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Guidelines for Authorized Charities


Guidelines to follow in the Mexican State


Moral people who have the purpose of carrying out altruistic activities in order to contribute their grain of sand to the general well-being of individuals that live in Mexican territory, are considered to reside within the field of those that do not have a lucrative purpose. In other words, the activities in which they engage do not bring them profitable gains. Therefore they obtain financial means through economic support (both in money and in goods) provided by third parties; either it be by individuals, legal entities, or resources granted by the Federation itself amongst other means foreseen by national laws for this purpose.


Depending on the activities they perform, certain non-profit legal entities have the power to request authorization from the Tax Administration Service (SAT) to receive tax deductible income from donations (ISRs). For instance, people outside the association may donate money and/or items or real estate properties (e.g. Houses, cars, furniture, etc.) and these charities may also deduct such donations in terms of the ISR. So the authorized non-profit organizations won´t have to pay ISR for the money and/or goods that are donated to them, provided that they are used exclusively to fulfill the activity for which the SAT gave the authorization; those who have receive this permission are known as “authorized charities.”


So, taking into account their legal-humanitarian nature, over the years the Federal government has considered them “philanthropic entities” in order to provide them with special dispositions that facilitate regulation of their existence and functioning. In most cases, this method is used to foresee their tributary nature in order to guarantee proper continuation However, in the last fiscal year the legislature has chosen to establish a variation in its regulations. In the sense of adding and modifying the obligations to which non-profit civil associations are subject to; which, for the most part, are found in the Miscellaneous Tax Resolution applicable to 2020.


Usually, the tax obligations of these foundations do not tend to be in the public interest as they are an entity intended to give and not to receive. However, knowledge of the required responsibilities towards the tax authority in Mexico is of extreme importance to those who have or intend to create a civil association, meeting the proper characteristics of these foundations in itself. Therefore they shall handle their taxes in accordance with Title III of the Income Tax Act. Listed below are some of the duties required of authorized charities, existing from their origin to their extinction and with the understanding that there could be variation based on the given circumstances of this foundation:


I. To be subject to obtain authorization and be considered as an authorized charity must:

(a) Have a specific social motive and specific activity to which the legal norm refers. – To be created and function only as entities dedicated to the following activities (amongst others) :

  1. Attention to basic subsistence requirements in terms of food, clothing or housing.

  2. Social orientation, education or training for work

  3. Provide care services to social groups with disabilities

  4. Promotion and musical broadcast, plastic arts, drama, dance, literature, architecture and cinematography

  5. Protection, conservation, restoration and recovery of the nation’s cultural heritage

  6. Support activities and objectives of museums under the National Council of Culture and Arts.

  7. Research on preservation of wildlife, terrestrial or aquatic flora or fauna

  8. Support the defense and promotion of human rights

  9. Promote gender equality

  10. Participate in civil protection actions

  11. Support projects of Agriculture and Artisans producers

(b) Issue Tax receipts

(c) To maintain available to the public in general, information related to the authorization on receiving donations, as well as the use and destiny of these donations received and the fulfillment of its Fiscal obligations

(d) To maintain the structured of Corporate administration for the direction and control of the legal person


II. Maintain obligations for updating information (are obligations for updating or for a certain date)

a) Present new proof that certifies their philanthropic activities every three years

b) Modify its social statutes and Trust contracts incorporating an irrevocable clause for the transfer of assets to an authorized grantee where specifies in case of liquidation or change of Fiscal residence, will be allocated the total of assets to other entities authorized to receive deductible donations, within the following 12 months. Or in the case of revocation of authorization or when its validity has ended and wasn’t obtain again /or renewed. Will be allocated to other authorized entities the donations that weren’t used for their social purposes in the following 6 months.

c) Present a report on the use and destination of the donations received and activities intended to influence in the legislation

d) Present an informative declaration established in article 86, third paragraph of the ISR Law, corresponding to the immediate previous exercise.


III. Annual obligations

a) To keep the accountant systems according to the Fiscal Code of the Federation, it´s Regulations and the Regulations of the law, and do records regarding their operations

b) File annual report in which will be informed to the Tax authorities the income obtained and expenditures made, no later than February 15th of each year

c) Documentation regarding the authorization must be available during the period for which it’s available

d) Issue and obtain the tax receipts that prove the disposals and expenditures made, the services they provide, or the granting of the use and/or temporary enjoyment of goods.

Thus, it is also vitally important to be aware of the reasons why the SAT may cancel the authorization to be an authorized charity because, the loss of such permission leads to foundations in need to initiate actions, that may vary according to the reason why their permit to be recipient of tax-deductible was revoked; circumstances that are indicated in the immediate list below:

  1. Use of their assets for purposes other than the authorized corporate purpose

  2. Directly or through the figure of the trust

  3. Established or finance legal entities or trusts with conflict of interest

  4. Shares acquired outside the recognized markets referred to in Article 16-C fractions I and II of the CFF.

  5. Acquiring certificates of Wealth Contributions for profit

  6. Acquire shares issued by people considered related parties

  7. Failure to issue electronic invoices covering donations

  8. In two consecutive years, they fail to comply with “Report to ensure transparency, as well as the use and destination of donations received and activities aimed at influencing legislation”

  9. In two consecutive years, they fail to comply with the obligation to submit the Annual Declaration

  10. In two consecutive years, they fail to comply with the obligation to provide information on agricultural and artisanal projects

  11. Any event that constitutes non-compliance with the obligations or requirements laid down by the tax provisions must be updated

  12. Be published in the list referred to in the fourth paragraph of Article 69-B of the CFF (EFO)

  13. If the legal representative or legal representatives, partners or associates or any member of the Board of Directors or Administration of a civil organization or Trust that has been revoked his/her authorization (due to EFOS) are part of the charity

  14. Civil organizations and Trusts authorized to receive deductible donations that do not file the notice of resumption of activities or cancellation with the RFC.

It is worth mentioning that the tax authority has been increasing its reviews to charities as to the non-compliance with the above points. Which are essentially valid argument for revoking the authorization and where we have observed it has been used.


For all of the above reasons, it is recommended to people who are members of a non-profit legal entity, or are interested in creating and/or belonging to one, to contact specialized personnel of Teran Rojas & Associates office to provide you with the advice and attention you deserve in matters of authorized charities.

 

Published on May 06th, 2020.


“In terms of article 89 of the Fiscal Code of the Federation in force, the content of this reproduction, exhibition, presentation, program, or transmission and/or the documents and/or examples used to expose it, may express positions that do not coincide with the criteria of the Mexican tax or judicial authorities. This reproduction or exhibition is not intended and may not be used by any person for the purpose of circumventing (i) a federal, local, or municipal tax, or (ii) the imposition of tax penalties in the United Mexican States.


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