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Mexican Withholding Tax on Upwork Earnings

lenaellis
Community Member

[Updated March 2023] We would like to update you that we are working with our vendor to have the CFDIs sent out automatically. We hope that this will be functional within the next 2 months and will allow us to provide CFDIs to our Mexican freelancers on a monthly basis. We are continuing to send out any remaining CFDIs that have not been sent out for the last quarter of 2022 as we are aware of the income tax return due date of April 30. We appreciate your continued patience.

 

 

[Updated June 2022] We apologize for the current situation in which CFDIs have not been able to be fully provided  under your name. We are in the process of digitally stamping the CFDIs and we have increased our efforts during the month of June 2022 in order to be able to finalize additional processes and send you the pending documentation as soon as possible.

It is important to mention that any sanction that the tax authority could impose for the non-issuance of a receipt for withholding and payment will not fall on the recipients (i.e. users of the Upwork platform). We understand that at this time you have not been able to prove the calculation of withholdings on your taxes, however, we will notify you as soon as the receipts are issued so that the withholdings may be used by you.

 

[Updated April 2022] We thank you for your patience. As of today, we are able to issue CFDIs for most of the transactions in Mexico and have begun processing all calendar year 2021 transactions. We will email your CFDIs in the coming weeks, but if you need to request that we expedite the process, please submit your request to support@upwork.com and we will send you your CFDIs as soon as we can. 

 

The email with your CFDIs will come from Reachcore (servicioalcliente@reachcore.com). Please add this email to your safe sender list to avoid this email being filtered as spam. The  subject of the email will be “Envío de comprobante fiscal”. In some cases, the email will come from tax@upwork.com.

 

We thank you again for your patience and please do not hesitate to reach out to us if you have any questions.

 

[Updated February 2022] We would like to take this opportunity to update you on the latest status of issuing CFDIs in Mexico. As you are aware, Upwork began income withholding in 2021. However, there was a delay in our registration process due to the complexities of a non-resident entity obtaining tax registration in Mexico. That being said, we successfully registered for tax registration in Mexico at the end of 2021. 

 

Now that we’re registered, we've worked tirelessly to issue CFDIs for income withholding that we have made. We were in discussion with one "Proveedores Autorizados de Certificación" (PAC) vendor, but due to the vendor's inability to meet our high data protection requirements, we made a difficult decision to move in a different direction. As much as we want to issue CFDIs ASAP, our user's data privacy is our primary priority and therefore we want to work with the right vendor who maintains high standards of securing our users’ data. A few weeks ago, we entered into a contract with a different PAC vendor and we are currently working through testing of our integrations. Once completed, we hope to issue the CFDIs shortly thereafter.

 

We are aware of the income tax return due date of April 30th, and we will provide an additional update as soon as we have a clear timeline of delivering CFDIs to you. We are working tirelessly to get this done within a reasonable timeframe, and appreciate your continued patience. 



 

[Original Product Release] Upwork has begun withholding income tax from payments to freelancers and agencies based in Mexico as part of the tax law enforced by the Mexican government which became effective June 1, 2020 and was modified effective January 1, 2021 (the Resolución Miscelánea Fiscal). This law requires businesses like us to collect income tax on the earnings of service providers who are based in Mexico, such as freelancers and agencies who use Upwork.

 

As part of our continued efforts to remain compliant with tax laws in Mexico, we are asking that freelancers and agencies based in Mexico provide their Clave en el Registro Federal de Contribuyentes, Income Tax Identification number (RFC) in their Tax Infosection under “Settings”

 

By providing a valid RFC number you are subject to significantly lower tax withholding.

  • If you provide a valid RFC number we will withhold 1% of all your Upwork earnings, starting with all payments made on or after April 6, 2021. 

 

  • If you don’t provide a valid RFC number we will withhold 20% of all your Upwork earnings, starting with all payments made on or after April 6, 2021. 

 

This withholding is required by Mexican law and all funds withheld will be passed to the Mexican government. You will be able to claim a tax credit or refund from the Mexican government should you pay more taxes than required.  


We also want to give you a heads up that the same legislation included adding a Valued Added Tax (VAT) on digital services. Upwork is required to collect VAT on its fees charged to users in Mexico. We have begun configuring our system to be able to collect VAT, and we will let you know when we have a target date to start collection. 

