When ISR is paid for non-profit corporations

There is a false belief that it is enough that the association or society, or NGO type entity (Non Governmental Organization) is taxed under Title III of the Income Tax Law for it not to have to pay Income Tax, however, this is not so. There are several organizations that have registered in this title thinking that it is the one that corresponds to them without knowing with certainty if it is so, and others that do belong to this title and that are carrying out daily activities and receiving income that do generate the determination and obligation of payment of such tax.

We invite you to read this newsletter, which we believe will be useful for many people who are part of this type of organizations, and in some way participate either internally in their accounting-fiscal processes, as well as those who are part of their boards, or are advisors or directors or benefactors, or in any way related to them.

Assumption assimilated to distributable retained earnings

The law mentions the first case in which income tax must be paid. In the event that distributable surplus is determined in the terms of the preceding paragraph, the legal entity in question will pay as tax payable the tax resulting from applying to such distributable surplus the maximum rate to be applied to the excess of the lower limit established in the rate contained in Article 152 of this Law, in which case it will be considered as definitive tax, and must pay the corresponding amount no later than February of the year following the year in which any of the events referred to in such paragraph occurs.

Art 79 LISR The legal entities referred to in sections V, VI, VII, IX, X, XI, XIII, XIII, XVI, XVII, XVII, XVIII, XIX, XX, XXIV and XXV of this article, as well as the legal entities and trusts authorized to receive tax-deductible donations, and the investment funds referred to in this Title, will consider as distributable surplus, even if they have not delivered it in cash or in goods to their members or partners, the amount of the omissions of income or the purchases not made and improperly recorded. referred to in this Title, will consider as distributable surplus, even when they have not delivered it in cash or goods to their members or partners, the amount of the omissions of income or the purchases not made and improperly registered; the disbursements made and not deductible in terms of the deductible under the terms of Title IV of this Law, except when such circumstance is due to the fact that they do not meet the requirements of Section IV of Article 147 of the same; loans made to their partners or members, or to the spouses, ascendants or descendants in a straight line of such partners or members, except in the case of loans to the partners or members of the savings and loan cooperative societies referred to in Section XIII of this Article. In the case of loans that in the terms of this paragraph are considered as distributable remainder, the amount thereof will be reduced from the distributable remainders that the legal entity distributes to its partners or members.

In summary, the following is considered as a payment of a surplus of the operation and causes ISR regardless of the fact that it was not a distribution of the surplus or remainder incurring in any of the following situations:

1. Income omissions
2. Unrealized and improperly recorded purchases
3. Non-deductible expenses in terms of Title IV (individuals), except for section IV of Article 147
4. Loans to partners or members, spouses, ascendants or descendants in a straight line of such partners or members.

It is also specified that the tax will be determined by applying the maximum rate indicated in Article 152 (35%) and that the payment will be made in February of the following year and will be considered a definitive payment, that is, there is no provisional payment.

Determining the remainder per member or associate

The second case is when a distribution is made to the partners, associates or members of the surplus. This must be determined in accordance with the following provisions.

Article 80. The corporations referred to in the preceding article will determine the distributable remainder of a calendar year corresponding to its members or shareholders, by deducting from the income obtained in that period, except for those indicated in Article 93 of this Law and those for which the definitive tax has been paid,the authorized deductions, in accordance with Title IV of this Law.

When the majority of the members or shareholders of such corporations are taxpayers of Title II of this Law, the distributable remainder shall be calculated by adding the income and deducting the corresponding deductions, in accordance with the provisions of the provisions of said Title...

Example

[simple_table cols=»Determinación del remanente, » data=»Ingresos del periodo (Título II), $100 000, Menos, ,Ingresos del artículo 93, 0, Ingresos que ya pagaron el impuesto en forma definitiva, 0, Suma los ingresos, $100 000, Menos:, , Deducciónes del periodo (Título II), $55 000, Remanente distribuible, $45 000″]

The 3rd paragraph of the same article states the following: "The members or shareholders of the legal entities referred to in Article 79 of this Law shall consider as distributable surplus only the income that such entities deliver to them in cash or property", and refers to all non-profit legal entities . In other words, in the event that there is a surplus, but it is not distributed in cash or goods, no tax payment is generated.

