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Finance & Tax Advisory
Taxes in Mexico
INCOME TAX
Income Tax in Mexico is a federal tax payable at a flat 30% rate for corporations, like a direct tax on the profit obtained. Residents in Mexico, residents abroad with a permanent establishment in Mexico or sources of wealth in Mexico, are compelled to do monthly prepayments under certain business conditions to the Mexican SAT authority. Transfer pricing regulations in Mexico are ruled by the Income Tax Law and control transactions between related companies at local and international level. Maquila (IMMEX) operations are specifically ruled by the Safe Harbor methodology which is to determine the taxable profit out of the higher amount between 6.9% of the total value of assets and inventories or 6.5% of the total amount of cost and expenses of the operations must be considered.
PERMANENT ESTABLISHMENT – (PE)
Any foreign resident, person or company, that is generating wealth through operations in Mexico, by itself or through others must tribute ISR upon the generated wealth that is attributed to the Operation in Mexico. The 2020 tax reform in Mexico nsolidifies the requirement for all foreign residents to obtain a tax ID in Mexico, even despite previous exemptions for Shelter service providers.
Important notes to consider for the Income Tax:
- Annual Income Tax reports need to be submitted to the SAT tax authority no later than March 31st
- A positive balance of federal tax can be offset only against the same federal tax (in the second year of operation)
- If the company has surplus Income Tax at the end of the year, they can request the surplus amount to SAT
- If the company has Income Tax to pay at the end of the year they must pay this tax amount no later than March 31st
WANT TO KNOW MORE ABOUT THE IMMEX PROGRAM IN MEXICO?
Safe Harbor
In order to determine the income tax base in the Safe Harbor calculation, the higher amount between 6.9% of the total value of the assets and inventories, or 6.5% of the total amount of costs and expenses of the operation must be considered.
First Methodology:
6.9% of the total value of the assets and inventories use in the maquila (IMMEX) operation during the fiscal year, including those owned by the person residing in the country, or residents abroad or any of its related parties, even when they have been granted in use or temporary enjoyment to said IMMEX.
Second Methodology:
6.5% of the total amount of operating costs and expenses of the operation in question, incurred by the person residing in the country, determined in accordance with the regulations of financial information, including those incurred by residents abroad, except for the following:
- the value corresponding to the acquisition of merchandise, as well as of raw materials, semi-finished or finished products, used in the operation of IMMEX, carried out on their own account by residents abroad
- The deduction of investments from fixed assets, expenses and deferred charges owned by the IMMEX company, destined to the IMMEX operation, will be calculated by applying the provisions of this law
- The effects of inflation determined in the rules of financial information
- Financial expenses should not be considered
- Extraordinary or non-recurring expenses of the operation should not be considered in accordance with financial reporting standards
VALUE-ADDED TAX
Value-Added tax is payable at a general rate of 16% on sales of goods and services, import of goods and lease payments. Some exemptions apply such as the sale of medicines, food products, and related, primary sector activities such as agriculture and livestock, sale of land, residential construction and rentals, medical services, salaries and wages.
Declarations must be done monthly, and taxpayers can apply for a credit on the VAT paid on purchases and expenses versus VAT collected from clients on sales. Refunds of VAT are available for companies showing higher credits than collections.
VAT must be withheld in the following cases:
- Commissions paid to individuals
- Services provided by individuals
- Tangible goods leased by individuals
- Ground transportations of goods services (4% retention rate)
- Outsourcing services (6% retention rate)
- Waste purchases to be used in your industrial activity or for sales
- Purchases to residents abroad without permanent establishment in the country
What is VAT Certification?
Temporary imports under the IMMEX Program and other similar programs are subject to the general 16% VAT rate. Such imports may qualify for VAT relief when obtaining special certification from the tax authorities related to the adequate control of such imports. The relief is applied in the form of an immediate VAT credit when clearing customs, which means that the temporary import is done on a cashless basis for VAT.
The primary exemptions of VAT:
- the sale of land transactions
- credit instruments
- residential construction
- interest paid by banks
- medical services
- education
- salary and wages
- rentals of residential property
- the sale of non-amortisable certificates on real estate investment trusts (REITs).
The VAT law also taxes sales in Mexico of temporarily imported goods by non-residents to
- (a) other non-residents,
- (b) maquiladoras, or
- (c) companies in the automotive industry.
