Mexico

Last modified: 09/10/2023 20:31

Corporate taxation

	Rate
Corporate income tax rate	30
Branch tax rate	30
Capital gains tax rate	30

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Residence: – Companies incorporated based on Méxican legislations or have established in México their main administration – Foreigners with a permanent establishment in México – Foreigners without a permanent establishment obtaining income from México

Basis: Income tax basis is the gain (income less deducctions) and on world wide income

Taxable income: World wide income

Significant local taxes on income: Income tax (on gain -income less deductions-) For companies 30%, for example: – Income on sale of goods and professional services – Income on sale of used goods – Income on interests – Income on royalties -Capital Gain

Alternative minimum tax: No alternative minimum tax

Taxation of dividends: – 30% for companies – Up to 35% for individuals Both, can be reduced to zero if the company generates a profit net tax account balance “Cufin” 10% additional income tax (definitive) for individuals and foreigners

Capital gains: Capital gain is an accrual income taxable with a 30% income tax rate.

Losses: Companies and individuals are able to have losses that can be amortized carryforward against future tax profits for ten years In mergers, winning companies should not merge companies with losses, when the purpose is to take advantage of said losses.

Foreign tax relief: Foreign tax paid is creditable against the Mexican income tax with a limit which (in general terms) is the income tax that should have been paid in México if the income had been obtaind therein. The diference can be carriedforward against future income tax during ten years. Forexample, dividends, profits, royalties, interests

Participation exemption: Incorporation of companies requires two shareholdes minimum. Limited Responsability Societies have a maximum of 50 owners. Foreigners whether companies or individuals are able to participate in Mexican companies Foreign entrepreneurs should be aware that certain commercial activities are reserved for the government (for example, petroleum, basic hydrocarbons and petrochemicals, electricity services, nuclear energy).

Holding-company regime: Mexican holding companies regime is the general tax regime. It means that its liabitilies are the same than any other company taxpayer (on profits)

Tax-based incentives: The Income Tax Law also establishes tax incentives towards certain activities or sectors, such as the following: – Research and technological development. – High intensity sport. – Power equipment for electronic vehicles. – Production and national distribution of film and theater. Border incentives. Taxpayers who carry out productive economic activites within the north or south border zones receive an incentive on income tax which consists on a tax credit equivalent to one third of the income tax caused in the tax year or in the davance monthly payments, against the income tax of the same year. Value added tax is also reduced to 50% for these taxpayers. Both taxes, on certain limitations. Tehuantepec Zone. New 2023 incentive (rules are pending) for investors who plan to carry out productive economic activities within the Development Poles for the Well-being of the Isthmus of Tehuantepec. An authorization is required. It is refered to 100% of income tax for first three years and 50% for the following three years. In regards Value Added Tax VAT, it is referred to 100% of said VAT for the first four years.. Rules are pending to be published. Local Payroll Tax. Each State in México (32 States) taxes wages paid to employees with 3% in average. Some States incentive new companies that consists on a reduction that runs from 10% to 20% this tax for the first year, under certain circumstances and requisites. The percentage difers depending on the State. Due to the pandemic situation, some States have offered reductions on Local Payroll Tax up to 100% (depending on each State Tressury rules).

Group relief/fiscal unity: In terms of tax consolidation for groups, there is no longer accessibility to that regime since it was repealed several years ago.

Small company/alternative tax regimes: Small businesses with income up to $35 million Mexican Pesos ($1,945,000 US dollars approximately) the Confidence Tax Regime is an alternative to reduce the tax burden, as well as it is applicable for individuals with income up to $3 million Mexican Pesos ($167,000 US dollars approximately).

