The deduction of payments abroad is an increasingly recurrent issue in the day-to-day operations of companies, as commercial transactions with foreign-based companies have become common, largely due to current technological capabilities and the way businesses operate.
However, the opportunity to deduct those payments is not always used in a timely manner, maybe because companies ignore the general elements that carrying out this process correctly involves.
First, as part of the requirements of the tax provisions currently in force, any taxpayers who make payments to foreign residents, regardless of whether they are related parties or not, must issue an Online Tax Receipt (CFDI) for payments abroad stating the amount of any payments that constitute income from a source of wealth located in Mexico, in accordance with Title V of the Income Tax Law or for payments made to foreign branches of domestic credit institutions and, where appropriate and no less important, they must state the tax withheld to the foreign resident.
It is important to note that the Miscellaneous Tax Resolution in force in 2022 stipulates a benefit to issue the CFDI for payments abroad indicated above on an annual basis, but they need to be issued by the first month of the year immediately following the year in which the payment was made, in this case by January 31, 2023, for transactions of the financial year 2022.
In this sense and in order to be able to deduct the transactions carried out with foreign residents, said foreign residents must issue a receipt, from their respective jurisdiction, which, under the Miscellaneous Tax Resolution for 2022 must include the following information:
- Name, company or business name, as well as address and, where appropriate, tax identification number, or equivalent, of the person issuing the receipt
- Place and date of issuance
- RFC of the person for whom it is issued and name, company or business name of that person
- Unit value in number and total amount in numbers or print letter
- For the disposal of assets or the granting of their temporary use or enjoyment, the amount of taxes withheld, in addition to any taxes transferred, listing the rate of the relevant tax
Therefore, the consequence for failing to comply with the aforementioned requirements may be not only the inadmissibility of the deduction of the transactions, which may potentially generate a significant impact on the amount of tax payable in the year, but also the imposing of sanctions by the authority.
That is why, even though it is important to issue the CFDI for any payments made to foreign residents, and also to have the relevant voucher which must contain the information listed above in supports of said transactions, first it is important to carry out a review and analysis of the transactions that the company intends to carry out, such as royalties, interest, advertising, services, technical assistance, among others, so that the deduction can be carried out correctly, and also to comply with the relevant requirements of the tax provisions in force.
In this regard, it is important to analyze the possibility of deducting the transactions, and also guaranteeing compliance with the requirements for any CFDI for payments abroad. Please do not hesitate to contact us at Mazars if you have any questions or concerns.