Thursday, August 14, 2008

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.


Theresa in Mèrida said...

I am so glad that I don't have a business here. Of course, the whole anti-business thing is just backwards. It is such a labyrinth of archaic senseless rules. The entire system from the difficulty of acquiring a business license to the tax system just stun me.

William Lawson said...

and there's so much MORE! Thanks Theresa for stopping by!

mcm said...

Very interesting. And now, can you explain how the business owner deals with the new withholding tax on cash deposits over 20K pesos (or 25 -- whatever)? Is there a place on the monthly, or quarterly, or annual income tax return to indicate that this has been "collected" by the bank? Or what?
Inquiring minds...

This new regulation may explain the requirement that those foreign property owners whose property is held through a real estate fideicomiso must now pay the yearly fee (some 5K MXP) by (Mexican) check, or by credit card -- no more cash.

William Lawson said...

Hey nice of you to pop in also. Isn't it fun, all this taxation stuff? Especially when you see so many people not paying a centavo! I do not file my business tax returns (my accountant does) and so do not know where that particular item is located on the declaration. And yes it's very possible that that is why foreigners must pay with a cheque or CC.

William Lawson said...

MCM - Just received my bank statement and the tax withheld is indicated there. You give this statement to your astute accountant and he applies it whereever it's applied on the declaration.