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A Discussion with Mexico's Top Tax Auditors and the International Real Estate Industry October 20, 2007 Course Number 1 IVAN BAUTISTA OSUNA, CPA & T.M. GILBERTO CARRASCO RODRIGUEZ, CPA. MAIN FEDERAL TAXES. INCOME TAX (ISR) INCOMES AND PROFITS TAXABLES 28 % RATE.

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A Discussion with Mexico's

Top Tax Auditors and the International

Real Estate Industry

October 20, 2007

Course Number 1

IVAN BAUTISTA OSUNA, CPA & T.M.

GILBERTO CARRASCO RODRIGUEZ, CPA


MAIN FEDERAL TAXES

  • INCOME TAX (ISR)

  • INCOMES AND PROFITS TAXABLES

  • 28 % RATE

  • VALUE ADDED TAX (IVA)

  • CONSUMPTION TAXABLE. GENERAL

  • 15% RATE BAJA CALIFONIA SUR 10 %

  • ASSET TAX (IMPAC) 1.8% RATE , REPEALED SINCE JANUARY 1, 2008.

  • FLAT TAX SINCE JANUARY 1, 2008, 16.5%

  • RATE


OBLIGATED TO PRESENT AN AUDIT REPORT

  • PREVIOUS EXERCISE INCOME OVER

    $30,470,980.00

  • ASSETS OVER $60,941,970.00

    300 WORKERS

  • AUTHORIZED DONEES

TAXPAYERS OBLIGATIONS

PRESENT TAX RETURNS

DO THE BOOKKEPING

AUDIT FINANCIAL STATEMENTS

PRESENT NOTICES TO THE FEDERAL TAXPAYERS REGISTRY

MAKE AND COLLECT FACTURAS (OFFICAL INVOICES)


FEDERAL FISCAL TEAM

INTERNATIONAL MATTERS

ADMINISTRATION

CD. MÉXICO,,D.F

MAYOR TAXPAYERS

ADMINISTRATION

HERMOSILLO, SON

FISCAL AUDIT

LOCAL ADMINISTRATION

EN LA PAZ, B.C.S.

.

TAXPAYERS WITH INCOMES OVER $500 MILLONS PESOS.

SUB-ADMINISTRATION IN CABO SAN LUCAS, B.C.S.

STOCK ALIENATION OF RESIDENTS ABROAD


FISCAL AUTHORITIES FACULTIES

  • CORRECT ARITHMETIC ERRORS

  • REQUIRE THE BOOKKEPING, DATA, DOCUMENTS OR REPORTS

  • PRACTICE AUDITS TO REVIEW THE BOOKKEPING, ASSETS, MERCHANDISE AND THE ISSUE OF FISCAL VOUCHERS.

  • REVIEWED THE AUDIT REPORTS MADE BY AN INDEPENDENT CPA

  • PRACTICE AND ORDER TO PRACTICE THE VALUATION OR PHYSICAL CERTIFICATION OF ANY KIND OF ASSETS .


Why the authorities begin a review
WHY THE AUTHORITIES BEGIN A REVIEW?

  • NOT PRESENTING TAX RETURNS

  • INFO CROSSING

    • CLIENTS AND VENDORS

    • FEES AND RENT

    • FINANCIAL ENTITIES

    • PUBLIC NOTARIES

    • PROPERTY AND COMMERCE PUBLIC REGISTRY

    • MUNICIPAL CADASTRE OFFICE

    • PARTNERS LOAN

  • SPECIFIC AREAS PROGRAMS

  • PROFFITS AVERAGE ACCORDING TO THE TAXPAYER ACTIVITY.

  • AUTHORITY’S DISREGARD CRITERIA

    • COOPERATIVE ENTITIES, SALARIES AND SOCIAL SECURITY


  • Fiscal methods
    FISCAL METHODS

    • PROVE THE FISCAL REGULATIONS ARE FULFILLED

    • INVITATIONS

      • PRESENT TAX RETURNS

      • MAKE EXPLANATIONS

  • AUDIT

  • DESK AUDIT

  • FISCAL AUDIT REPORT REVIEW

    • INDEPENDENT CPA PAPER WORKS REVIEW

    • IN ITS CASE, BEGIN THE VERIFICATIONS POWER


  • BAJA CALIFORNIA SUR

    • PAYROLL TAX.