Tax on certain business activities

The third assumption is the one that refers to activities that are considered as activities carried out to obtain profits or gains, because they are different from those considered as "Non-Profit" and they exceed 5% of the total income of the legal entity. In such cases, the rules are as explained below:

Paragraphs 6 and 7 of the same article basically state that if these non-profit entities carry out activities of sale of goods that are not their fixed assets, or render services to persons other than their members, they must determine the ISR, once they determine the "Tax Profit" in terms of Title II of this Law, determining the tax at the rate of 30% and only in the event that such income exceeds 5% of the total income of the entity, and only in the event that such income exceeds 5% of the total income of the entity.
the legal entity.

In the event that the legal entities referred to in this Title dispose of assets other than fixed assets or provide services to alienate goods other than fixed assets or render services to persons other than their members or partners persons other than their members or partners, they must determine the tax corresponding to the thetax corresponding to the income derived from the aforementioned activities, in the activities mentioned, under the terms of Title II of this Law, at the rate provided in Article 9 of therate provided in Article 9 of this Law, provided that such income exceeds 5% of the total exceed 5% of the total income of the legal entity in the fiscal year in question. fiscal year in question.

Example:

[simple_table cols=»Caso de determinación de ISR, » data=»Ingresos totales, $12 000 000, Ingresos por enajenación de bienes distintos del activo fijo, 300 000, Ingresos por prestación de servicios a No Socios ni Miembros, 400 000, Neto ingresos base, $700 000, 5% del total – es inferior, $600 000, Mayores al 5% por lo tanto si determina ISR, Exceso $100 000 sobre el 5%»]

Paragraph 7 indicates the case of exception for this assumption, and this is based on the fact that if such legal entity is an authorized donee, then it may obtain income from activities other than the purposes for which it was authorized to obtain donations under the condition that these "do not exceed 10% of its total income for the fiscal year", and it indicates some income that should not be included in the sum of the group that makes up the 10% (see list below). That is to say, in addition to the fact that the cap on income that is generating profits is doubled to 10% instead of 5%, but, in addition, they are given the benefit that some types of income are not considered within that amount.

In the event that they are exceeded, they must determine the tax corresponding to such excess, in accordance with the provisions of the preceding paragraph.

The following is a verbatim transcription of the 7th paragraph.

Legal entities and trusts authorized to receive tax-deductible donations may obtain income from activities other than the purposes for which they were authorized to receive such donations, provided that such income does not exceed 10% of their total income in the fiscal year in question. in question. Income received from donations; support or incentives provided by the Federation, federal entities, or municipalities; disposal of fixed assets or intangible assets; membership fees; recovery fees; interest ; interest; and any other income from activities other than the aforementioned purposes are not considered to be income from donations . members; recovery fees; interest; patrimonial rights derived from intellectual property; temporary use or enjoyment of real estate, or yields obtained from shares or other credit securities, placed among the general investing public under the terms established by general rules established by the Tax Administration Service. In the event that their income not related to the purposes for which they were authorized to receive such donations exceeds the aforementioned limit, the aforementioned legal entities must determine the tax corresponding to such excess, in accordance with the provisions of the preceding paragraph . in the preceding paragraph.

Income that is not considered in the 10% of income:

1. Donations;
2. Support or incentives provided by the Federation, federal entities, or municipalities;
3. Disposal of property, plant and equipment or intangible assets;
4. Membership dues;
5. Recovery fees;
6. Interest;
7. Economic rights derived from intellectual property;
8. Temporary use or enjoyment of real estate, or
9. Income obtained from shares or other debt securities, placed among the general investor public

Other cases of income taxable income

Finally, Article 86 specifies that when non-profit entities, other than those mentioned in Article 86 or Authorized Donors, that receive income from:

• Disposal of assets
• Interests
• Obtaining awards

They will be subject to income tax under the terms of Title IV (Individuals) when they obtain them.

