Estados Unidos Mexicanos, English: United Mexican States), Mexico, referred to as "Mexico", is an economic powerhouse in Latin America and an important mining producer in the world. Mexico has not fallen into a hyperinflation crisis like Argentina, Venezuela and other countries, but its financial industry has been monopolized by foreign capital for a long time. Traditional banks have been unable to reach their target users, and a large number of private credit needs have been difficult to meet. With the development of financial technology, the financial functions of cryptocurrency have been discovered in Mexico, which has also made Mexico one of the Latin American countries with the highest usage of blockchain and cryptocurrency. Finance is a key factor driving the development of cryptocurrencies in Mexico, and Mexico’s crypto tax system is also inseparable from financial regulation. This article will analyze the Mexican crypto-asset regulatory and tax system from four aspects: basic tax system, cryptocurrency regulatory policy, cryptocurrency tax system, and summary and outlook of the crypto-asset tax system, and predict its future development direction.
2. Overview of Mexico’s basic tax system
2.1 Mexican tax system
According to the Mexican Constitution , the federal government and state (municipal) governments all have the right to tax, and it is a two-level tax system, federal and local. The local level includes state and city levels. The federal government enjoys the power to levy major domestic taxes, especially corporate income tax. Local governments at any level have no power to levy them.
The Mexican federal government implements a compound tax structure with income tax and value-added tax as dual subjects. The main taxes included in the current tax system are: income tax (including corporate income tax, personal income tax, capital gains tax), Value-added tax, property tax (minimum tax levied on assets), import and export duties, salary tax (mainly including taxes on wages, social insurance and workers' housing funds). In addition, federal taxes also include taxes on mineral resources and special goods and services, such as excise taxes on alcoholic beverages, tobacco, gasoline, telecommunications services and automobiles.
Local governments include state and municipal governments. The taxes they have the power to levy include real estate taxes, payroll taxes (mainly levied on employers), real estate transaction taxes, business asset taxes, etc., as well as various other taxes. Charges for property rights registration, business license issuance, etc.
2.2.1 Income Tax
Mexican tax resident enterprises under the Mexican federal tax law refer to laws whose main business management place or effective management place is located in Mexico entity. In tax treaties, Mexico generally follows the concept of resident enterprise as stipulated in the OECD Model. So a resident enterprise in a tax treaty refers to a person who is taxed in that country due to its location, place of residence, place of management, place of establishment (tax treaty with Mexico) or other similar conditions according to the laws of that country. But it does not include persons who are taxed only on their income derived from that country. In principle, if a legal entity does not meet the definition of a Mexican tax resident enterprise, it is considered a Mexican non-resident enterprise. Corporate income tax is levied on enterprises, companies and other legal persons engaged in business activities in Mexico. Mexican non-resident enterprises with a permanent establishment in Mexico are required to pay corporate income tax in Mexico on income attributable to the permanent establishment and income derived from Mexico. Non-residents without a permanent establishment in Mexico only need to pay corporate income tax on income derived from Mexico. The income of non-resident enterprises is subject to Mexican corporate income tax. Non-resident enterprises are subject to different tax rates according to different types of their gross income (without deductions), but the net taxable income from the sale of real estate and shares and short-term construction installation and similar projects are taxable. Income is taxed at a high rate. In certain circumstances, if such a company is deemed to have permanently established or fixed operations in Mexico for income tax purposes, from the moment of recognition, it will follow the tax regulations of resident companies in this country, and it will be treated as if the foreign company has been registered in Mexico. Taxation is based on the circumstances of the branch. Capital gains from the sale of fixed assets, stocks, and real estate are considered ordinary income and are subject to corporate income tax. Mexican law allows proceeds from the sale of real estate, stocks and other fixed assets to be indexed to inflation.
According to Mexican federal tax law, a person who has a personal permanent residence in Mexico is considered a Mexican resident. If the person also has a personal permanent residence abroad, the main factor that determines his tax residency status is his physical residence. The location of the center of interest. There are two situations in which Mexico is the center of vital interests: In a calendar year, the individual's income from Mexico exceeds 50% of the total income; the main place of professional activities is in Mexico. An individual shall be considered a Mexican resident if his or her center of vital interests is located in Mexico. Individuals who do not meet the preceding conditions are non-residents. Mexican residents are required to pay personal income tax on all of their worldwide income; non-resident individuals in the following two situations should pay personal income tax in accordance with the law. First, they operate and obtain income through a permanent establishment in Mexico; second, they obtain income from Mexico. income. Foreigners residing in Mexico are taxed only on their Mexican-source income. Residents are allowed to deduct medical expenses, charitable donations, education expenses and other expenses from their taxable income, while non-residents are not allowed to deduct them. Since 2018, the individual income tax (ISR) has implemented a progressive tax rate with an upper limit of 35%.
