What is a Persona Fisica and a Persona Moral?
If you’ve lived in Mexico for a little while and have been trying to get an official invoice, then you have probably stumbled upon the terms persona fisica or persona moral.
Moving to a new country presents a tapestry of challenges, and among the intricate threads of adjustment, navigating tax matters emerges as a particularly complex task.
The unfamiliar tax laws, regulations, and procedures can easily bewilder even the most seasoned individuals. The intricacies of tax codes, deadlines, and obligations might seem like an intricate puzzle, further compounded by language barriers and cultural nuances.
Without a solid foundation of knowledge, newcomers can inadvertently find themselves facing penalties or financial setbacks. Hence, it becomes imperative to begin the journey in the new land armed with at least a fundamental understanding of the local tax system.
Starting with basic knowledge about tax rates, allowable deductions, and reporting requirements can serve as a crucial compass, guiding individuals through the maze of tax intricacies and ensuring a smoother assimilation into their adopted homeland.
Tax Identity
There are two types of tax identities in Mexico:
Definition of Persona Fisica and Persona Moral
Persona Fisica
A “persona fisica” is a man or woman over 18 years of age, with all legal rights and duties. The figure of the “persona física” is governed by different laws, according to their activities and income, such as:
- Service providers such as attorneys, engineers, doctors, etc.
- Commercial activity: restaurants, schools, salesmen, etc.
- Real estate rentals: those who lease out land or buildings.
- Salaried workers: public officials, salaried workers, etc.
Persona Moral
A “persona moral” is a legal entity (a company or corporation) that is formed of a minimum of 2 people; that is, a group of people who unite for a determined purpose, including mercantile corporations.
The business structure you choose will depend on your business activity, level of expected income, type of capital equipment, number of employees, legal liabilities, and many other factors.
Independent Contractor
If you are an individual providing your services to clients and are willing to accept personal liability, then you can probably conduct business and pay taxes as a persona fisica and not establish a Mexican business entity. This kind of worker is generally referred to as an independent contractor. These jobs include lawyers, doctors, translators, photographers, massage therapists and consultants, to name a few. As an independent contractor, you can issue formal invoices called facturas to clients that require them, and these clients will withhold and pay your taxes. Income received from these clients is called honorarios. If you receive income that is not reported by your clients, you are personally liable for the withholding taxes and they must be paid by you through a Mexican tax accountant.
Note: Foreigners who want to perform certain activities, such as legal or medical services, will need to validate their credentials according to Mexican legal criteria for their specific field.
Sole-Ownership Corporation
There is technically no such thing as a “sole proprietorship” in Mexican business law. However, there is a sole-ownership form of company called Actividad Empresarial. There can be only one shareholder and the individual is liable for any and all aspects and activities of the business, and his personal assets are at risk. Neither can the corporation own real assets. But it can employ others, issue facturas and pay taxes as a business entity.
Note: Independent contractors and small businesses, such as the above, may receive a tax designation from SAT called Pequeno Contribuyente, or small contributor. If the business earns less than $2 million pesos per year (roughly $154,000 dollars at an exchange rate of $13 pesos), then it can pay a reduced flat tax with simplified tax filing. Foreigners must hold a working visa to qualify.
Limited Liability Company
A Mexican LLC is called a Sociedad de Responsabilidad Limitada (S. de R.L.) or if funded with variable capital, the title is appended with de C.V. This business entity is similar in most respects to Limited Liability Companies in other countries. The Members of a Mexican S. de R.L. are liable only for the amount of their investment and may or may not receive income, depending on their role.
Corporation
A Mexican corporation (persona moral) is called a Sociedad Anonima (S.A.) or if funded with variable capital, the title is appended with de C.V. This business entity is similar in most respects to corporations in other countries. Shareholders are not personally liable other than for the actions taken by them as members of the management of the company. This persona moral can issue facturas, hold real property, and pay taxes on a monthly and annual basis.
These business entities are established through a legal document called an Acta Constitutiva. From a legal, accounting, and business administration perspective, there are no meaningful differences between a Mexican corporation and a Limited Liability Company. The only significant differences are those related to the formation and management of the company.
- OBLIGATIONS OF A MEXICAN CORPORATION WITH FOREIGN INVESTMENT
- Give annual notice to the National Registry of Foreign Investment (RNIE). Depending on the corporation account profit/loss balance they might be responsible for filing quarterly. Also notifying RNIE about changes in shareholders, structure, address, or any other relevant modification to the information originally registered.
- Shareholders may choose to file as Mexican tax residents or give annual notice to the Mexican tax office.
- Submit monthly and annual tax obligations.
- FOREIGNERS AS OFFICERS OF A MEXICAN COMPANY
Foreigners wishing to join the Board of Directors of a Mexican company must have an “FM3” visa. These individuals would first enter Mexico with the status of tourist and then request a change of their status from tourist before the Local Delegate of the Immigration Institute so that they can form part of the Board of Directors.
- General Timeline for Starting a Business
Time required to incorporate a business in Mexico
If the Mexican corporation (persona moral) will be managed directly by two individuals, (Mexicans or foreigners)
Activity
- Notary, Preparation of draft of the constitution (articles of incorporation) upon receipt of the information needed- 10 days
- Filing with public records – 25 days
- Obtaining Tax ID and CIEC key for filing tax reports – 1 day
- Obtaining FIEL key for filing tax reports – 1 day
Total amount of time: approximately 1.5 months
It is worth mentioning that to execute all the procedures described above a foreign citizen does not necessarily have to be in Mexico; he/she can appoint an individual to act as his/her legal representative directly in the By-laws of the Mexican corporation or even grant powers to represent him/her individually. The foreigner granting these powers can also limit them to specific activities, as he/she desires.
The cost varies depending on the region and notary. You can always check the SAT website for more information on persona moral and pesona fisica.
Source: Calderon Advice
