2019, Number 3
Taxation for dentists in Mexico
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Language: English/Spanish [Versión en español]
References: 9
Page: 120-124
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ABSTRACT
According to Mexico's Constitution, all Mexicans have the obligation to contribute to public expenditure through the payment of taxes, proportionally and equitably to the income of each individual according to his/her professional activity. Dentists perform a very specific professional activity and have to comply punctually with their tax obligations, such as registering at the Tax Administration Service, issuing fees receipts, and submitting income tax returns. The objective of this article is to cite dentists' tax obligations for their professional activity, the correct way to comply to them and take tax deductions, as well as the sanctions that exist in Mexico in case of tax evasion.INTRODUCTION
Article 31 (IV) of the Political Constitution of the United Mexican States specifies that it is the obligation of all Mexicans to contribute to the public expenditures of the Federation, Mexico City, or the Municipality in which they reside proportionately and equitably as required by law.1
In order to meet collective needs of general interest, such as public health, transportation, or safety services, the State requires financial means, which are taxable and non-taxable. Taxes are those provided by members of society and are classified into taxes, social security contributions, rights, and special contributions2 (Table 1). Non-tax contributions relate to economic gains at the expense of the State itself, such as the exploitation of oil or subsoil minerals.
Taxes are defined as contributions established by law that must be paid by natural and legal persons who are in legal status as specified in Article 2 of the Federation Tax Code.2 A natural person is the individual endowed with legal rights and obligations capable of acting under his own name, and a legal person is the juridic personality which is achieved by the establishment of an association of two or more natural persons through an act constituting a society.3
In Mexico, the Legislative Branch has the faculty to create, modify and abolish taxes to cover public expenditure; the Executive Branch collects and administers taxes, and the Judicial Branch is responsible for resolving disputes arising in taxation between individuals and the State.
The Executive Branch collects taxes through the Ministry of Finance and Public Credit (SHCP). The Ministry achieves this through its deconcentrated body known as Tax Administration Service (SAT), whose functions are to apply tax legislation so that natural and legal persons contribute proportionately and equitably to public expenditure, to monitor and ensure the proper fulfillment of tax obligations, among others. This is central to the understanding of this topic, as dentists have specific tax obligations that they must carefully comply with to avoid fiscal problems.
TYPES OF TAXES IN MEXICO
There are multiple types of taxes in Mexico; the most relevant are direct taxes, which the taxpayer pays directly and cannot be transferred, and indirect taxes, where there is an intermediary between the taxpayer and the Tax Administration Service.
In addition, there are federal, state, and municipal taxes, federal taxes being the most important: income tax (ISR), value added tax (VAT), special excise tax on production and services (IEPS), and car ownership tax (ISAN).
DENTIST'
To open an office, all dentists must meet certain requirements, such as obtaining the taxpayer identification number (RFC), obtaining the electronic signature (e-signature), registering the tax domicile and registering the economic activity with the SAT as provision of independent professional services, in the option of private sector dental offices of dentists with professional degree and certificate in accordance with the laws.4 With the carrying out of this mandatory actions, tax obligations as oral health professionals begin.
Dentists also have obligations to the Mexican Institute of Social Security (IMSS), since they have employees working in their office, who must be registered with IMSS, paying social security fees in a timely manner and complying with the annual risk premium declaration in the event of an accident or illness.
Article 100 of the Income Tax Act states that natural persons receiving income from the provision of professional services are required to pay for the ISR as stablished in Chapter II of Business and Professional Activity Income.5 However, dentists are not required to pay VAT for medical activities, only in cases where the dentist engages in teaching and research, rents real estate, or earns income by any other means outside the dental office.
Dentists, in their professional activity, earn income that in most cases is not stipulated as wages and are obliged to tax in this regime; therefore, in tax matters they are obliged to make the monthly and annual ISR declarations by themselves.
As already mentioned, it is common for dentists to have employees in their office, such as secretaries or dental assistants. Therefore, dentists must perform the ISR's withholding of their workers' wages and provide them annually salary and withholding statements no later than February at most.6
Let us remember that each year, all taxpayers are required to pay the ISR, from which a balance in favor or in charge will result.
In tax matters, there is an important term known as tax deduction, which refers to any expenditure charged against income.7 There are two types of deductions, structural ones, which are those expenses necessary to generate income, and personal deductions, which are inherent to any natural person, such as medical expenses, clinical studies, mortgage loans, payment of tuition, among others.
Structural deductions include the acquisition of goods, raw materials, and products to provide professional services, wage expenses, water, light, stationery, and investments strictly related to dental and professional activity.
Therefore, for dentists to request invoices or receipts of fees as the case may be, for the dental instruments and materials they buy, for the payment of courses or certification programs they make, for the wages paid to their employees can be of great help to reduce the payment of tax. It should be noted that in order for expenses to be deductible they must be made by check or electronic means.
On the other hand, patients who visit the dentist's office should request a fee receipt for use in their personal deductions, which also helps them reduce the payment of the tax. Article 151 (1) of SAT regulations specifies that natural persons may make personal deductions such as payments for dental fees provided by persons with a professional title legally issued and registered by competent educational authorities for themselves, for their spouse, for the person they live with in concubinage, and for their ancestors or descendants provided that payments are made by taxpayer nominative check, wire transfers, credit card, debit card or service card.8
Under the Federal Taxpayer Rights Act (LFDC),9 there are specific rights and obligations that individuals have in their tax activity which are cited in Table 2.
When a taxpayer fails to comply with their tax obligations, the tax authority will invite the taxpayer to comply within the time limits indicated by tax law. If this is not done, the collection will be made in a forced manner through the Administrative Execution Procedure (PAE), which culminates with seizure of property, this being an administrative procedure to recover tax debts by securing movable and immovable property owned by the debtor, which can be put on auction.6
CONCLUSION
Dentists should know their tax obligations for their professional activity. Unfortunately, there is a high number of professionals that ignore them. Let us recall a principle of law which says Ignorantia juris non excusat, meaning that not knowing the law does not exempt from complying with it. Also, the sanctions that the Tax Authority can impose for tax evasion can have dire consequences; therefore, dentists must have good communication with their accountant, file their returns in a timely manner, ask for receipts and invoices for each purchase they make, and be duly registered in their professional activity with the Tax Service.
REFERENCES
AFFILIATIONS
1 Specialist in Pediatric Dentistry, master's in Legal and Forensic Dentistry, Professor at UAM Xochimilco and Intercontinental University.
CORRESPONDENCE
Agustín Tiol Carrillo. E-mail: agustintiolcarrillo@gmail.com