Mexico: Tax System

Tax Rate For Foreign Companies

Mexican resident taxpayers’ are subject to corporate income tax from worldwide sources, foreign residents are taxed on the income attributed to their permanent establishments in Mexico.
Foreign enterprises established in Mexico are subject to the same tax system as national enterprises, though they do benefit from certain exemptions. Although various states have started to offer competing tax incentives to attract foreign investors, the majority of taxes in Mexico are levied at the federal level.

Capital Gains Taxation

Capital gains arising from the sale of fixed assets, shares and real property are considered normal income and are subject to the standard corporate tax rate.
Capital gains arising from the sale of shares issued by Mexican companies, securities solely representative of such shares, shares issued by foreign companies listed on the Mexican stock exchange or financial derivative instruments in connection with stock market indices or aforementioned shares are subject to an income tax of 10%.
Non-residents that sell shares of a Mexican company are subject to tax at 25% on the gross proceeds or 35% on the net proceeds if the non-resident has a representative in Mexico (provided the non-resident is neither located in a tax haven nor benefits from a preferential tax regime).

Main Allowable Deductions and Tax Credits

In general, all federal, state, and local (including the municipal tax on real estate) taxes levied on a company (not including taxes on acquisitions of fixed assets and real estate and CIT) are tax-deductible expenses.

Start-up expenditure incurred prior to the commencement of business may be amortised at the yearly rate of 10%, after applying the adjustment factors. The deduction of charitable contributions is limited to 7% of the taxable income of the previous year.

R&D expenditure (including investment in R&D) gives rise to a 30% tax credit.

In order to be deductible, payments related to technical assistance, the transfer of technology, or royalties must be made directly to companies with the required technical capabilities to provide the corresponding service. Payments to foreign affiliates are deductible if they respect the arm's-length principle.

Net operating losses can be carried forward up to 10 years (15 years for deep-water operations related to oil extraction activities), subject to adjustments for inflation. The carryback of losses is not permitted.

Non-deductible items include penalties, unauthorised donations, contingencies, indemnities, goodwill, exempt salaries, etc.

Other Corporate Taxes

After their first year of operations, companies may be subject to employee profit-sharing tax (10%), as well as special excise taxes on production and services (tax losses cannot be applied against the profit-sharing base, and no later than May of the year following the year in which the profits were generated).
The transfer of real estate is subject to a tax at rates ranging from 2% to 5% on the highest of the value of the transaction, fair market value, or registered municipality value (some exceptions apply). Real property taxes are levied by the states at different rates.

Companies engaged in oil exploration and production are subject to a special tax regime as set out in the Hydrocarbons Revenue Law.

Social security contributions are based on the daily salary plus any other compensation paid to the employee, with rates varying according to the base salary of their Mexican employees and the type of concepts for which the compensation is given to the employee (ranging from 15% to 25%).

The acquisition of new vehicles is subject to taxation, while the different states may impose a tax on the ownership of vehicles. Mexico does not levy stamp duties.

Other Domestic Resources

Mexican Federal Tax Administration

Doing Business: Mexico, to obtain a summary of taxes and mandatory contributions.

Country Comparison For Corporate Taxation

Accounting System

Accounting Standards

Accounting standards are set by regulatory bodies, such as the Mexican Council for Research and Development of Financial Information Standards. Mexican companies are required to prepare their financial statements in Spanish and according to Mexican Financial Information Standards (NIF, formerly known as Generally Accepted Accounting Principles or PCGA). Accounting registries and books of account must be recorded in Spanish.

Accounting Regulation Bodies

Mexican Council for Research and Development of Financial Information Standards

Accounting Law

The General Law for Commercial Enterprises of 1934, Regulatory Law of Banking and Public Credit Service, Law on Systems for Retirement savings and the Tax Federation Code of 1987

Difference Between National and International Standards (IAS/IFRS)

The National Banking and Securities Commission of Mexico (Comisión Nacional Bancaria y de Valores (CNBV)) fully adopted IFRS Standards for financial reporting in 2012. The Mexican Financial Reporting Standards Board (CINIF) has also been eliminating differences between IFRS and Mexican Financial Reporting Standards (MFRS), which is one of the frameworks that can still be used by SMEs.