2.2.2 Value-added tax
Mexico’s value-added tax levies taxes on income from the sale of goods and provision of services, rental income, and the import of goods and services. . When determining the applicable tax rate, operating income as non-VAT taxable income and VAT taxable income are used together as the basis for determining the tax rate. When taxpayers meet their tax obligations and enjoy their exemption rights, the tax passed on due to investment expenditure must be adjusted in subsequent tax years. According to the new tax law, the current basic rate of VAT in Mexico and in border areas is 16%. In addition, 16% VAT will also be levied on some items that originally had a zero-rate VAT rate. Currently, items exempt from value-added tax include: agricultural products, basic food and medicine, service exports, labor exports, etc.
2.2.3 Asset tax
Business asset tax is an important local tax. It is an asset-based minimum tax, levied at 2% of the value of a company's assets, and is in addition to the federal income tax. Business property tax is levied by the cantons and the federal district at different rates. This tax applies to both personal and business assets. The tax base for real estate tax is based on the assessed value of the National Land Registration Board and the local finance department, which are jointly responsible for the assessment of property value. Real estate transaction tax is also one of the important taxes of local governments, and its tax rate is set by the state government. It originally emerged as an alternative to stamp taxes on real estate transactions, including estate donations, donations to nonprofit organizations, various real estate transfers, and more.
3. Mexico’s cryptocurrency regulatory policy
The characterization of cryptocurrency determines the direction of Mexico’s cryptocurrency regulatory policy. According to the explanation of the Bank of Mexico (Spanish: Banco de Mexico), although cryptocurrencies can also be exchanged for goods or services like currency, virtual assets such as cryptocurrencies do not meet the classic functions of currency. For example, Bitcoin's high volatility makes it difficult to function as a store of value and unit of account. At the same time, fewer merchants currently accept cryptocurrencies, and cryptocurrencies cannot become a universal medium of exchange. [1] Moreover, cryptocurrency itself is not a financial asset, and the investment gains and losses caused by its value volatility can only function like financial assets.
Mexico is the first country in Latin America to enact specific laws to regulate Internet financial companies in the fintech field. Currently, the country has three departments responsible for regulating the financial industry: the Bank of Mexico, the Ministry of Finance and Public Credit (SHCP) and the National Banking and Securities Commission (CNBV). Mexico’s cryptocurrency regulatory policies mainly revolve around laws such as the Fintech Law (Spanish: Ley Fintech) and the Regulations of the Fintech Institutions Supervision Law (secondary law).
Under the wave of rapid development of financial technology, in 2018, Mexico passed a financial technology law. The law mainly involves two aspects of authorization: one is to authorize crowdfunding institutions (Spanish: Instituciones de Financiamiento Colectivo-IFC) to conduct "crowdfunding" transactions, such as capital transactions regarding bonds, equity or ownership, and the other is to authorize electronic payment institutions (Spanish: Instituciones de Fondos de Pago Electrónico-IFPE) The issuance, management, redemption and transmission of electronic funds through digital means, and virtual assets such as cryptocurrencies are also covered. Both types of institutions must comply with minimum capital requirements, among which electronic payment institutions need to meet the standard of 500,000 UDI (units of an index fund used by Mexico as a stable substitute for the Mexican peso) if they operate exclusively in Mexican currency, while if they operate virtually For asset trading or foreign currency trading or using basic virtual assets to operate derivatives, the standard of 700,000 UDI needs to be met.
In March 2019, the Bank of Mexico issued a secondary law of the Fintech Law, bringing cryptocurrency companies into its jurisdiction. After that, companies using cryptocurrency to conduct business must also obtain relevant authorizations. Violators may be fined. The imposition of fines ranging from US$9,500 to US$47,000 means that cryptocurrency businesses are subject to stricter qualification review and control. To be clear, the law does not apply to small and medium-sized enterprises that use cryptocurrencies as a method of payment. Only companies in the fintech sector that use electronic transaction mechanisms or raise funds (crowdfunding) require authorization. Interestingly, the Bank of Mexico, one of the authorized agencies, has not approved any companies in the months since the secondary law was passed, but instead advised relevant investors to be wary of cryptocurrency companies.
In addition to the aforementioned regulations, the Mexican Financial Intelligence Unit (FIU) has also issued reporting guidelines on cryptocurrencies, requiring the reporting of crypto asset transactions and related intermediary and service provider information.
