Table of Contents
- I.- Local Taxes
- II.- Payroll Tax
- 1) Object
- Expenditures Exemptions
- 2) Taxpayer
- 3) Tax Baseline
- 4) Tax Rate
- 5) Payment Time
- III.- Property Tax
- 1)Object
- 2)Taxpayer
- With Direct Liability
- With Strict Liability
- With Joint Liability
- 3)Tax Baseline
- 4)Tax Rate
- 5)Payment Time
I.- Local Taxes
A federal system governs Mexico. That implies it comprises autonomous states whose congress can legislate, enact, and pass laws. To complicate things more up, similarly, our current Federal Constitution of 1917 created a unique figure named ‘El Municipio Libre’, which internationally is known as ‘borough or municipality’. Both States and Municipalities receive money from their own taxes. Therefore, in Mexico our taxation system has three levels: federal, state, and municipal taxes.
Like many other countries, what often motivates foreign investment to settle in certain states are the local taxes investors would have to pay along with federal taxes. This is like a competition not only internally in the country but around the world. However, few times there is available information or advertisement of local taxes. To solve this issue and help you, I decided to share the most important taxes in Chihuahua with whom you will weigh whether to invest here.
Nevertheless, first off, it’s essential to at least name all taxes of the municipalities and the state of Chihuahua that are lumped in the Finance Law of the State of Chihuahua and Municipal Code for the State of Chihuahua before highlighting those taxes that are the most important for investors.
In this way, according to the Finance Law of the State of Chihuahua, taxpayers shall pay the following taxes: 1) Income Tax derived from the organization of gambling contests and Riffles; 2) Income Tax from Gambling and Riffle Winnings; 3) Tax on Expenditures Made on Gambling Games; 4) Analytic Tax on Income from Leasing and in general Granting the Temporarily Use of Properties; 5) Analytic Tax on Income Derived of Alienated Property; 6) Lodging Tax; 7) Tax on Legal Acts; 8) Acquisition of Vehicles and Used Movable Property Tax; 9) Expired Surplus Tax; 10) Final Sales Tax on Alcoholic Beverages; 11) Payroll Tax; 12) Additional University Tax and 13) Red Cross Tax.
Likewise, pursuant to the Municipal Code for the State of Chihuahua, taxpayers shall pay the following taxes: 1) Tax on Public Entertainment; 2) Gaming, Raffles, or Lotteries Tax Allowed by Law; 3) Property Tax; 4) Transfer Tax Real Estate Domain and 5) Additional Tax for Property Tax and Real Estate Domain Transfer Tax.
Listed all local taxes above, I will now address those that I consider more relevant for foreigners for both State and Municipal taxes, which are I.- Payroll Tax and II.- Property Tax along with their objects, taxpayers, tax baselines, tax rates, and payment time.
II.- Payroll Tax
This tax is the most important in Chihuahua State because according to the Income Budget of the State of Chihuahua, the state of Chihuahua planned to collect taxes in 2023 for Payroll Taxes 6 364, 081, 824.00 pesos, and the total amount of local taxes are 8, 636, 596, 088.00 pesos. On the other hand, as in other countries, the doctrine criticizes this tax because it does not levy a source of wealth but rather an expense, which, according to the tax theory, even for indirect taxes, is nonsense.
1) Object
The object of this tax is expenditures in cash or in kind, which habitually or accidentally, are carried out as remuneration for personal work, provided under the subordination to an employer, as long as they are generated within the territory of the State or perceived people domiciled therein.
The concept of remuneration for personal work includes ordinary or extraordinary compensations, including bonuses, travel expenses, representation expenses, commissions, premiums, gratuities, returns, and other similar concepts derived from an employment relationship.
Expenditures Exemptions
I.- Participation of workers in employee profit sharing (PTU Participación de los Trabajadores de las Utilidades de la Empresa)
II.- Indemnities for occupational hazards or risk and diseases.
