Thursday, August 14, 2008

And if you thought that last post was fun...

Here's another one!

When filing your business's annual tax declaration, you make out the onerous paperwork - well, your accountant does because the Mexican tax system is so complicated that it is virtually impossible for anyone to understand what the hell it is you are supposed to actually put in the scores of little boxes and what to deduct or declare - and you file it, paying at the bank via internet since Mexico is such a modern country. Once you have paid and received/printed your receipt, and have verified that your money has been removed from your bank account in order to help promote a comfortable lifestyle for Mexican politicians once they have retired and live in France, you think you are done right? Wrong.

It turns out that there is a little-known and never-used (up till now) in the marvelous taxation laws of this advanced democracy that states that besides filing your declaration and paying, you have to (or your accountant has to) LET HACIENDA KNOW THAT YOU HAVE PAID by means of an official letter or notification. Failure to do this will result in a $50,000.00 peso fine! Can you believe this? You pay and they already have your money, but since you didn't tell them you paid, you automatically get slapped with a fat fine which will presumably cover the cost of Mr. Carstens weekly lunch bill.

This is nothing less than outright highway robbery and a wonderful incentive for investors to come to Mexico to subject themselves to this abuse. Perhaps the Mexican government should consider promoting the country to the International Masochist Businessmens Association, whose members might enjoy this kind of pain.

I am not making this up. I have first-hand knowledge of such a case right now. The accountant alleges that while it is technically his fault because he is supposed to be watching his clients' back, he prefers to fight the fine legally (with the clients money of course).

Meanwhile, for your enjoyment, I will add (in a little while) a photo of Mr. Carstens, Mexico's Minister of All Things Taxable and believe me, he needs the money.

More on the $2000 Peso Rule for Small Business Owners

This note is of interest for those considering coming to Mexico and starting a small (or large) business...

In their infinite and constantly increasing wisdom, the powers that be at the Secretaria de Hacienda y Planeacion (SHCP) known simply as 'Hacienda' established a rule that said you can not declare as a legitimate expense any expense that reaches or exceeds $2000 pesos if you paid for it in cash. This ingenious little rule will somehow make the country less prone to tax evasion and help the 30% of Mexico that pays taxes pay more taxes either directly or in fines and therefore support the other 70% that pays no taxes whatsoever.

Let's say you are buying something in Costco and the bill comes to $1999.99. That's OK, you can pay in cash. But if it comes to $2000.01 then you must pay with a company check.

There are a couple of ways around this little rule, none of them particularly illegal (check with your accountant though, don't take my neurotic word for it):
  • Let's say you have $7000 pesos worth of goods you have bought for your business. You ask the cashier, or the person who is making up your invoice, to split the purchase into several separate purchases with each invoice totaling less than the $2000 peso total. This way you can pay for them in cash (petty cash) and then issue a check later for reposition of petty cash. This helps because if you want to pay by check in some of these places, it's a pain in the butt since you will need to have extra paperwork done in the case of Sam's Club or Costco, for example.
  • The other way is to pay your $7000 in cash; then make the check, and it's accompanying poliza* out separately. Make the check out to yourself, but on the poliza make it look like the check was paid to the company in question.
This 'petty cash' rule is one of the rules that business owners must abide by and that make doing business in Mexico such a downright pleasure, especially when you see so many people not paying any taxes at all; it makes you feel proud to be part of that select group that pays for all the rest of the population.

The poliza is the copy of the check that must accompany each and every check in your accounting records and contains all the information on the check. It's usually green which is another bit of completely useless information.

Wednesday, August 13, 2008

CFE Makes Your Life Easier Again - NOT

The CFE (Comision Federal de Electricidad) whose slogan is "for the progress of Mexico" is once again asking that any payments made on your electric bill by check be made with a certified check.

This provision was relaxed a while back and one could pay their electric bill either with cash or a check (not certified). A few days ago I sent an employee to pay the business' electric bill which came to a whopping $8000 pesos for the 2 month billing period and the employee returned saying that the check had to be certified. This was news to me since that particularly onerous provision had been waived. No, the CFE person told my employee, and it was right there on the sign, didn't you read it?

For those of you unfamiliar with the burocratic processes that maintain this country firmly and irrevocably in the 'third world' category, the Mexican version of the IRS, Hacienda, insists that any payment made in a business environment to a supplier that is at or over the $2000 peso amount must be made by check. Since the CFE bill was well over that amount, a check must be used. But the CFE insists that a check is no good unless it has been certified by the bank that issued the check, which means you incur an additional charge (for the certification) to be able to pay your electric bill. No other supplier does this, but the CFE is the only game in town when it comes to powering your electric equipment, lights and air conditioning so they can (and do) pretty much whatever the hell they want.

So a special salute to all my friends at the CFE and the Secretaria de Hacienda y Credito Publico: a big Thank You for making life so much simpler for the small business owner!

I hope you all rot in hell.