 

For additional information see our Help center article and for questions about withholdings and how this applies to you, we suggest you contact a trusted tax advisor. We cannot provide tax advice.

307 Comments
rayfreelance
Community Member

Hey Daniel,
It looks that we're exactly in the same case, I'll go to temporary retention even my income in Up is below 300k (I do have direct contracts with clients that don't use Up services) 

The key here is to declare 2 activities for your total income, talk with your accountant about this, I hope you get what this means.

I currently pay 15-17% ISR, the VAT for providing a service via a digital platform is 8%, not 16%,
The best scenario for us is Up retains 1% ISR and 8% Vat in addition to the ISR that we declare on a monthly basis, my suggestion is to use the 2 activities with SAT and we will pay 9% more taxes than we currently do.  If you only declare 1 activity and your income is above 300K the taxes that you will pay will skyrocket to infinite, because ISR and VAT both will be higher 

webforefront
Community Member

Hi Raymundo, 

               Yes, I'm in the 'taxes will skyrocket to infinite' basket. I understand what you describe, the only thing that's different from what I was told is the VAT/IVA, it's still 16% no matter if you're in the under or over 300K regime, the only difference is 8% is withheld by the client and you're on the hook for the remaining 8% (which you may be able to 'compensante' with your expenses, but you're still liable for 16% either way). This is the same scheme when performing services to personas morales (S.A. de C.V or other) in Mexico, where they withhold taxes that they use for cashflow and sometimes don't even end up paying, albeit they're taxes 'in your favor',you won't know if they payed or not until you claim them at the declaracion anual. 

               On the ISR front it's a mixed bag I agree, the only way to escape this is to be in the under 300K regime so that the 1% ISR withheld by the client is considered final. If you're over that, it's actually even a rolling window for withholding that needs to be made -- up to 5-6% iirc -- although Upwork hasn't even mentioned this, they assume everyone will be under the 300K regime. If you're over 300K, that's when ISR skyrockets from a final definitive 1% (under 300K) to double digits, so you're better off earning less than 300K than say 400k or 500k, because the different will be gobbled up in the final ISR calculation. 

                 Best case scenario all us will pay 17% more in taxes (16% IVA, 1% ISR), all compensatable of course, but every new compensation/deduction, adds risk to an audit. Worst scenario 50% more! (16% IVA, 34% ISR cap). All of this after the 20%, 15%, 5% fees from Upwork.

             So yeah, everyone from Mexico on Upwork will be working hard so the bulk of their income goes to the mexican government and Upwork, congrats to all! It's better to become a nini

kochubei_valeria
Community Member

Hi Daniel, Raymundo and Jose,

 

Upwork is in the process of getting registered in Mexico with SAT. We'll share an update and provide Upwork's RFC number as soon as it becomes available.

 

Thank you for your patience.

webforefront
Community Member

Hi Valeria, 

         Thanks for the information. 


         The problem I'm still seeing is when you say: " We'll share an update and provide Upwork's RFC number as soon as it becomes available"

          This is what isn't right or legal in Mexico, you can't withhold taxes if you don't have an RFC already, why are you planning on withholding taxes starting in 2 weeks, when Upwork still doesn't have an RFC ? 
           Upwork's RFC is needed so that we (freelancers) can also inform the government who will be withholding our money.

rayfreelance
Community Member

Hey Daniel,
I completely agree with you.

The key is to make whatever adjustment you need to do to declare less than 300K on the activity providing a service via a tech platform, the rest will be declared as "person with professional activity"(persona física con actividad empresarial/profesional) and here is when it applies rate because it was a service export and the benefit about no need to create an invoice!

If you're being hired by S.A de CV or any other entity that does declare on SAT I don't think there's much to do.
This is so bad, we will be paying more taxes than a manager making 100k monthly for a company registered in México, what Up never understood, is why the new law is supposed to apply when both parties (client and the one who provides the service) are registered with SAT.  They kill us not allowing us to declare a service export to companies outside México.

 Up should cooperate with SAT and terminate any account that doesn't have an RFC, withholding 1% is not bad, but they don't seem to understand or care about how this is damaging us! and they're just saying yes to everything no questions asked.

