We are not a law firm. Do not consider our information as legal advice. This information has been summarized based on our legal inquiries. Information can become obsolete from one day to another due to changes in laws, regulations, or government procedures. Consult labor and tax attorneys for legal advice. (Note from HR Mexico staff)
Mexican Expense Reimbursements
Mexico is different than the USA and other countries as it relates to tax deductible expenses and expense reimbursement.
For example, your sales person in the USA can walk into an Office Depot, purchase a replacement laptop charger by paying cash, obtain a cash register receipt, turn in the receipt to your company, you approve, and reimburse the sales person tax free (No tax withholding for the employee), and then right off the expense, not paying corporate income tax on that expense.
For example, your sales person in the USA can walk into an Office Depot, purchase a replacement laptop charger by paying cash, obtain a cash register receipt, turn in the receipt to your company, you approve, and reimburse the sales person tax free (No tax withholding for the employee), and then right off the expense, not paying corporate income tax on that expense.
This is not the case in Mexico. It is not that easy. Here in Mexico, the following applies:
The only way to correctly pay the worker expense reimbursements is by complying with the Mexican tax laws so that the expenses are tax deductible to the employer, not taxed to the employee as income.
There are certain actions that can be taken by the company as the employer to maximize the use of tax deductible expenses in compliance with the tax laws. Here are a few things that can be provided: (Check with your Mexican CPA for guidance for how to manage the tax deductible expenses. Some items have caps.)
It should be the responsibility of the employee that asks for the reimbursement to ensure and prove the following:
It is important to implement written policies and procedures for handling expenses and expense reimbursements.
- An official / certified invoice must be provided with all of the correct information on the invoice for the purchase.
- The official / certified invoice must be in the company's name and not the employee's name.
- For any amount over $2,000 MXN, the funds for the expense must be paid directly from the employer's bank account.
- Legible name of the company, legal current address, RFC, date, amount, currency, also must include name, legal address and RFC of the company that provided the Invoice with the xml files attached. The invoice must specify the payment method (cash, credit, debit etc.), in case the CFDI does not specify the payment method the employee should send copy of voucher.
- For international expenses employee must submit receipt, ticket and/or invoice in paper or electronic file if expenses were paid with credit or debit card the employee must submit the voucher.
- Tax receipts (CFDI) must have the date of month in which the reimbursement was requested.
The only way to correctly pay the worker expense reimbursements is by complying with the Mexican tax laws so that the expenses are tax deductible to the employer, not taxed to the employee as income.
There are certain actions that can be taken by the company as the employer to maximize the use of tax deductible expenses in compliance with the tax laws. Here are a few things that can be provided: (Check with your Mexican CPA for guidance for how to manage the tax deductible expenses. Some items have caps.)
- Gas card: You can provide the employee with a gas card. You can fund the card prepaid and simply keep recharging it as needed.
- Food card: This card gives the employee the ability to purchase groceries.
- Travel, flights, hotels, rental cars, etc. (If needed): The company can Prepay everything. (Flight, hotel, car, etc.) By prepaying, the funds will come out of the employer's bank account, the company will be responsible for making sure the invoices are compliant. The employee will show up at hotel and not need to present a credit card. They simply state their name and are given their key to their room, etc.
- Cell phone - The employer can sign the contract for the cell phone. This way, the cell phone company invoices the employer directly and the company will pay the bill directly from it's bank account.
- Internet service - You can do the same for internet service that the employee may need.
It should be the responsibility of the employee that asks for the reimbursement to ensure and prove the following:
- The expenses incurred are for the benefit of, or are on the best interest of the company.
- Expenses are reasonable according to his/her position and incurred as outlined in this policy.
- Send all the Original documentation and invoices (CFDI), tickets, receipts for foreign expenses
It is important to implement written policies and procedures for handling expenses and expense reimbursements.
