As part of the larger TechSoup Global (“TechSoup”) Network, NGOsource's global partners provide high-quality, personalized customer service to NGOs across the world. In this post, TechSoup’s global partner in Mexico, Centro Mexicano para la Filantropía (“Cemefi”), shares an overview of the landscape of civil society organizations (“CSO”) in Mexico. For more information about Cemefi generally, please visit Cemefi’s website at www.cemefi.org.
Types of CSOs
In Mexico there are 40,025 civil society organizations (CSOs) formed to support social and nonprofit causes.
Currently 8,832 CSOs are recognized as "authorized donees"; this means they are exempt from income tax (ISR) in Mexico and they are authorized by the Mexican Tax Administration Service (SAT) of the Secretariat of the Treasury and Public Credit (SHCP) to issue tax deductible receipts for eligible donations from individuals (deductible from income tax –ISR-).
In order to qualify as an authorized donee, a CSO must engage in certain publicly beneficial activities, utilize its assets exclusively for the same, and comply with certain rules and regulations set forth in Article 82 of the Income Tax Act. An authorized donee: (a) can only pursue the goals for which it was founded; (b) it may not distribute its assets for non-charitable purpose; and (c) on dissolution, any remaining assets must be transferred to another CSO with the status of authorized donee. These clauses must be irrevocable.
Additionally, authorized donees may not intervene in political campaigns or any political-party propaganda activity. However, they may engage in lobbying and carry out activities aimed at influencing public policy or legislative changes, as long as the lobbying is unpaid and carried out in order to benefit the population (and not a donor). Lobbying activities must also be reported to the SHCP.
The authorized donee status granted by the SAT is valid for one year, and can be renewed every year as long as the organization fulfills its fiscal obligations (information, accountability and transparency reports) under this specific regime.
CSOs registered under the “Promotion Law”
CSOs may also be eligible to receive government funding if they are registered in the Federal Registry of Civil Society Organizations, established as a result of the enactment of the Federal Law for Promotion of Activities performed by Civil Society Organizations (Ley Federal de foment a las Actividades realizadas por las Organizaciones de la Sociedad Civil -2004-), commonly referred to as the “Promotion Law.” Registrants under the Promotion Law may be authorized donees but do not need to be.
The Federal Registry of Civil Society Organizations is in charge of the National Institute of Social Development (Instituto Nacional de Desarrollo Social INDESOL), which is an agency of the Secretariat of Social Development (Secretaria de Desarrollo Social SEDESOL); this is the registry of CSOs registered under the Promotion Law. To enter this registry, a CSO must submit documentation evidencing: (a) that it engages in certain activities that promote the public benefit; (b) that it destines its assets to accomplish its corporate purpose, and; (c) that it conducts activities on a non-profit, non-political, and non-religious basis. CSOs registered under the Promotion Law are required to dedicate their assets on dissolution to another registered CSO.
Similar to authorized donees, registered CSOs have certain accounting and reporting obligations. Unlike authorized donees, registration under the Promotion Law does not grant any tax benefits to an organization, but it does permit the organization to receive government funding for some of its activities.
Potential Barriers to Funding Mexico CSOs Federal Law for the Prevention and Identification of Operations with Resources of Illicit Origin ("Anti-Money Laundering Law")
Mexico is a member of the Organization for Economic Co-operation and Development (OECD) and is committed to the guidelines of the Financial Action Task Force (FATF). FATF aims to develop prevention systems to combat crimes involving the operation of funds from illicit origin in Member States, also known as money laundering (ML), financing of terrorism (FT) and other related crimes. Consistent with this commitment, Mexico issued the Federal Law for the Prevention and Identification of Operations with Resources of Illegal Origin (LFPIORPI), on October 17, 2012.
LFPIORPI provides that the reception of donations is a "vulnerable activity" and as a consequence, nonprofit organizations, including authorized donees, must comply with the guidelines established by this law and develop the necessary schemes to prevent their use for organized crime activities and money laundering.
Specifically, when a Mexican organization receives a donation (in one or more installments) totally $ 6,155 USD or more, the organization must identify the funder and prepare a dossier that includes the donor’s general data. Additionally, when the donation is equal to, or greater than, $ 12,310 USD, the organization must notify the Financial Intelligence Unit (UIF) of the Ministry of Finance and Public Credit (SHCP) about the donation and keep the donor´s dossier available for review. What this means for U.S. funders of Mexican CSOs is that they should expect to be asked for certain identifying information from their grantees since Mexican entities will be required to comply with these recordkeeping and reporting obligations if and when these minimum threshold donations are received.
Individual Tax Implications
Mexico has signed a treaty with the United States, to avoid double taxation.
In some instances, a US citizen might be able to deduct his/her charitable contribution to a Mexican CSO, if the contribution is made to an “authorized donee” and the donor has complied with the requirements outlined in the treaty (for example, the donor must have Mexican-source income). Exclusions and limitations apply, and due to some relatively recent changes in the law with respect to authorized donees, it is unclear whether the IRS still accepts this deduction. It is therefore best to check with your tax advisor before making a donation and relying on this advice.
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TechSoup Global.
Author: Juan Sánchez
Translation and edition: Lourdes Sanz y Luz Flaviana Castañeda