Corporate taxation: compliance

Tax year: Tax year concides on calendar year

Consolidated returns: No tax consolidation regime is applicable

Filing and payment: Income tax is payable on annual basis although monthly advance payments shall be filed and paid

Penalties: Penalties are applicable based on the situation, whether not filing monthly returns, not being registered at the Federal Taxpayer REgistry, not located tax domicile, not having updated the taxpayer information into the authority data base, not registring amployees, not filing informative returns, not having updated the accounting information, not issuing electronic invoices or doing it with irregularities, not having a transfer pricing study to support prices on arms-lenght, no paying withholding taxes

Rulings: The Income Tax Law expands its terms and conditions in the Income Tax Regulations, in the Miscellaneous Tax Regulations (issued each year) and serveral regulations related to the criteria of the Tax Authority permanently subjec to updated

Taxation of individuals

	Rate
	Federal Income Tax
Item 1	from 0% to 35% on a tariff to be applied on income
Item 2	0
Item 3	0

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Residence: – All individuals Mexican nationals – Foreigners individuals who ïn México have established their home or main living source

Basis: World Wide income Income tax basis is on cash flow

Taxable income: Income tax on individuals (on cash flow) (All individuals maximum rate is 35%) – Income on wages for individuals – Income on professional services on individuals – Dividends and profits -Capital Gain

Capital gains: Capital Gains is a accrual income and taxed with up to a 35% income tax rate

Deductions and allowances: Indispensable expenses to pursue the business activity are authorized to be deducted, under certain limitations and requisites

Foreign tax relief: Foreign tax paid is creditable against the Mexican income tax with a limit which (in general terms) is the income tax that should have been paid in México if the income had been obtaind therein. The diference can be carriedforward against future income tax during ten years. Forexample, dividends, profits, royalties, interests

Taxation of individuals: compliance

Tax year: Tax year coincides with calendar year

Filing and payment: Income tax is payable on annual basis although advance payments shall be done monthly

Penalties: Penalties are applicable based on the situation, whether not filing monthly returns, not being registered at the Federal Taxpayer REgistry, not located tax domicile, not having updated the taxpayer information into the authority data base, not registring amployees, not filing informative returns, not having updated the accounting information, not issuing electronic invoices or doing it with irregularities, not having a transfer pricing study to support prices on arms-lenght, no paying withholding taxes

Rulings: The Income Tax Law expands its terms and conditions in the Income Tax Regulations, in the Miscellaneous Tax Regulations (issued each year) and serveral regulations related to the criteria of the Tax Authority permanently subjec to updated

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Royalties	0	0	From 5% to 35%	From 5% to 35%
Sale of goods or products (import to México)	0	0	0	0
Sale of constructions	0	0	25%	25%
Sale of shares	20%	20%	25%	25%
Interests	0.15%	0.15%	From 4.9% to 35%	From 10% to 35%
Services	0	20%	25%	25%
Temporary tenting of assets	0	0	25%	25%
Renting of constructions			25%	25%
Wages		Up to 35%	Note	Note
Dividends (Note 4)		10$	10%	10%
Construction services			25%	25%
Artistic /sporting activites or public chows performance			25%	25%
Preferential tax territories (tax heaven)			Up to 40%	Up to 40%

Note

Wages 0% from $0 to $7,000 UScy

Wages 15% from $7,001 to $55,560 UScy

Wages 30% from $55,561 

Note 2: Each transaction should be carefully revised to confirm the income tax rate application. Besides, treaties to avoid  double taxation might offer benefits to payments recipients, specially the tax heaven transations.

Note 3. Value Added Tax (general rate 16%) (consumption contribution) should be also analyzed on each item.

Note 4. Dividens tax effects might be neutralized with respect the Net Profit Tax Account “CUFIN” balance.

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Branch remittance tax: The treatment issimilar to the dividends and the Ne Profit Tax Account CUFIN. Resources sent to the branch’s head quarter abroad (or to another abroad related party) which do not come from the the capital remittance account (similar to the Net Profit Tax Account “CUFIN”) wil be taxed as follows: The remittances amount to be taxes will be multiplied by the factor of 1.4286 and the result with the 30%.

Anti-avoidance legislation

Transfer pricing: All transactions between related parties shall be backed up with a transfer pricing study to verify prices were set up on arms-length principle

Interest restriction: No restriction

Controlled foreign companies: Mexican parent company controlling abroad companies, shall file an annual informative returns to Mexican authority (master, local and country-by-country reports). This liability is based on the income obtained in the previous year, higher than $46.800,000 UScy aprox) among other situations to be observed.

