In Mexico, the world of cryptocurrencies presents significant opportunities but also comes with specific tax responsibilities that are important to understand. You might wonder, "Do I have to pay taxes on my cryptocurrencies?" The short answer is: yes. Whether you've been in the crypto world for a while or are just starting, here's what you need to know to navigate cryptocurrency taxes confidently in Mexico.

 

To simplify this process, you can rely on LedgiFi, an app that helps you manage your cryptocurrency portfolio. It allows you to monitor your holdings and automatically calculates your gains or losses based on your transactions, enabling you to plan and declare effectively.

 

Cryptocurrencies in Mexico: Assets, Not Legal Tender

In Mexico, cryptocurrencies are not considered legal tender but rather classified as virtual assets. This means that any profits generated from selling or trading cryptocurrencies can be subject to taxes. The Income Tax Law (ISR) applies to profits made when selling assets for more than their purchase value.

 

The ISR is calculated based on net gains, which means the difference between the purchase price and the selling price, minus any associated fees or expenses. Additionally, Value Added Tax (VAT) may apply to certain transactions, depending on the activity and whether the transactions are commercial.

 

In this guide, we refer to cryptocurrency Gains or Losses (Rentas), as the tax depends on your cryptocurrency income in addition to other income sources, such as your job, business, or stock investments. These are all included in your annual tax declaration, along with your asset declaration. Depending on your tax bracket, you will pay a certain percentage in taxes.

 

When Should You Calculate Your Gains or Losses?

A common misconception is that if you don’t withdraw your money to a bank account, you don’t need to declare anything. This is incorrect. Determining whether you need to declare is straightforward: if you dispose of a cryptocurrency, whether by purchasing goods or services, exchanging it for another cryptocurrency (including swaps), or selling it for fiat currency, you need to calculate the result of that transaction.

 

This is technically referred to as disposal, so whenever you dispose of a cryptocurrency, you need to calculate whether you gained or lost.

 

Examples of disposal include:

• Buying a coffee.
• Paying a bill.
• Swapping one cryptocurrency for another.
• Selling cryptocurrency for fiat currency like pesos or dollars.
• Paying service fees with cryptocurrency.

 

Who Needs to Worry About This?

If you’ve ever done anything with cryptocurrencies, this topic concerns you, even if you’ve sold all your cryptocurrencies, closed your accounts, or no longer want to deal with them. For those actively trading in the market, knowing your Gains or Losses helps with tax planning.

 

Keeping a detailed record of your transactions is essential. A clear history of sales, exchanges, and conversions into pesos or other currencies makes tax filing much easier and protects you if the Mexican Tax Authority (SAT) requests proof of your movements. Think of it as a way to safeguard your profits and avoid surprises.

 

 

What Happens If I Don’t Declare?

Many people mistakenly believe that because cryptocurrencies are decentralized, the value generated from transactions does not trigger a tax liability or need to be declared. This is incorrect; any movement in your assets must be declared, especially if it results in an increase.

 

Failure to pay taxes can result in various penalties, including fines for non-compliance and inaccuracies, depending on the severity of the infraction and specific laws violated.

 

Declaring any profit or income from cryptocurrencies and your total assets is essential. Tax evasion penalties can be substantial.

 

How Are Gains or Losses Calculated?

Each transaction must be reviewed to determine its Acquisition Cost, which is then contrasted with the Profit to identify a gain or loss.

 

In simple terms:

Gain or Loss = Profit - Acquisition Cost

 

• Acquisition Cost: The cost of the cryptocurrency you are disposing of, calculated using inventory valuation methods.
• Profit: What you received from selling your cryptocurrency, whether in money, another cryptocurrency, products, or services.

 

Adjustments are then made for the time elapsed and monetary correction using the National Consumer Price Index (INPC), which we’ll explain further with an example.

 

Valuation Methods

If you bought different amounts of cryptocurrencies at various times and sold only a portion, you might wonder which amount and price to use. Should it be the first one purchased, the last, or an average of purchases? These are known as inventory valuation methods, including FIFO, LIFO, and CPP.

 

• FIFO (First In, First Out): Selling the first cryptocurrency you purchased.
• LIFO (Last In, First Out): Selling the most recently purchased cryptocurrency.
• CPP (Average Cost): Using an average of purchase costs.

 

In Mexico, these methods may go by different names, but you can use:

• First In, First Out (PEPS): Equivalent to FIFO.
• Identified Cost: Comparable to HIFO if you prioritize using the highest costs first.
• Average Cost: Equivalent to CPP.
• Retailer Method.

 

By law, you must stick to the chosen method for at least five fiscal years. The most conservative method is FIFO.

 

Example Calculation

Suppose in 2017 you deposited $10,000 in an exchange to buy Bitcoin (BTC).

• In April, you bought 0.2 BTC for $5,000.
• In May, you bought 0.1 BTC for $4,500.

 

Later, in August, you decided to sell 0.15 BTC for $10,000. What is the acquisition cost for this 0.15 BTC?

 

Provision for Income Tax (ISR)

If the disposal value is below $227,400, you are not required to retain ISR. If it equals or exceeds this threshold, you must retain 20% of the transaction and report it.

 

Applying FIFO:

• The first 0.1 BTC sold has an acquisition cost of $5,000.
• For the remaining 0.05 BTC, the acquisition cost is $2,250 (from the May purchase).

 

Adjustments for time elapsed and INPC corrections would follow these steps:

1. Reduction for elapsed years: 10% per year elapsed.
2. INPC factor: Previous month’s INPC divided by the acquisition month’s INPC.

 

After adjustments:

• Acquisition Cost of 0.1 BTC from April: $5,026.
• Acquisition Cost of 0.05 BTC from May: $2,264.

 

Final adjusted acquisition cost: $7,290.

 

Profit: $10,000 (sale) - $7,290 (cost) = $2,710.

 

You must declare this profit in your annual ISR declaration.

 

LedgiFi simplifies this process by synchronizing and organizing your transactions, keeping your cryptocurrency portfolio in one place, and providing real-time updates on your profits or losses for tax reporting.

 

For more information, visit complete guide at learn.ledgifi.com/mexico, and sign up with LedgiFi to stay updated on your taxes and our content.

 

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