III.- Retirement payments in cases of disability, old age, unemployment, and death.
IV.- Compensation for termination of employment.
V.- Payments for funeral expenses.
VI.- Payments of premium seniority.
VII.- Representation and travel expenses according to the Income Tax Law (federal)
VIII.- Dining service benefits, transportation vouchers, work and sports uniforms, celebrations and gatherings, and scholarships for workers and their families, which are awarded on a general and are paid entirely by the employer.
IX.- Saving funds when the employer’s contributions are equal to those of the workers. In cases where the employer contributes an amount higher, the surplus will be considered to integrate the taxable base of the tax.
X.- Food vouchers, as long as they do not exceed forty percent of the current Measurement and Update Unit[1] value (Unidad de Medida y Actualización), and that they are granted to all employees.
For the above concepts to be excluded as members of the tax base, and they must be disbursed by the employer and be duly recorded in the accounting.
2) Taxpayer
Are subject to this tax, all individuals and legal entities, Mexicans (including the Federation, States, and municipalities, their decentralized organizations and other entities, as well as public law entities with autonomy derived from the Political Constitution of the United Mexican State and the Political Constitution of the State of Chihuahua) or foreign and the economics units that make payments for remuneration of subordinate personal work.
3) Tax Baseline
The total amount of payments for personal remuneration, including the concepts mentioned above.
4) Tax Rate
To the monthly amount of the expenditures I referred to in the tax’s object, the rate of 3% shall be applied, and the amount obtained shall be the tax to pay.
5) Payment Time
The tax will be accrued monthly, and its payment must be made no later than the 15th of the month following the month in which the expenditures for remuneration for work personal work were made, submitting for this purpose the corresponding declaration in the officially approved forms by the Ministry of Finance, and a copy of the declaration of provisional payment of the Income Tax Payment (a federal tax)
III.- Property Tax
Few attorneys and accountants know how this complex tax works. The reason is that, as we shall see, to determine the tax base, we must apply different laws, but now, with technology, tax determination has become easier. On the other hand, like the payroll tax, this tax is the most important for the municipalities in the State of Chihuahua, and Mexico’s Federal Constitution even guarantees it. Without more ado, let’s study this tax.
1)Object
The object of property tax is divided into three legal hypotheses:
I.- The ownership or possession of urban, suburban, and rural properties.
II.- The ownership or possession of the permanent constructions on the properties indicated in the previous hypothesis.
III.- The properties owned by the Federation, States, or Municipalities that are in the power of institutions decentralized, with legal personality and assets of their own, or of individuals, by contracts, concessions, permits, or by any other title, for use, enjoyment, or exploitation.
2)Taxpayer
Are subject to property tax:
With Direct Liability
I.-The owner and possessors of urban, suburban, and rural properties.
II.- Co-owners and co-possessors of real estate subject to a regime of co-ownership or condominium and holders of real estate participation certificates.
III.- The trustors, while they are owners of the properties that are the object of the trust or the trustees who are in possession of the property in compliance with the trust.
IV.- The ejidos[2] and communities, as juridical persons with social rights, with respect to the lands of common use, which make up the endowment or agrarian restitution.
V.- The community members, ejidatarios, and residents, for the plots and lots of land in the areas of ejidal urbanization they possess.
VI.- Posessors, who by any title, license, or concession have the use or enjoyment of Federation property, States, or Municipalities.
With Strict Liability
I.- Acquirers by any title of urban, suburban, and rural properties.
With Joint Liability
I.- The owners who had promised to sell or had sold with a reservation of ownership while these contracts are in force and ownership of the property was not transferred.
II.- The ejido or communal commissioners, pursuant to the agrarian legislation.
III.- Government officials who fraudulently issue certificates of non-debt of the property tax or whose conduct consisting of the omission for two or more times of collecting this tax causes losses to the Municipal Public Treasury.
IV.- The owners, possessors, co-owners, or co-possessors, concerning the credit taxes derived from the common or individual plot of land or right and up to the amount of the value of these.