Hybrid mismatches: All transactions made with hybird entities shall be notified to the Mexican autohrity

Disclosure requirements: Mexican legislation prohibits disclosure of taxpayer information

Exit taxes: All corporate restructures that involve for instance the moving of payments to abroad territories (or changing the tax residence of great resources) shall be notified to tax authority, mainly if it is supported by a in-pupose restructure with the goal to avoid being taxed in México and instead being taxed in a preference law tax territory

General anti-avoidance rule: All corporate restructures that involve for instance the moving of payments to abroad territories (or changing the tax residence of great resources) shall be notified to tax authority, mainly if it is supported by a in-pupose restructure with the goal to avoid being taxed in México and instead being taxed in a preference law tax territory

Digital services tax and Other significant anti-avoidance legislation: Digital services are nowdays taxed in México with the income tax and value added tax. It requires to have the foreig owner of digital platforms duly registered at the Federal Taxpayer Registry. Income tax and Value Added Tax should be withheld among many other tasks

Value-added tax/Goods and services tax

Type of tax: Consumption tax. It taxes activities done between Mexicans in México (general rule) – Services – Sale of goods – Renting of assets – Importation

Standard rate: 16% general rate. Some activities might be exempt, other subject to 0% rate (such as exportation or sale of meals or medicine) and some other might not being subject to VAT

Reduced rates: In border zones (20 km) might be reduced to 8%

Registration: All transactions shall be registred in the accounting and duly filed. Transactions must be supported with the electronic invoices

Filing and payment: VAT returns are filed monthly and they are definitive. A monthly informative return should be filed with respect main suppliers

Social security contributions

		Employer	Employee
	Base	Rate (%)	Rate (%)
Working risks (minimum)	SBC	0.5%	0
Working risks (medium)	SBC	7.5%	0
Working risks (highest)	SBC	15%
Illness and motherhood
Fixed quote for each worker	(1)	20.40%	0
(1) Difference of SBC and 3xUMA	(1)	1.10%	0.4%
Pensioners and their beneficiaries	SBC	1.05%	0.375%
Benefits in money	SBC	0.70%	0.250%
Disability and life	SBC	1.75%	0.625%
Daycares and social benefits	SBC	1.00%	0
Retirement, advance-age unemploment, old age	SBC	2%
Retirement, advance-age unemploment, old age	SBC	3.15%	1.125%
Housing fund for workers “Infonavit”	SBC	5%

“SBC” Integrated wage base = Salary added with the average of benefits known and unknown

UMA = Unit of Measurement and UPdates "Unidad de medida y actualización "

(1) Difference of SBC and 3 times the value of UMA $103.74 ($311.22)

Self-employed

There are several social security programs for self-employed individuals that may allow them to receive the Social Security Mexican Institute benefitis, such as medican and hospital assistance or retirement schemes.

Other taxes

Capital duty: No tax on capital. There are specif situations that trigger an income tax, such as the sale of shares, the reduction and distribution of stock the distribution of dividends

Immovable property taxes: It is taxed on gain, such as any other asset to be sold by taxpayers Properties intended for residential purposes could be partially exempt

Transfer tax: The transference of properties is taxed depending on the type of asset and transaction, such as the sale or the acquisition of immovable or movable properties, based on gain obtained

Stamp duty: No stamp duty actually. The sale or acquisition of properties are taxed based on the above explanations

Net wealth/worth tax: No net wealth or worth tax

Inheritance/gift taxes: No tax on inheritance or gifts/donation, but certain requisities and limitations should be taken into consideration. Each case should be carefully analyzed by expert advisors

Other: n/a

Tax treaties

México is one of the countries with more tax treaties entered into with more than 90 nations involved, including the exchange of tax information in many of said treaties. Besides, in regards trade commerce, México has 12 treaties entered with 46 countries and many other treaties. México will also be part of the multilateral treaty that will be in force as from 2023.