    • 2.5% RATE

    • LODGING TAX.

    • SERVICES 3% RATE.


    STATE FISCAL TEAM

    B.C.S. FEDERAL FISCAL

    AUDIT OFFICE

    FISCAL AUDIT DEPARTMENT

    MANAGEMENT IN LOS CABOS


    Fiscal team
    FISCAL TEAM

    FISCAL AUDIT OFFICE

    • FEDERAL TAXES

      • OPTION TO REVIEW FEDERAL TAXES. ADMINISTRATIVE COLABORATION AGREEMENT BETWEEN FEDERATION AND STATE-

    • PAYROLL TAX AND LODGING TAX

      • INFO CROSSING WITH THE SOCIAL SECURITY AUTHORITIES


    Defense acts
    DEFENSE ACTS

    WHEN THE TAXPAYER CONSIDER THAT SOME ACT OR RESOLUTION OF THE FISCAL AUTHORITIES WERE NOT MADE ACCORDING WITH THE LAW, YOU CAN INTERPOSE THE DEFENSE ACTS, WICH ARE:

    • THE APPEAL FOR REVERSAL BEFORE S.A.T.

    • THE APPEAL FOR ANNULMENT BEFORE THE FISCAL AND ADMINISTRATIVE JUSTICE FEDERAL COURT

      THE PORPUSE IS:

    • TO BE REVOKED

    • CANCELED

    • EMITTED AGAIN


    Municipal taxes and rights
    MUNICIPAL TAXES AND RIGHTS

    • 2 % REAL STATE ACQUISITION TAX (ISABI)

    • PROPERTY TAX

    • PUBLIC REGISTRY RIGHTS

    • CONSTRUCTION LICENSES


    Real state acquisition tax isabi
    REAL STATE ACQUISITION TAX (ISABI)

    THOSE OBLIGATED TO PAY THIS TAX ARE THE ONES THAT ACQUIRE A REAL STATE (LAND AND CONSTRUCTION) AND RIGHTS RELATED WITH THE SAME ONES (TRUSTS) IN THIS MUNICIPALITY, TO THE 2% RATE UNDER THE HIGHEST VALUE BETWEEN DE OPERATION PRICE, CADASTRAL OR FISCAL VALUE OR EXPERT COMMERCIAL APPRAISAL.

    OPERATION VALUE $ 1,000,000.00

    ISABI RATE 2.00%

    ISABI TO PAY $ 20,000.00

    THIS TAX IS THE NOTARY’S OBLIGATION TO CALCULATE IT AND PAY IN THE MUNICIPAL INCOMES OFFICE.


    Property tax
    PROPERTY TAX

    IT TAXES THE PERMANENT REAL STATE AND CONSTRUCTIONS PROPERTY INCLUDING THE ONES SUBJECT TO A TRUST, EXISTING IN LOS CABOS AND ALL THE MUNICIPALITIES IN B.C.S., THE BASE TO BE CONSIDERED IS THE CADASTRAL VALUE AND THEY ARE DIFFERENT CLASSIFICATIONS THEREFORE DIFFERENT RATES:

    • 3.5526 PER THOUSAND (0.3552%) IN PROPERTY WITHOUT ACTIVITY

    • 2.3 PER THOUSAND (0.2300%) IN PROPERTY DESTINED EXCLUSIVELY TO HOUSES INHABITED BY THE OWNER.

    • 4.6 PER THOUSAND (0.4600%) IN PROPERTY WITH A DIFFERENT DESTINY THAN HOUSE

    • 9.2 PER THOUSAND (0.9200%) IN LOTS NOT BUILT OR WASTE LAND, WITH AN ANNUAL INCREASE OF 0.92 PER THOUSAND (0.0920%) AND IT CAN NEVER EXCEED FROM 18.4 PER THOUSAND (1.8400 %).