This is not a digital platform that provides a "luxury" this is not a tech platform providing services with both parties registered with SAT this is so stupid.

Yes, Up thinks that all the freelancers in México are making less than 300k in a year.

And yes, forget about making any deduction, or requesting VAT return in the annual declaration forget about 1% ISR Up retention, if you claim the return of any of them this will raise a red flag with SAT

rayfreelance
Community Member
Thanks Valeria,
In addition to Up RFC, we will need the legal company name that Up registers with SAT.

We will need to receive a CFDI on monthly basis, related to how much Up retains to us (for those freelancers that will declare Up is marking a partial retention)

Please forward my comment to the right person.

Thanks
lucioric
Community Member

Rught that the government is seeking us for taxes, but as we have obbligations, we should have it easy to have the right to have a social security acount where we give a part for retirement. Don't you think, Mexico-based freelancers?. With obbligations should come also rights.

ms62979
Community Member

About the IVA part:

 

I have been in direct communication with SAT and PRODECO,

 

and answer about IVA is very clear: if I work via upwork (when UPWORK has RFC in Mexico) platform and the services I provide (for example translation) are needed (aprovechado) out side of Mexico (for example in United Stated or Europe), the IVA is 0%, NOT 8%. In my case the work I do via UPWORK is clearly used/ utilized outside of Mexico, it doesnt have any use inside Mexico. 

 

HERE BELOW THE ANSWER OF PRODECO AND LAWS IT IS BASED ON (SAT says the same): 

 

  • en su caso si seria a tasa de 0%, de conformidad con el artículo 29 de la LIVA (el servicio realizado se aprovecha en el extranjero)

ARTÍCULO 29: OPERACIONES QUE SE CONSIDERAN EXPORTACIÓN DE BIENES O SERVICIOS

Las empresas residentes en el país calcularán el impuesto aplicando la tasa del 0% al valor de la enajenación de bienes o prestación de servicios, cuando unos u otros se exporten.

 

I strongly recommend UPWORK will check this law carefully. 8% IVA should be applied to work which results are used IN Mexico, if service is EXPORTED, IVA is 0%. UPWORK is just a platform, I´m NOT providing service TO UPWORK MEXICO, BUT for the various clients OUTSIDE of Mexico. 

 

BR,

Mirka

 

ms62979
Community Member

so in the light of this, the announcement I got  from UPWORK today is a bit strange:

 

We also want to let you know the same legislation included adding a Valued Added Tax (VAT) on digital services. Upwork is required to collect VAT on its fees charged to users in Mexico. We have begun configuring our system to be able to collect VAT, and we will let you know when we have a target date to start collection.

webforefront
Community Member

Mirka, 

        I just got the same emai and at this point it's just pointless to argue with Upwork, they don't care. They're moving forward and being advised as if they were a platform like Uber, AirBnb and others that broker services between two Mexican parties. 

        I also consulted with a tax specialist and they told me the same thing about VAT/IVA, that it doesn't apply because the end customer is not in Mexico. However, this same accountant was pretty clear on one thing, that if Upwork starts withholding you income tax (ISR) it automatically means it's a Mexican company and by implication VAT/IVA will apply.  

        This whole change is flawed from the outset, this law doesn't apply to Upwork and Mexican freelancers, unless Upwork brokers services between a Mexican company/person and a Mexican freelancer (like Uber, Airbnb), but again, they don't care and whoever is advising them will reap the benefits in consulting fees and extra paperwork. 

       The details on the VAT/IVA are still scant, but I'll tell you what my local accounant said -- which has been prescient about how all this would pan out if Upwork went the way of Uber, AirBnb and the rest of 'tech platforms'.  They will start to withold 8% VAT/IVA and you'll need to pay the remaining 8% on your monthly statements.

         Who will crate the invoice (factura) to do this is still unclear, but it will be the same treatment as Uber drivers and AirBnb hosts, your whole income will be subject to 16% VAT/IVA + the whole Income tax(ISR) depending on your bracket, Upwork will just do deed of witholding you 8% VAT/IVA and 1% ISR for the gov and let you deal with the rest of the fallout locally  (good look arguing with SAT your services are an export not liable to VAT/IVA when Upwork has an RFC)