Mexico’s enthusiastic adoption of crypto comes as no surprise to those who are familiar with the country’s economic and political landscape. Between high levels of government corruption and fraught systems for moving money in and out of the country, crypto comes as a natural solution.
A key reason for distrust in government-issued currency in Mexico is the steady inflation rate that the Mexican peso has undergone. Since 1960, the yearly inflation rate has averaged 19.2%.
For this reason, a significant share of the Mexican labor pool has turned towards remote, freelance work. In the last two years, up to 32% of the Mexican workforce has embraced freelancing opportunities. Seeking global employment opens the door for receiving higher salaries and compensation not in the Mexican peso.
With the national currency devalued, a history of political corruption, and a thriving informal economy, a shockingly low percent of the Mexican population holds money in bank accounts.
All of these factors lend themselves to an interest in crypto as compensation for national and international employment opportunities.
Embracing Crypto in a Faltering Economy
The uptick in crypto users is fueled by a job economy that has become increasingly remote. As companies continue to trend towards international hires and the home-office model, more of the Mexican workforce seeks contracts with foreign companies.
The average salary in Mexico peaked in July of 2022 at $485.35 Mexican pesos per day. This translates to $25.82 US dollars per day, which is about $2 less than the average hourly wage in the United States.
For those living in Mexico who are able to transition their careers to the digital sphere, the potential to earn abroad is astronomically higher.
At present, the greatest barrier to entry for contracting internationally is the difficulty of sending payment to a Mexican bank account. When the option to receive compensation in crypto is included, the most pressing obstacle is overcome.
Mexico’s New Wave of Regulatory Policies
In March of 2018 the Mexican government introduced its first bill aimed at regulating virtual assets. The Law to Regulate Financial Technology Institutions, or the Fintech Law, falls under a series of anti-money laundering policies, with the added specification of monitoring virtual assets.
The law addresses the growing Fintech industry with specific attention to electronic payment, crowdfunding, financial advisory and crypto entities. This bill also has its focus on giving the 40% of the Mexican population without bank accounts secure access to electronic fund transfers.
For those involved in crypto in Mexico, the Fintech law represents a new era of regulation.
Regulation and Crypto Taxation
Crypto tax compliance in Mexico varies greatly for entities dealing in virtual assets versus individuals earning in crypto.
When it comes to payments issued and received in crypto, taxation falls under one of two categories. These are the Income Tax and the other Value Added Tax Law (VAT).
Both Mexican companies and employees are liable to pay an income tax on crypto that ranges from as low as 1.92% to as high as 35%. The tax bracket into which an individual or company falls is based on the yearly salary earned. When earnings are in crypto, taxes are calculated based on the value of the digital asset on the date of its issuance.
The other category that crypto is liable to be taxed under is the VAT. This targets the sale of goods and services and is a flat rate of 16%.
Ensuring Tax Compliance with Rise
For anyone who has ever paid taxes in Mexico, it is well understood how complicated ensuring compliance can be. While in previous years facturas, or invoices, were rarely required, starting in 2022 the rate of their enforcement skyrocketed. Tax laws not only have become stricter in recent years, but much more closely regulated.
Factoring in the new layer of crypto regulations brings additional complications to ensuring tax compliance.
But paying in crypto can, and should be a simple solution. Rise is a web3-enabled payment platform that issues automated, instant payments in the currency of your choosing.
Pay global contractors compliantly in fiat currency, crypto, or even your DAO’s native token. While you focus on scaling your business, Rise takes care of ensuring full tax compliance, regardless of the country or currency in which you are issuing payroll.
For Mexican businesses grappling with the ever-changing laws around digital assets, onboard with Rise and skip the costly trial-and-error of navigating compliance.
Schedule a demo today to learn more about how Rise can work for your business.