Tax provisions establish an obligation to issue Online Digital Tax Certificates (abbreviated in Spanish as CFDI (Comprobante Fiscal Digital por Internet)) for payments and withholdings in the cases indicated below when taxpayers make payments to third parties subject to withholdings for Income Tax (IT), Value Added Tax (VAT) or Production and Services Excise Tax (abbreviated in Spanish as IEPS (Impuesto Especial sobre Producción y Servicios)). As a general rule, CFDIs must be issued whenever payments subject to such withholding are made.
Rule 2.7.5.4. of the Tax Miscellaneous Resolution provides the option to issue the aforementioned withholding and payment information CFDIs on annual basis during the month of January of the year following that in which the withholding or payment was made. January 31, 2021 is the last day to issue such CFDIs. CFDIs must comply with the specifications set forth in Annex20 of the Tax Miscellaneous Resolution.
In accordance with this rule, withholding and payment information CFDIs may be issued on annual basis in the following cases:
- Conducting business activities through trusts: issue CFDI to settlors or beneficiaries for the amount of any income and withholdings resulting from business activities carried out through the trust. Article 13 second paragraph of the Income Tax Law.
- Carrying out activities through passive trusts: issuing CFDI to the trustees or settlors, with the amount of cumulative income, authorized deductions and, where applicable, income tax withholdings, derived from the activities carried out through passive trusts. Rule 3.1.15., section I, last paragraph, of the Miscellaneous Tax Resolution.
- Payments abroad: issue CFDIs for the amount of payments that represent Mexican-sourced income or payments made to foreign permanent establishments of the country’s banks and the corresponding income tax withheld. Article 76, section III; Article 86, section V; Article 110, section VIII, of the Income Tax Law.
- Payment of dividends or profits: issue CFDIs for dividends or profits paid and the income tax withheld, further specifying whether such originate from net tax profit accounts or the net dividends account. Article 76 section XI Income Tax Law.
- Distribution of advances or returns: issue CFDIs for the amount of advances and returns distributed and income tax withheld obtained by members of cooperative production companies, professional associations and non-profit organizations. Article 76 section XVIII, Income Tax Law.
- Leasing Trust Returns: for transactions carried out by trusts that grant temporary use or enjoyment of real estate, issue CFDIs for the amount of any returns, deductions and interim payments made. Article 117 last paragraph, Income Tax Law.
- Real Estate Sales: for transactions recorded in public deeds, notaries public, commercial notaries, judges and other similar officers must issue CFDIs evidencing the transaction and Income Tax and VAT withheld. Article 126, third paragraph, Article 127, third paragraph of the Income Tax Law and Article 33 second paragraph of the VAT Law.
- Acquisition of Goods: for transactions recorded in public deeds involving taxpayers that obtain income from the acquisition of goods, notaries public, commercial notaries, judges and other similar officers must issue CFDIs evidencing the transaction and Income Tax withheld. Article 132 second paragraph of the Income Tax Law.
- Payment of interest to individuals: Article 135 of the Income Tax Law.
- Payment of Prizes to individuals: issue CFDIs with the amount paid as the prize and any income tax withheld. Article 139 section I of the Income Tax Law.
- Payment of other income to individuals: issue CFDIs for payments that legal entities make to individuals in terms of Chapter IX (Other Income obtained by Individuals), evidencing the transaction and income tax withheld. Article 145 third and fourth paragraphs of the Income Tax Law.
- Payments to individuals of the RIF (Spanish abbreviation of Fiscal Incorporation Regime): state-controlled companies of the Federal Public Administration must issue CFDIs for the distribution of their products corresponding to the basic consumer basket that benefits beneficiaries of federal programs exclusively made by individuals registered in the Fiscal Incorporation Regime. The CFDI shall contain the amount of the transaction corresponding to the RIF taxpayer for delivering goods to the beneficiaries of the program, the amount of the cost of the goods which the state-controlled entity would have acquired and the tax withheld. Article Second, section XVI, third paragraph, of the “Decree that reforms, adds and repeals various provisions of the Income Tax Law, the Special Tax Law on Production and Services, the Fiscal Code of the Federation and of the Federal Budget and Fiscal Responsibility Law”, published in the The Official Daily of the Federation on November 18, 2015.
- Payments subject to VAT withholding: issue CFDIs for VAT withholdings made in the cases provided under article 1-A of the VAT Law. Article 32 part V of the VAT Law.
- Payments subject to IEPS Withholding: Issue CFDIs for IEPS withholdings made in accordance with Article 5-A of the IEPS Law.
The rule provides that when taxpayers issue a CFDI for income or for performing services or activities which already includes all required information on tax withholdings made, taxpayers may choose to consider it as confirmation and proof of withholdings for tax purposes.
In this regard, it is important to determine in which cases issuing the payments and withholdings CFDIs established by this rule is required, since in some of the abovementioned cases a CFDI containing information on the transaction is issued as provided in the preceding paragraph and in other cases, no CFDI is issued for the transaction, such as when payments are made to foreign residents.
For more information on the application of these provisions, please contact the professionals at Jáuregui and Del Valle, S.C., to analyze in detail any potential effects on your company.
*This Client Alert was drafted by Dulce María Hirota Infante and may contain personal opinions independently of the law firm they work for. In case you intend to apply any of the provisions or interpretations mentioned above, we recommend that you consult Jáuregui y Del Valle, S.C. or another qualified Tax Advisor in a formal manner before doing so.
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