Accounting Practices

Tax Year

The fiscal year begins on 1 January and ends on 31 December of the same year.

Accounting Reports

There are two essential structures:

- The balance sheet, which reflects the financial situation of the enterprise and provides information about the assets, liabilities and capital on a particular date (the last day of the fiscal year).

- The profit and losses report, reflects the income, expenses, loss and profit obtained during that particular period (typically each trimester or fiscal year).

Publication Requirements

The balance sheet, the profit and loss account statements and the daily ledger are mandatory components. All accounts are published annually.
Corporations with gross income exceeding MXN 100 million, assets exceeding MXN 79 million or with at least 300 employees (in every month during the tax year) may file with the tax authorities a special report (dictamen fiscal) prepared by an independent public accountant. If the report is filed, the tax authorities will not audit on general principles, but instead review to verify that the audit was properly carried out.

Accountancy Profession

Accountants

The diploma of public accountant is required to practice the profession in the country. You can access the website of the Instituto Mexicano de Contadores Publicos, A.C.

Professional Accountancy Bodies

Mexican Institute of Public Accountants

Member of the International Federation of Accountants (IFAC)

Yes

Allowable Deductions and Tax Credits

Deductions are subject to an annual limit equal to the lesser of 15% of the yearly overall income of the taxpayer or an amount equal to five annual UMA (a maximum of MXN 175,505 in 2022).
Deductions are granted for business expenses, medical, hospital and dental expenses as well as a limited amount of medical insurance, retirement annuities, mortgage interest, etc. Personal allowances are also granted to the taxpayer and his or her dependents.
Contributions made to authorised charities are deductible, limited to 7% of the prior year's taxable income. Home mortgage interest (adjusted for inflation) is deductible, subject to certain limits.
Taxpayers are allowed to deduct tuition expenses paid for their spouse, children, parents, and themselves. The maximum amount deductible per student varies from MXN 12,900 to MXN 24,500, depending on the level of education.
Resident taxpayers are allowed to deduct un-reimbursed medical, dental, nutritionist, psychologist, health insurance premiums, and funeral expenses for themselves and their dependents when they are not paid in cash.

Business owners and independent professionals can generally enjoy the same deductions as corporations.

More information regarding deductions can be found on the Mexican Federal Tax Administration website.

Special Expatriate Tax Regime

Residents must pay taxes for their worldwide income, non-residents must pay only for income earned from Mexican sources. No special regime applies to expatriates.
If an employee is considered a non-resident for Mexican tax purposes, the tax rate applicable to compensation will vary from 15% (MXN 125,900 to 1 million) to 30% (above MXN 1 million). The first MXN 125,900 of employment income received in a 12-month floating period will be tax-exempt.
Non-residents are subject to withholding taxes on Mexican-source interest income, with rates between 0% and 35%. Gains arising from sales of real property located in Mexico and the sale of shares of Mexican companies outside the Mexican stock exchange are also subject to taxation: in general, the non-resident investor can elect to pay either a flat rate of 25% of the gross proceeds or 35% of the net gain. Sales of shares in the Mexican stock exchange are subject to a flat 10% tax withholding.

Capital Tax Rate

There are no taxes on estate or inheritance, therefore they are treated as normal income. A local real estate property tax may apply. A 10% withholding tax is applied to dividends paid out to resident individuals. A 25% withholding tax is applied to income received by non-residents from the lease of real and personal property.
Employees have to contribute to social security according to varying rates and subject to various limits based on multiples of the UMA, up to a maximum of MXN 22,243 (2021).
Real property taxes are levied by the states at different rates.