The federal government has given special treatment to the passenger and freight transportation sector. At its beginning the income tax was determined by special taxable bases, paying a fixed amount for each transport unit in the business. Later the sector was incorporated to the simplified regime of inputs and outputs, which also granted a good deal of benefits. As of 2013 a regime known as “simplified” was active, that’s similar to the current one including the 2014 tax reform.
To who is this regime geared?
This regime is focused mainly to those businesses that unify to compete from a single source. The law denominates them “coordinated” and are defined by law as “… corporations that administrate and operate fixed assets and land, related directly with the ground transportation of freight and passengers, incorporated by individuals that undergo in ground transportation for freight, passengers or complementary activities and own fixed assets or sites, related directly with such activities”.
Can a non-coordinated carrier access these benefits?
The Mexican Income Tax Law (MITL) in its article 72 states that any individual or corporation that provides transportation services for freight or passengers can access the benefits of this regime.
What are the benefits of the regime?
The main benefit is having the possibility to determine the taxable income and deductions based in the cash flow, this being, income is accumulated at the moment that the services are paid and not when they are invoiced. The same regarding expenses, these are deductible the moment they are paid, with the exception of any fixed asset investment.
Do to this, it is important to meet the applicable depositions for individuals of the general regime, which could be considered as well as the compliment with any fiscal rules regarding corporations.
Other important benefits
The transportation sector also has the following benefits:
a. Deduction of expenses without purchase receipt. It is possible – according to rule 2.2 of the administrative facilities – make deductible expenses that legally would not be, this payments that do not have a purchase receipt but were effectively done. For this a limit of 8% of the income attained in the fiscal year and that a 16% tax is paid.
This benefit is very attractive to the taxpayer, as it’s a real payment and losing the deduction an effect of 30% income tax plus a profit sharing of 10% would be created. Applying this benefit will mean savings of 14% of the income tax plus the profit sharing percentage just by activating the deduction.
b. Ability to make fuel payments in cash. Fraction III of article 27 in the MITL, has special requirements in order to deduct payments for fuel, even if the payment is below $2,000 pesos, it is required to pay either by check, bank transfer, debit or credit card.
It is common for this type of taxpayer to make such payments cash, in order to provide the service. Due to this rule 2.9 of the administrative facilities, allows for the deduction of such payments, as long as they do not represent more than 15% of the fuel expenses in the fiscal year.
c. Crediting the Special Tax for Production and Services against the Income Tax. This benefit was allowed from September 2014. Its rather simple as actually there are rules that define the offset methodology which can be consulted in the following link: http://www.kimquezada.com/blog/2015-99.
d. Payment of toll fees. It is permitted to offset up to 50% of the toll fees paid in Mexico, against the Income tax generated in the fiscal year. It is noticed that the amount is taxable for income tax. Controls must be taken regarding transportation units and routes and make the payments through the IAVE system. In real terms, this means savings of 35% of the fees paid, as long as there is an income tax to be able to offset it.
There needs to be more clarity in the laws, in order for the taxpayer to be able to comprehend the regime, its benefits but also any complications.
Its then advisable to always have good advisory and vigilant for new depositions that could represent a competitive advantage for the company.
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