4. Mexico’s cryptocurrency tax system
Mexico’s cryptocurrency tax system is not complicated, and there are few special tax regulations for crypto-assets such as cryptocurrency. The main thing is to comply with the general tax laws of Mexico. As early as 2014, the Mexican Federal Tax Service issued Announcement No. 230, stipulating the tax treatment of Bitcoin and other similar virtual currencies. The announcement clarifies that Bitcoin and other similar virtual currencies are not considered legal tender or foreign currency and therefore are not subject to Mexico’s exchange control laws. From a tax perspective, the Mexican tax authorities do not treat virtual assets differently from other assets, that is, the acquisition and transfer of any crypto assets should be subject to the same general income tax and value-added tax regulations as other movable assets.
However, there are still three special points about Mexico’s cryptocurrency tax system: First, the Mexican government established the Secretariat of Financial Intelligence (CARF), which aims to establish a unified tax framework. It indicates that Mexico’s cryptocurrency tax system may become increasingly improved. Second, intraday cryptocurrency transactions similar to stocks or foreign exchange conducted by relevant companies are required to pay a corporate income tax of 35%. This policy aims to guide the intraday trading behavior of cryptocurrency, prevent excessive fluctuations in the financial market, and stabilize the financial market. of operation. Third, according to the provisions of the Fintech Law, starting from September 10, 2019, in addition to the normal declaration of income tax, value-added tax and other taxes, relevant cryptocurrency companies must make separate declarations when the transaction volume exceeds 50,000 Mexican pesos or 2,700 US dollars. tax filings, which demonstrate the close attention that Mexican financial regulators and tax authorities have on cryptocurrency companies.
5. Summary and Outlook of Mexico’s Crypto-Asset Tax System
Mexico’s crypto-asset tax system is still in the initial stage of development, and its tax system is mainly dependent on general taxation. system, the applicable tax regulations mainly depend on the Mexican government’s legal characterization of crypto-assets. The few special regulations on crypto-asset taxation are mainly to strengthen compliance review to protect the interests of investors and prevent potential financial risks of crypto-assets such as cryptocurrencies, but do not reflect the Mexican government’s encouragement and support for the development of the crypto-asset field. policy attitude. A glimpse of the whole picture reveals the whole story. Generally speaking, although the Mexican government continues to respond to the new development of crypto assets through regulation, taxation and other means, and does not deny the legality of cryptocurrencies and their transactions, it still prefers to use cryptocurrencies. Assets serve as tools to promote economic development, and we have always been very wary of the financial risks behind crypto-asset transactions and the impact of cryptocurrency circulation on national monetary sovereignty.
In January 2022, the Bank of Mexico announced that it was working to create a central bank digital currency (CBDC) and expected to put it into circulation in 2024. In July of that year, Mexican Congress Senator Indira Kempis proposed a bill hoping that Mexico would give Bitcoin a status similar to legal tender. As of the writing of this article, the bill has not been passed, and Mexico’s central bank digital currency has not yet been launched. However, it is foreseeable that whether Mexico chooses the path of centralized cryptocurrency and whether it gives decentralized cryptocurrency the opportunity to The status of legal currency and the establishment of an independent and complete tax system for decentralized cryptocurrencies such as Bitcoin are irresistible trends. Only in this way can we follow the development wave of cryptocurrencies and better balance economic development, financial security and currency. relationship between sovereignties.
Comments
[1]https://www.banxico.org.mx/sistemas-de -pago/1---que-es-un-activo-virtua.html#saltos
References
[1] Blockchain & Cryptocurrency Laws and Regulations 2024 (Legal Considerations in the Minting, Marketing and Selling of NFTs) | Insights | Skadden, Arps, Slate, Meagher & Flom LLP. (2024). Lukka, & Lukka. (2022, July 11). Overview of Mexico's crypto taxation. Lukka.
[2] Kereibayev, O. (2024, January 16). How to Comply with Mexico's FinTech Law. Sumsub.
[3] Ley para Regular las Instituciones de Tecnología Financiera [Law to Regulate Financial Technology Companies] arts. 30–34, Diario Oficial de la Federación [D.O.F], Mar. 9 , 2018, available as originally enacted on the website of Mexico's House of Representatives.
[4] Ma Hongxia. (2023). The development status of global central bank digital currencies, Operational risk and trend prediction. Huxiang Forum, 36(5), 1-10.
[5] The Bank of Mexico’s new financial technology law strictly prohibits cryptocurrency. (n.d.).
[6] Institute of International Trade and Economic Cooperation of the Ministry of Commerce. (2022) Country (Region) Guide to Foreign Investment and Cooperation—Mexico
[7] Research report: Mexican blockchain regulations, applications and opportunities Golden Finance.
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