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Mexican Withholding Tax on Upwork Earnings

rayfreelance
Active Member
Raymundo L Member Since: Apr 18, 2019
61 of 98

Hi Mirka

 

All my clients have been from the US and a couple from Europe, I have been paying my taxes as (persona física con actividad empreseral) because I have been providing technical services export. In this case, the article 29 applies by law and I have never been required to generate an invoice with vat retention.

 

The new law required Up to register with SAT, despite it is a tech platform where only 1 party is resident in México (the once who provides the service) and the one who hires the service is in another country, this means we must start generating invoices, not for Up fees, but for total income even before deducting Up fees.

For SAT, we stop being "persona física con actividad empresarial/profesial" to become a person who provides services via a tech platform for a company registered in SAT, from now on we must generate an invoice which means 16% VAT + ISR 
From my understanding Up can retain 8% or 16% VAT, but in the end, we will be forced with 16% VAT depending on provisional or definitive monthly declarations.

kochubei_valeria
Community Manager
Valeria K Community Manager Member Since: Mar 6, 2014
62 of 98

Hi Mirka and others,

 

Thanks for reaching out. Please note that when Upwork implements VAT (IVA in Mexico), it will be  assessed on the digital services provided by Upwork (i.e. service fees, membership fees, and Connects purchases), not on earnings. 

~ Valeria
Untitled
ms62979
Active Member
Mirka S Member Since: Feb 25, 2021
63 of 98

Thank you Valeri, That makes more sence, it will be relatively small amount then, just like ppl working via Upwork do in some another countries (Y)

rayfreelance
Active Member
Raymundo L Member Since: Apr 18, 2019
64 of 98

Hi Up team,
This is what I need from you.

  • Razón Social (legal name subscribed on SAT)
  • Clave RFC
  • I need to receive by email a CFDI on a monthly basis for the retention that you should make (1% ISR + 8% VAT I already registered my RFC on my account)  for my total income including the Up fee.

Please provide the mentioned details asap, we need to do an update with SAT and a penalty could apply if we don't do it in time and manner.

For all the Mexicans in Up, you will find all the details that you need to know here 
http://omawww.sat.gob.mx/plataformastecnologicas/Paginas/PersonasFisicas/personasfisicas_inicio.html 

 

A change in the activity is needed to CLAVE 2411 we are providing a service through the internet on a digital/technological platform.

Thanks,

webforefront
Active Member
Daniel R Member Since: Jul 29, 2017
65 of 98

Hi Raymundo & Upwork, 

     Raymundo, have you gotten or found any of the tax information you're requesting from Upwork ?  

      I also spoke to an accountant and he mentioned I can't do much without Upwork's RFC, this is needed to add/update this new activity to receive income via tech platforms. 

      He emphasized that since the end clients (beneficiaries) for our services are not in Mexico (unless we work for Mexican clients on Upwork), this whole process of retaining income tax, applying VAT/IVA to services and Upwork applying for an RFC is a complete boondoggle.  Mentinoing that Upwork is not like Uber, AirBnB, Amazon and other platforms that broker services between two mexican parties, which are the only financial transactions applicable to this new legislation.

       Upwork, it's awful that there has been no due dilligience to applying these changes that take effect two weeks.
         .- Upwork, where is the official information about Upwork's RFC ?
         .- Upwork, what will be the monthly reporting (facturacion) strategy ? will you generate an official invoice (with both parties RFC ) ? Do we need to generate it for you ?  
          .- Upwork, this fixed 1% Upwork retention you describe is not what the law says, it's not flat, there's a retention tier based on income level.
          .- Upwork, what will you do about the VAT/IVA percentage for services ? You mention in your statement " We are currently working to determine which transactions are subject to VAT collection. " really ? currently ? and this will take effect in two weeks ?
           .- Upwork, what is your local & address in Mexico ? so I can forward all legal request in writing on all matters, in case there's a problem with these legally binding operations you're about to enforce as a company operating in Mexico. 