Article 81. The legal entities referred to in this Title, with the exception of those except for those indicated in Article 86 of this Law, of the investment companies specialized in investment companies specializing in retirement funds, and legal persons authorized to receive and of the legal entities authorized to receive deductible donations in donations under the termsof this Law, will be income taxpayers when they receive income income tax when they receive income from those mentioned in Chapters IV, VI, VII and VII of this mentioned in Chapters IV, VI and VII of Title IV of this Law, regardless of whether the income referred to in the aforementioned Chapter VI is received in foreign currency. Chapter VI are received in foreign currency. For these purposes, the provisions contained in said Title will be applicable, and the withholding the withholding that may be made, if any, shall be considered as a final payment. payment.

This provision is not very clear, because Article 86 does not mention a list of legal entities, nor does it refer to those that should not consider this income as a basis for income tax, but, throughout the same article, the following are mentioned:

List of persons who do not consider disposition of assets, interests or prizes as income

• Labor Unions and the Organizations that group them together and
• Sections V to IX and number XXV of article 79 (listed below)

VI. Assistance or charitable institutions, authorized by the laws of the matter, as well as civil societies or associations, organized on a non-profit basis and authorized to receive donations under the terms of this Law, whose beneficiaries are persons, sectors , and regions of scarce resources; that carry out activities to achieve better subsistence and development conditions for indigenous communities and vulnerable groups due to age, sex or disability problems, dedicated to the following activities:

1. Attention to basic subsistence requirements in terms of food, clothing or housing.
2. Medical assistance or rehabilitation or care in specialized establishments.
3. Legal assistance, support and advocacy for the protection of the rights of minors, as well as for the social rehabilitation of persons who have engaged in unlawful conduct.
4. Rehabilitation of alcoholics and drug addicts.
5. Assistance for funeral services.
6. Social counseling, education or job training.
7. Support for the development of indigenous peoples and communities.
8. Provision of services for the care of social groups with disabilities.
9. Promotion of actions to improve the popular economy.
10. Consumer cooperative societies.
11. Organizations that, in accordance with the Law, group cooperative societies, whether of producers or consumers.
12. Mutual companies and Agricultural and Rural Insurance Funds, which do not operate with third parties, provided that they do not incur expenses for the acquisition of business, such as premiums, commissions and other similar items.
13. Assistance or charitable institutions , authorized by the laws of the matter and organized on a non-profit basis, as well as civil societies or associations, organized on a non-profit basis and authorized to receive donations under the terms of this Law, engaged in the following activities:
    1. The promotion of the organized participation of the population in actions that improve their own subsistence conditions for the benefit of the community or in the promotion of citizen security actions.
    2. Support in the defense and promotion of human rights.
    3. Civic, focused on promoting citizen participation in matters of public interest.
    4. Promotion of gender equity.
    5. Support for the use of natural resources, the protection of the environment, flora and fauna, the preservation and restoration of the ecological balance, as well as the promotion of sustainable development at the regional and community level, in urban and rural areas.
    6. Promotion and encouragement of education, culture, art, science and technology.
    7. Participation in civil protection actions.
    8. Provision of support services for the creation and strengthening of organizations that carry out activities subject to promotion in terms of the Federal Law for the Promotion of Activities Carried out by Civil Society Organizations.
    9. Promotion and defense of consumer rights.
    10. Support for projects of agricultural producers and artisans, with income in the immediately preceding fiscal year of up to 4 times the annual value of the Unidad de Medida y Actualizacion, located in the most underdeveloped areas of the country according to the National Population Council and that comply with the general rules issued by the Tax Administration Service.

Of course, there are also obligations and decrees that in some cases may grant special benefits, for which we are at your service to guide our clients and friends.

Contact our tax practice partners for more information.