    Public registry rights
    PUBLIC REGISTRY RIGHTS

    THE PROPERTY AND COMMERCE PUBLIC REGISTRY, WILL CAUSE THE RIGHTS PAYMENTS FOR EVERY TRANSACTION MADE BEFORE THIS UNIT, CALCULATING THE CORRESPONDING RIGHT AS FOLLOWS:

    DOCUMENTS EXAMINATION 4 DAYS OF SALARY

    FOR REGISTRATION MINIMUM ( $ 202.28 PESOS)

    INSCRIPTION OR REGISTRATION

    OF PRIVATE OR PUBLIC DOCUMENTS

    FIXED QUOTA 5 DAYS OF SALARY

    FOR ITS INSCRIPTION MINIMUM ( $ 252.85 PESOS)

    OPERATION VALUE RATE 2.5 PER THOUSAND (0.25%)

    ADDITIONAL TAX 30 % OVER RIGHTS AMOUNT


    Public registry rights1
    PUBLIC REGISTRY RIGHTS

    EXAMPLE:

    CHARTER INCORPORATION AND BYLAWS INSCRIPTION OF A S. DE R. L. DE C. V. WITH A EQUITY OF $ 3,000.00 PESOS

    DOCUMENTS EXAM: $ 202.28

    (+)

    FIXED QUOTA $ 252.85

    (+)

    RATE OVER VALUE ($ 3,000.00 X 0.25% ) $ 7.50

    (=)

    RIGHTS TOTAL $ 462.63

    (X)

    30 % ADDITIONAL TAX $ 138.79

    (=)

    TOTAL TO PAY $ 601.42


    Construction licenses rights
    CONSTRUCTION LICENSES RIGHTS

    TO BUILD, REBUILD, EXPAND OR REBUILD FARMS, AS WELL TO DEVELOP PROPERTIES LOCATED IN LOS CABOS, IS REQUIRED TO OBTAIN A CORRESPONDING CONSTRUCTION LICENSE, WHICH CAUSES AN EQUIVALENT RIGHT OF 7 PER THOUSAND (0.70%) ON THE CONSTRUCTION VALUE PLUS THE RESPECTIVE 30% OF THE ADDITIONAL TAX, ACCORDING TO THE PRICE OF THE WORKS TO BE CARRIED OUT. THE PAYMENT WILL BE DONE WHEN THE PLANS THE WORK SHOULD BE SUBJECT TO, HAVE BEEN APPROVED.


    Construction license rights
    CONSTRUCTION LICENSE RIGHTS

    EXAMPLE:

    WORK PRICE $ 15,000,000.00

    (X)

    RIGHT RATE 0.70 %

    (=)

    CONSTRUCTION LICENSE RIGHT $ 105,000.00

    (+)

    30 % ADDITIONAL TAX $ 31,500.00

    (=)

    TOTAL TO PAY $ 136,500.00



    Obligations ways of extintion
    OBLIGATIONS WAYS OF EXTINTION

    The payment. It must be on national currency

    If its paid in national territory. Abroad it can be paid

    With the currency of the place of payment.

    Compensation.

    Ways to extinguish

    The tax obligations

    Remission. It can be particular or general. The first

    Is requested by the party, the second one it operates

    automatically (arts. 39 and 74 of CFF).

    The pre-inscription. Is set within five years, as long

    as there are no mediated written management for

    collection or explicit or tacit recognition of credit.


    Tax evasion study
    TAX EVASION STUDY

    The federal authority has published that the tax evasion estimated to a national level in México in a global way is of 27.8%, though in the case of an individual with management activity is estimated that increases to 90.59% (Source. ITAM) At a state level, at the moment both local authorities, federal and state (Fiscal audit local administration and Fiscal audit office) have coordinated with the support of researches of the UNIVERSIDAD AUTONOMA DE BAJA CALIFORNIA SUR (through its interdisciplinary Research and Postgrado centers), to carry out a study about the Tax evasion in Baja California Sur.


    Tax evasion study1
    TAX EVASION STUDY

    The authorities recently in April 2007, informed they concluded the diagnosis stage detecting five activities with a high rate of evasion, being as follows:

    • Purchase of real state (societies in collective name and limited liability)

    • Renting real state (houses) and lodging

    • Time share sale

    • Staff administration (pagadoras), and

    • Tourist services and rent of boats and tourist transport.


    Tax evasion study2
    TAX EVASION STUDY

    It has been detected that these activities are made for entities, individuals and mostly residents abroad with wealth sources located in national territory, mostly in Los Cabos municipality.

    The study is estimated to be conclude next year 2008, and will have proposals to modify the laws, regulations and federal and state codes, which means, suggesting the repeal or modification of the articles that makes easier the fiscal evasion at the moment, meaning, and it will also looks to expand the verification faculties to the authority for the fiscal action, as the estimated income omitted.


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