The Mexican Congress approved on October 31st, 2013 a budget package for the 2014 fiscal year, which, in this occasion, was accompanied with a comprehensive reform regarding tax matters.
Below, we refer to the principal amendments to our tax legislation, particularly on the authorized organizations by the Tax Administration Service (“SAT”) to receive tax deductible donations.
New Income Tax Law
- New authorized activities
The activities to request the authorization as an authorized donee were expanded, in order to include some of those acknowledged under the Federal Law to Promote activities carried out by Non-Governmental Organizations (NGO Support Law). Among others, the following are included:
- Assistance Activities: Beneficiaries were redefined, including low income individuals, sectors and regions; those that carry out activities to improve the subsistence and development of indigenous communities and age, gender or disabled vulnerable groups. Besides of the activities already included in the law, the following were added:
- Supporting the development of indigenous people and communities.
- Provide care service for disabled social groups.
- Promotion of activities to improve the popular economy.
- A new paragraph was added to the NGO Support Law to include the following activities:
- The promotion of the organized participation in actions that improve their own subsistence conditions in benefit of the community and the promotions of citizen security actions.
- Supporting the defense and promotion of human rights.
- Civic activities, directed to the promotion of citizen participation in activities of public interest.
- The promotion of gender equality.
- Support in the use of natural resources, protection of the environment, flora and fauna, ecological preservation and balance as well as the promotion of a regional an community sustainable development.
- The educational, cultural, artistic, scientific and technological promotion.
- The participation in civil protection.
- Provision of services in the creation and strengthening of organizations who have as object the promotion in terms of the NGO Support Law.
- Promotion and protection of the consumer’s rights.
With these amendments, authorized activities are increased. However, it becomes necessary to wait for the authority to determine supporting documents required for each.
- Tax Deductions for legal entities
In the case that donations are made to the federal or state, or municipal governments or decentralized organizations, the deductible amount shall not exceed 4% of the taxpayers’ taxable income of the previous fiscal year, maintaining the 7% limit for all donations made during such fiscal year.
What is being sought with such measure is to promote gifts or donations to SAT authorized charitable institutions, associations and non-profit civil entities.
Furthermore, the new Income Tax Law provides that when a donation is made among related parties, the donee shall not contract with the related party to render services, or sell or lease goods.
Otherwise, the donor shall deem the amount of the deduction made, to be treated as income for income tax purposes, adjusted as from the date on which the deduction was made and until accrual takes place.
In the case of gifts made to educational institutions authorized to receive donations, these shall be deductible as long as such institutions are public or, if private schools or other institutions, these are authorized or with certified studies, and further the gifts are destined for the acquisition of investment assets, to scientific research or technology development, as well as to management expenses, to the extent allowed, and these are not onerous or remunerative donations, and provided that such institutions have not distributed any patrimony in the previous five years.
Assets that are not susceptible of sale under specific legislation may not be gifted, nor those for which a specific use is expressly established for them.
Unfortunately, the inequality continues with regard to taxpayers who have suffered a tax loss, considering they will still be unable to deduct donations.
- Non-profit entities
Entities or civil associations dedicated to education shall not be deemed as taxpayers, as long as their studies are officially authorized or certified, and they further obtain the authorization to receive tax deductible donations. In this instance, tax authorities shall have greater control regarding the kind of revenues obtained.
Some non-profit legal entities are allowed to perform activities destined to influence in the legislative process, as long as such activities are not compensated and they are not performed on behalf of persons or sectors which have been granted donations and they provide tax authorities with the information specified under the law.
- Personal deductions
Personal tax deductions for charitable gifts are limited to the lower of approximately MXN$95,000.00) or 10% of the individual’s income.