RFC Requirements- Myth vs Reality
Updated: 3 days ago
Unfortunately, much misinformation has been circulated recently regarding the need for "everyone" to have an RFC by July 01, this has now been extended to next year. What is an RFC, it is a Mexico tax ID number. If you have economic activities in Mexico, rent a condo, sell a condo, buy a car, have a job etc - then you need one. If you just live here, you don't. PLEASE NOTE: Yes an RFC is required to buy real estate, but the notary will generate a generic RFC for you if you do not have one. Having your own specific RFC is much more important when selling. If you have an RFC AND are a resident, you may be able to claim a capital gains tax exemption when selling your house or condo.
Let's debunk some misinformation first:
If you have a temporary or permanent residency you do not have to get an RFC
If you do not have an RFC your electricity will not be interrupted and/or you can still get a new account
If you have an RFC and you have registered it with the utility company, you will need to update your Constancia de situación fiscal with that provider
If you are buying a car from a dealership, you WILL need an RFC.
Most foreigners living in Mexico fall into four basic categories. Tourists who are here on vacation, folks who are living in Mexico but are on tourist cards (a practice that is being monitored and put to an end by the government), folks who are on temporary visas, and folks who are here on permanent residency visas.
I have had quite a few clients and numerous friends who own property here or regularly spend up to 6 months of the year here who do not have residency visas. Unfortunately for them, they will eventually be facing the unpleasant experience of being granted a short stay on their tourist card as the automatic 180 day period is not so "automatic" any more. The discussion below does not pertain to these folks since in order to get or need an RFC, you must have residency.
The fact that a foreigner is a resident because Immigration granted them residency does not automatically make them tax residents, it basically means that they are allowed to be in the country for more than 180 days per year. The Federal Tax Code states that an individual can be considered a resident for tax purposes when their residence (referring to houses, condos, RVs, etc.) is in Mexico. If, however they also have a place in another country, then what determines tax residency is the center of vital interests which is defined as the place where someone gets more than 50% of their income. The vast majority of expats also have a place abroad and do not have any Mexican-sourced income or, if they do, it is less than 50% of their total income. If they do have Mexican-sourced income, then they need to pay income tax to Mexico on that income alone because they are not considered to be Mexico tax residents.
Sounds pretty simple, you have a home in Canada or the USA, and you own a condo in Mexico which you rent out, you need to pay income tax on that rental income. In fact the major digital platforms are already collecting that tax for you and paying the government for you. They are doing this at the maximum tax rate.
Most foreigners obtain their residency by showing economic solvency, which means they prove they have no need to earn income in the country. When you start any type of business activity in Mexico, including renting your condo, you must apply for permission to work. As a temporary resident you do not have automatic permission to work, If you have a permanent resident visa, you already have this permission.
In the case of a temp resident, in order to obtain this permission, the first step is to obtain your RFC registration stating the work activity you will be engaged in (condo rental, hair salon, tour operator etc). This used to be really easy back when the RFC registration process was done online; since that changed, the main challenge has been that some SAT offices, such as the Puerto Vallarta office, have a criteria of not accepting temporary resident cards with no permission to work as a valid ID. There is a way to work around this and you will need a professional to help you with this. Click here to contact Equilibrium Accounting, they are experts in this field.
If you are a permanent resident you already have permission to work, why would bother with the RFC? There are numerous reasons but one of the most compelling is taxation. Everyone wants to maximize their return on investment and nobody likes paying taxes at the highest possible rates, so how can you minimize these taxes? The best way is to utilize deductions. In the USA and Canada, receipts are sufficient to show expenses. Mexico has taken receipts to a higher level by having vendors or service providers issue a receipt that is specific to only you - this is called a FACTURA. It prevents random fake receipts from being used as deductions. In order for a receipt (factura) to be issued to you, you need a tax number. That tax number is your RFC.
