In Mexico, the 2022 Tax Reform included a change in Article 27 of the Federal Fiscal Code, where a paragraph was added that establishes that all natural persons over 18 years of age (whether Mexican citizens and/or legal foreign residents) must obtain an RFC (Federal Taxpayer Registry) number. This new rule applies regardless of whether they are employees or have any type of business activity or not.
To clarify some of the main doubts that all this implies, Vallarta Real Estate Guide approached Orlanda Rivera and Susana Dueñas, accountants with a master’s degree in Tax Law, who are partners-owners of SUOR · Asesoría Fiscal & Contable (Tax & Accounting Advice), a bilingual law firm that has offices in El Centro and Marina Vallarta.
“Basically, the reason behind this new legislation and tax rule, as well as the reason why RFCs can no longer be obtained online, but now require a face-to-face appointment, is that, over the years, tax identity theft had become increasingly common and was easy to achieve,” Rivera says.
The reason for this was because CURP numbers (Unique Population Registry Code) are basically public. Previously, if a person’s full name was known, as well as their date and place of birth, their CURP could be obtained very easily by anyone. This type of identity theft has been used mainly by money laundering organizations, as well as by people outsourcing and selling illegal invoices. Because of this, a couple of years ago, the SAT (Tax Administration Service) also changed the process for obtaining the password in order to be able to access its online services, all with the aim of making sure that it is the real taxpayer who requests to log in and not criminal efforts.
The President of Mexico, Andrés Manuel López Obrador, also spoke out on the matter. He said the intention of this is not to penalize people, but to have a better and more complete database, as well as to protect people from tax identity theft.
Tax Status Certificate
“On the other hand, the issue that a Tax Status Certificate is now being requested has a whole history. The reality is that in Mexico there is a very robust tax collection system, it is much better than that of any country. In fact, it is still not yet fully developed. Before 2014, only legal entities were required to issue invoices. After that year, everyone has been able to invoice and that is the reason why CFDIs (Internet Digital Tax Receipt) have been heard of more frequently, that their synonym is invoice. What the government is looking for is to more efficiently control the payment of taxes, and to have a better way of knowing how much is supposed to be collected automatically. Thus, by the time someone issues a stamped CFDI, the SAT already knows practically what was bought and/or what was sold. With that, you can already determine how much you should pay in taxes,” Rivera explains.
“In reality, as of July 1st, 2022, what came into effect was the official transition from version 3.3 of the CFDI to 4.0. This latest version includes a new field to enter the recipient’s tax obligation, and it also makes the postal code a mandatory field. These two new fields, along with the name field, will be automatically validated by the SAT. This essentially means that an invoice will not be issued unless these fields exactly match the recipient’s information that the SAT has on record, which implies that the CFDI could not be deducted,” adds Dueñas.
“With this update, all service providers with invoice issuance were required to request from their clients a Tax Status Certificate. This is in place to ensure that it is true and/or that the tax obligation for every single invoice issued is located can be verified by the SAT,” says Rivera.
A Tax Status Certificate is an RFC certificate that includes the general data of the taxpayer, as well as information about their tax regime and tax obligations at the date of their issuance. As the owner can change certain data, that is the reason why updated and/or recent certificates are being requested.
As a result of the number of procedures and everything that is involved, the SAT recently issued a statement where it announces that the extension for this change to officially enter into force will be in 2023.
Considerations for Expats Who Are Going to Process RFCs
“There are some considerations for foreigners who are going to process their RFC. First, it must be understood that a foreigner with residence, whether temporary or permanent, who will not have economic activity in Mexico, has no obligation to process the RFC. Currently, they are only being invited to register to obtain it, thinking that, in the near future, they may have some business that will require it. There is no law that obliges them,” Rivera explains.
“Speaking of foreigners, we must mention the differences between permanent and temporary residents. Permanent residents who come to Mexico and who plan to have an economic activity here, necessarily have to make their registration to obtain their RFC, since they are obliged to pay taxes for the profits or for the economic activities they have in our country. At this point there is a situation, since currently foreigners cannot be registered in the online system, nor in the offices of the SAT of Puerto Vallarta, so they need to go to the offices of Guadalajara or Tepic. On the other hand, there are foreigners who at some point gave them their RFC as ‘Sin Obligaciones Fiscales’ (No Tax Obligations) and now want to change that status to include having economic activity. They can go to the SAT office here in Puerto Vallarta to request their electronic signature and with that they make their update in the RFC,” complements Dueñas, who adds: “The most critical situation is for temporary foreign residents, who doesn’t have the right to buy an apartment with the intention of renting it to generate extra income and/or start a business and invest in the city without having the RFC number. Then when they arrive and apply for temporary residency, they are granted, and they will immediately process their RFC to be able to start with their operations and with their tax return. However, because of policy discrepancy, they realize that the SAT does not allow them to register for the RFC because they are, precisely, temporary residents. The SAT says that in order to attend this procedure you need to be a temporary resident with a work permit, so they go to Migration to request it and Migration tells them that you need the registration of the RFC to be able to give them the work permit. Both dependencies have not been agreed, which generates a very large process deficiency.”
“So what about all these foreigners who want to do an economic activity and want to pay taxes in the legal and proper manner, but the same authority does not allow them? At the moment, the only real solution is to have patience and wait for both agencies to solve this situation among themselves,” Rivera says.
Consequences of Ignoring These Recommendations
When our experts were asked about the consequences of ignoring these recommendations, Rivera replied: “Being very direct, because foreigners are not allowed to do business if they do not have a work permit, if they were to do so, the repercussion can be very severe, to the point that there can be jail time involved. The point is that a fault is being committed with Migration, because they did not give them permission to work and then they are having another fault with the SAT, because they are not paying their taxes.”
“Currently, there may also be a doubt regarding the companies that provide services such as electricity, water, telephone, cable and cell phone. The uncertainty is that if we do not provide them with our RFC they can cut off our service. Really, this is not so. The only thing they are saying is that they require the Tax Status Certificate to update their information. If the receipt of these services does not have the complete information to cover the requirements of version 4.0 of the CFDI, then it will not be able to be deductible from taxes,” explains Dueñas.
Finally, our experts mention that, although all this might sound a bit overwhelming, it is always advisable to engage professionals to assist you with the process because they are constantly updated and know the situation in detail; in this way you can get a more appropriate guide to obtain the desired results.