         Upwork we need clear and upfront information about all these matters. Saying " We cannot provide tax advice" is not sufficient, you will be withholding taxes on activities that are not even subject to this law, on top of which, you're not forthcoming with all the required information by law to start performing these withholdings.

rayfreelance
Active Member
Raymundo L Member Since: Apr 18, 2019
66 of 98

Hi Daniel,
No, I haven't received Up RFC

My accountant explained to me that there are 2 cases for Up retention (we can "decide" between them at the moment that we register the "change in activity" with SAT)

  • Temporary Retention  >> if your annual income is above 300k you must choose this option, you will have to make a monthly declaration (ISR + VAT) + annual declaration, the taxes will be significative higher in this case, apparently, you will be allowed to deduct VAT from all the invoices that you receive that have a direct relation with providing the service.   
  • Definitive Retention >> if your income is below 300K this is the best option by far, because Up will retain apparently 1% ISR + 8%VAT and that's it, you don't need to do anything else.

To make it clear, we must do the change on activity and we need to declare which platform(s) is the intermediate and link Up RFC. When we do this, we must specify if Up retention is temporary or definitive based on annual income.

 

Since Up is intermediate and will have an RFC, the invoice that we will generate (if we select temporary retention) will be with Up legal name and RFC (it doesn't matter if you are hired by a Mexican or foreign client) if you select definitive retention you won't make an invoice but Up will retain 1% ISR + 8% VAT

You can declare more than 1 activity, in my case I will have two: "person with professional activity" (persona física con actividad empresarial profesional) >> no need to generate an invoice when clients are from countries different than México and I'll also declare that I'm providing a service through a digital platform.

I hope this helps ☝
persona física 
retention based on income 
new clave/taxes 

webforefront
Active Member
Daniel R Member Since: Jul 29, 2017
67 of 98

Hi Raymundo, 

     Thanks for the reply. Yes, this lines up exactly with what I was also told by an accountant. What's worriesomme is the lack of information from Upwork, everything is 'apparently', 'we're investigating', all they're clear on is they will begin withholding income (& don't know if VAT/IVA applies -- yes it does if they withold and have an RFC ) and keep on charging their commision/fee for all work.

     In my case, I will need to go for the Temporary retention and I also two activities. But the first problem is, I can't do this without Upwork's RFC. Once I get that, then comes the invoice issues. My client (the one I do the work for) doesn't require an official invoice (factura), but now that Upwork will withhold taxes, by implication it will inform SAT about the total monthly income, then I'm going to be liable for taxes on whole income (VAT/IVA 16% + ISR 34% !! + Upwork fees) when before VAT/IVA didn't apply  and ISR was a minimum rate because it was a service export. Talk about a shave or needing to adjust rates to stay afloat. With SAT knowing total income, someone will get penalized for the lack of an official invoice (factura), the accountant told me that by Upwok doing the withoholding (retencion) the onus is on Upwork to make a monthly official invoice (factura), but they aren't clear they will do this, just that they will withold, either way, SAT will know the total income.

      It also isn't clear there will be an official invoice (factura) for the fees Upwork charges every week, they need to emit an official invoice (factura) so we can deduct that as an business expense, with the corresponding IVA/VAT (plus that will also make them liable for ISR, but that's their problem) 

      And don't let me get started with the withholdigs (retenciones) for ISR or IVA/VAT, as there is absolutly no guarantee that those payments will be made to SAT in the end. I've already had bad experiences with local companies (S.A. de C.V.s) that have withheld income and that when you go to claim these benefits on your annual declaration, they 'bounce' (like a bad check) and you get a notification that because the counter-party(S.A de C.V.s)  hasn't payed the retenciones yet, you're on the hook until it's 'resolved'! That's why I want to ensure where the Upwork local mexican offices are/will be located.

       I'm still astonished Upwork plans on inflicting this kind of burden and paperwork when it doesn't even apply to them given the type of platform they are, enabling business between international clients (not two mexican parties). The only winners in all of these are the coyotes that are forcing Upwork management team to register as a mexican company and be held liable for all the countless formalities, fees and expenses, taking us along for the ride into the unknown.

rayfreelance
Active Member
Raymundo L Member Since: Apr 18, 2019
68 of 98

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
Active Member
Daniel R Member Since: Jul 29, 2017
69 of 98

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

rayfreelance
Active Member
Raymundo L Member Since: Apr 18, 2019
70 of 98

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