V.- The usufructuaries, mere-tenures and inhabitants.
VI.- The notaries and public registrars who do not ensure compliance with the property tax payment before intervening, authorizing, and registering operations carried out on the properties.
3)Tax Baseline
The tax baseline is the property’s cadastral value determined by the provisions of the Cadastre Law of the State of Chihuahua, which must reflect the market value of the properties.
Now, to determine the cadastral value, pursuant to Article 23 of the Cadastre Law of the State of Chihuahua, we must use a formula and apply the Tables of Unit Values of Land and Construction for the Municipality of Ciudad Juárez for the fiscal year of 2023 which are issued annually by the Municipality of Ciudad Juárez.
Article 23 of the law mentioned above states that to determine the cadastral value of the properties, the unit values will be applied approved, according to the following formula:
VCAT=VT+VC
For the purposes of the previous formula, it shall be understood:
VCAT= cadastral value
VT= land value
VC= construction value
But first, we must get the land value which is obtained by multiplying its surface area by the unit value of land, contained in the Tables of Unit Values of Land and Construction for the Municipality of Ciudad Juárez for the fiscal year of 2023 in which the property is located, according to the following formula:
VT=STxVUS
For the purposes of the previous formula, it shall be understood:
VT= land value
ST= the land’s surface
VUS= unit value of the land corresponding to the homogeneous area, sector or value corridor where it is located the property.
Finally, the construction value must be calculated according to the following formula:
VC=SCxVUC+VIE
For the purposes of the previous formula, it shall be understood:
VC= construction value
SC= the construction’s surface
VUC= unit value of the construction
VIE= value of special facilities
Once obtained both values (land value and construction value) we just summed them up and that’s the cadastral value which is the tax baseline.
4)Tax Rate
Once we know the cadastral value (which, in any case, the Municipality of Juárez, in its informatic system, know all the values with the aid of technology) the tax will be determined annually according to the following rates and formula:
| Base Range Limits of the Tax (cadastral value in national currency) | Range Rate (applicable on a portion of the value of the base that exceeds the lower limit of the range) | Fixed Fee in National Currency (fixed sum to pay) |
| 0 | 2 to a thousand | 0 |
| 183, 240 | 3 to a thousand | 366.48 |
| 366, 480 | 4 to a thousand | 916.2 |
| 641, 340 | 5 to a thousand | 2, 015.64 |
| 1, 282, 680 | 6 to a thousand | 5, 222.34 |
(CADASTRAL VALUE – NEAREST LOWER LIMIT IN NATIONAL CURRENCY) * RANGE RATE + FIXED FEE IN NATIONAL CURRENCY = ANNUAL DIRECT PROPERTY TAX.
Finally, the property tax shall be calculated with the following arithmetic procedure:
The result of the difference between the cadastral value of the property and the nearest lower range limit in the national currency shall apply the corresponding rate of the excess of that lower limit, and the fixed fee shall be added of the same range, in national currency.
Yes, I know. This tax is a nightmare, but as I stated before, the calculus is correct and easy with accounting software if we have all the proper data.
5)Payment Time
The payment of this tax shall be bimonthly and must be made within the period that includes every two months. However, taxpayers usually pay annually, which is not prohibited by law.
For the purposes of the bimonthly obligation, the year is understood to be divided into six bimonthly periods: January- February, March- April, May- June, July- August, September- October, and November- December.
By Omar Gómez
Partner
beLegal abogados S.C
Abogados en Ciudad Juárez, Chihuahua, México
Mexican Tax and Administrative Attorney
Visit my personal website at www.ogomezabogado.com
Contact the firm (656) 774-75-73 for English assistance or (656) 271-41-43 for Spanish assistance. Also [email protected].
[1] The Measurement and Update Unit in October 2023 is 103.74 pesos.
[2] Village lands communally held in the traditional Indian system of land tenure that combines communal ownership with individual use.