All worthy entrepreneur know that human capital within an organization is a determining factor to identify, if one company will remain in the future or simple disappear. We are sure that human capital can certainly “completely destroy or build up an organization.”
In this post, we will analyze the ways in which medium and large companies doing business in México, chose to compensate their employees for tax planning purposes.
1. Fees similar to wages
Let’s be honest, until a couple years ago in the country, a large part of the labor force was paid in this way (which is still in force and exists in the Mexican Income Tax Law).
It was simply a mechanism by which, the real employer of the workers, usually transfer them to a “simulated structure” or to other companies, then, the labor force were registered with one or two minimum wages before the tax authorities in such “structures”. The differential payment of the employee’s payroll, was given by a company called “payer company” under the concept “Fees similar to wages” to avoid taxes.
All this changed in México with the new entry of the new government administration; this last one put a lot of pressure to all those who used it illegally and illegitimately; this mechanism were used for the stockholders to collect their dividends under the same route. Many accountants and tax lawyers came to call it “tax planning”.
Of course, after certain years in Mexico, many businesspersons began to abuse of this figure. The SAT, for its part, detected it and called many taxpayers to give answers; the case became so big in the country, that there was a “special list” of people that just few of us known who earned exorbitant amounts under the vehicle “fees similar to wages”.
Then, what was the big problem if this mechanism was legit? The answer is simple; in general, there were two reasons:
- All was the product of a big fraud and
- The aforementioned “fees similar to wages” that were paid to the employees even though an income tax was withheld in their payroll receipt (as a fiscal simulation), this amount of tax was reported but never handed over to the SAT.
2. Productivity payments through an A.C. entity
This mechanism is relatively simple. An A. C. entity is constituted, its regular income comes from your “real operating company”, once the A. C. entity has funds, workers are paid under a concept known as “productivity”, which, according to some accounting firms, this concept does not cause any withholding income tax or is subject to social security payments (such as IMSS, SAR, Infonavit).
3. Trade Unions
This we would dare to say, that is one of the most respected figures by authority today and that has existed for quite some time. It is about giving “payroll supplements” and not “salaries” to the workers of an organization, under the argument that the payments made by unions to their “members” are not subject to the Income Tax nor social security.
Generally, the SAT does not investigate too much in this type of figures, since the unions in Mexico are pretty respected, even more so those that have been constituted for a long time. In addition, unions are used as vehicles to pay people who do not have a high level of salary, which is usually the bulk of the workforce.
4. Balanced – with social welfare
Some companies in the country do something simply; this is, have a balanced tax burden and play with the exempt concepts 100% valid in Law, such as, for example: medical expenses insurance, life insurance, food vouchers, savings funds, etc.
The problem presented with this strategy, is that, when you as an employer pay under these concepts, it is considered for the income tax purpose such as “social welfare”, then the SAT punishes you by only being able to deduct practically only half of these payments.
Undoubtedly, there are many other ideas in the market nowadays, such as, for example, the famous “payments through cooperatives”, whoever continues to use this figure is stuck in the 80’s. Before any of the above ideas are implement, a tax expert must evaluate them.
As a business owner, do you know which of these strategies are the most effective today and right for your industry? Do you know which are those “social welfare expenses” 100% deductible? Do you have all the valid arguments to implementing them? Do you know the exceptions?
