Be ready to submit the Annual Tax Return for Fiscal Year Ended 2018

The Annual Tax Return for Mexican Corporations is due on April 1, 2019, so it is important to review if your Entity has the necessary information to comply with this obligation. We made a list with the main information that should be observed during the Fiscal Year Ended December 31, 2018:

Income Tax (ISR):

  1. Balance sheet as of December 31, 2018, identifying accounts receivable and payable due from/ to, domestic, and foreign related parties.
  2. Profit and loss statement identifying the transactions carried out with domestic, and foreign related parties.
  3. When calculating the tax reconciliation between profit and tax base, make sure to include the following:
    1. All revenues and sales including financing income, down payments received from customers, and other taxable income. [Chapter 1, Title II of the ISR Law].
    2. For the tax depreciation and amortization, use the maximum limits and percentages established in the Law. [Section II, Chapter II, Title II of the ISR Law].
    3. In case of sale of fixed assets or shares, perform the related tax calculation.
    4. Inflationary adjustment. [Art. 44 to 46 of the ISR Law].
    5. Non deductible expenses.
    6. All domestic expenses (within Mexico), should had an electronical invoice (CFDI) and in case of expenses over $2,000 should be paid with check, wire transfer or debit or credit card, otherwise there should be considered as non-deductible expenses.
    7. In case of travel expenses, be aware of the limits for deductions.
    8. Deduct welfare expenses, only if complies with tax requirements.
    9. For the payments that in turn are income exempt for the workers, deduction of such payments is limit up to the amount that results from applying the factor of 0.53, or in case that the exempt payments were reduced during the year, apply the factor of 0.47.
    10. In case of allowance for doubtful accounts, only can be deductible, when the account receivable is received, or when the impossibility of payment is notorious.
    11. Review the prior year tax return to include any item that was taxable or deductible in prior year and affect the result of 2018.
    12. In case of Employee Profit Sharing (“PTU”) paid during the year, such payments can be deducted from the tax base.
    13. If you are using tax loss carryforwards of the past 10 years, make sure the amounts are stated in the tax returns.

Once the income tax is calculated, do not forget to apply the following credits: provisional payments made during 2018, withholding income tax over interest received, income tax paid when dividends were distributed to shareholders.

  1. Review that the provisional payments of 2018 were submitted by latest on the 17th of the following month, and they are calculated using the coefficient of profit of the last year of taxable income.
  2. Calculation of the Contributed Capital Account (“CUCA” Cuenta de Capital de Aportación) [Art. 78 of the ISR Law].
  3. Calculation of the Net tax income account (“CUFIN” Cuenta de Utilidad Fiscal Neta) [Art. 77 of the ISR Law].
  4. Calculation of coefficient of profit applicable to the 2019 provisional payment.

Electronic tax receipts (“CFDI”):

Not only the revenues and expenses of the Entity should be supported with a CFDI, also there are other transactions that the tax authorities request to issue a CFDI, in order to be considered as deductible expense, mainly those transactions in which a withholding income tax and/or withholding value added tax is involved, such as:

  1. Payroll receipts
  2. Payments of dividends
  3. Payments to foreign entities (when there was a withholding income tax)

Starting September 2018, if the invoice is paid in installments, or not paid by the latest in the 17th of the following month, it would be necessary to issue a complementary CFDI for the payment.

Transactions with Foreign Related Parties:

In case of transactions carried out with foreign related parties it is necessary to submit an informative tax return which is also due on April 1, 2019; in order to fill out the tax return the Entities needs to had a transfer price study or documentation that supports that such transactions were carried out under arm’s length principle.

This article is for informative purposes only, and should not be used in specific circumstances without advice of counsel.

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