You own a condo in Mexico, and you need a new bathroom vanity, sinks, shower and a fancy toilet to make your condo more rentable. A sizable investment in your small Airbnb business that you would like to deduct from your taxes. After making your purchase the cashier hands you a receipt, you take that receipt to a special kiosk located by the exit and you will enter your RFC number. The store will now issue you a factura. You now have a tax deductible receipt that is associated specifically to you.
As mentioned above, Airbnb is withholding the max amount of income tax from your earnings, however if you can provide them with a tax ID number = RFC, then they will withhold substantially less. You will still need to file a tax return, but now you can utilize that factura from Home Depot as a deduction. You can also register your RFC with the utility companies, electricity and internet companies will now also issue you facturas and you can use those bills as deductions as well. When you sell your home, having the RFC registered with the utility company will give you around $250,000 USD worth of deductions off of your capital gains tax. There are a number of other strategies that you can use to minimize your taxes here in Mexico and the best way to do so is to consult with the professionals at Equilibrium. Click here.
July 1st deadline, what is it?
Your RFC includes quite a bit of detailed information about you, including your zip code as well as your fiscal status. Your fiscal status or fiscal "regime" is simply a system that the government uses to categorize you for tax purposes. (Your accountant can help you determine the best category for you to minimize your tax burden.) On July 01 a new software version of producing facturas (personalized receipts) goes into effect. This new version includes your zip code and fiscal status.
This new software, version 4.0 of CFDIs, will include a new field for the recipient’s fiscal regime and will also make the zip code field mandatory. These two new fields, along with the name field will be automatically validated by SAT’s servers, which means that a factura will not be issued unless these three fields match SAT’s information on the recipient exactly. This is the reason why vendors and suppliers have been asking their clients to provide them with a Constancia de situación fiscal.
A Constancia de situación fiscal (fiscal status or regime) is an RFC certificate that includes the taxpayer’s general information as well as information on their tax regime and tax obligations on the date it was issued. Because the tax regime and address can change if the taxpayer needs to change them, vendors and suppliers request updated versions of the constancia, which simply translates into recently issued constancias.
If you have an RFC, your up to date Constancia de situación fiscal can be downloaded from SAT’s website with just the RFC number and password here.
When you download this document it is dated and it has a digital signature that guarantees its authenticity. You can also obtain yours by showing up to SAT with a valid ID. This is the reason behind the long lines outside the SAT office every day. It is mostly employees who now need to show their employers their constancia so the employer can issue electronic pay slips.
If you already have an RFC number and have registered it with utility companies such as CFE, Telmex, Izzi, etc., you should already have received a request from them to update your tax information so they can continue to issue facturas with your RFC number after July 1st. Keep in mind, the electric bill you get is not just a bill it is a factura, and the utility company cannot generate one unless your updated information has been provided.
You will need to update your constancia de situacion with the electrical/utility company IF your RFC is associated with your account.
If your utilities are in your name but you do not have an RFC number, all utility companies have been and will continue to issue facturas using the generic RFC number for the general public (XAXX010101000), as these companies do not normally use the generic RFC number for foreigners (XEXX010101000) by default like some banks, such as Intercam, do. You can verify this on your bills/bank statements.
If you are a new home owner and want to put utilities in your name and do not have an RFC number, they will simply use the generic RFC number. If you do have an RFC number, they will ask that you provide them with a Constancia de sitaución fiscal so they can make sure the information they input into their systems matches SAT’s. It is important to clarify that all banks and utility companies have been requesting constancias for a few years, it just became more important with CFDI 4.0 because, as explained above, if the name, zip code, and tax regime do not match SAT’s file on the recipient, the factura will not be issued as SAT’s servers will automatically reject it.
If you have further questions on taxes and RFC registrations, you can send an email to email@example.com; if you want to book a call, you can do so here. If you have questions on Immigration matters, you can contact Lic. María Lazareno at firstname.lastname@example.org
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