VAT paid by companies on their purchases and expenses related to VAT-added activities may usually be credited against their liability for VAT they collect from customers on their own sales, services rendered, etc.
VAT is calculated for each calendar month as a final tax. Additionally, VAT overpayments may be used to offset the tax liabilities arising from other federal taxes.
PAYROLL TAX
Payroll Tax is a state fee that is paid when carrying out transactions in the company’s labor relations. For example, the payment of wages and salaries, amount paid for overtime, seniority bonuses, are considered remuneration for the payment of this tax.
It is declared monthly to the Finance Secretary of the corresponding state, and ranges from 2-3%. The application of the tax starts from the first payment made to the workers. It varies according to the state, as well as the laws that support it, which are found within the Financial Code of each of them.
For the payroll tax calculation, the following premiums are declared:
- Monthly, biweekly or weekly wages and salaries
- Overtime work, commissions, compensations
- Awards, bonuses, and incentives given to employees, seniority premiums
- Employer participation in savings fund
- Payments made to administrators, managers or other workers of the company
PROFIT-SHARING
Profit-Sharing is more like a benefit to workers than it is an additional tax.
Employers in Mexico are obligated to pay workers a share of the profits based on their annual tax declaration. The amount to be distributed among the workforce is 10% of the profits before income tax. It must be paid within 60 days of the annual declaration of taxes to the authorities.
Profit-sharing must be paid within 60 days after the payment or submission of the annual tax declaration even if there is an objection of the union or the employees. Also the employer has 10 labor days to deliver a copy of the annual tax declaration to the union or to the representative of the employees.
For profit-sharing calculation, the following are considered:
- The number of days worked by each one during the year
- Proportional wages paid during the year
The profit distribution of each employee will be capped to the highest average of the profit-sharing received by the employees in the past 3 fiscal years or 3 months of its regular salary.
Companies operating in their first year of operation can be exempt from profit-sharing. Directors, General Managers, and Administrators do not participate in profit-sharing of the company.
WANT TO KNOW MORE ABOUT EMPLOYMENT COSTS IN MEXICO?
MISCELLANEOUS
Interests, Royalties and Technical Assistance Fees interests paid to a resident abroad with permanent establishment in Mexico are subject to a withholding tax rate of 4.9% to 35%. Royalties paid to a resident abroad are subject to a withholding tax of 35% and the rate may be reduced with a tax treaty. Technical Assistance paid fees are subject to a 25% withholding tax, unless the tax is reduced with a treaty.
PROPERTY / REAL ESTATE TAX
Property / Real Estate Tax in Mexico, the acquisition is between 2-4% of assessed value of the property at the moment of the purchase. Then it will be paid annually and is calculated at a fraction of the value of the property.
A cadastral appraisal has to be performed, which is a calculation that takes into account characteristics of a property, such as the unit values of the land and construction, multiplies them by the surface of the land, and the result determines the cadastral value, which is used to determine the amount of taxes that a person must pay for owning the property. The predial fee may vary according the location of the property.
These values are compared with a maximum and minimum range of the property price. Based on this result, and on the result of the cadastral appraisal, the value of the taxes that the owner of the property must pay is determined. This payment normally has to be performed in January and the municipalities may offer incentives or discounts for early payments, for example 20% discount of the fee.
Municipalities use the predial collections to improve or change some aspects of the city of the municipality.
How is the property tax calculated?
To calculate the property tax, the authorities take into account the following values:
- Location of the property
- Land value
- Construction value
- Property type
- Property characteristics (number of floors, age, state of materials)
- The land’s surface
- Construction surface
VALUE-ADDED TAX
PAYROLL TAX
Taxes in Mexico
INCOME TAX
Income Tax in Mexico is a federal tax payable at a flat 30% rate for corporations, like a direct tax on the profit obtained. Residents in Mexico, residents abroad with a permanent establishment in Mexico or sources of wealth in Mexico, are compelled to do monthly prepayments under certain business conditions to the Mexican SAT authority. Transfer pricing regulations in Mexico are ruled by the Income Tax Law and control transactions between related companies at local and international level. Maquila (IMMEX) operations are specifically ruled by the Safe Harbor methodology which is to determine the taxable profit out of the higher amount between 6.9% of the total value of assets and
inventories or 6.5% of the total amount of cost and expenses of the operations must be considered.
PERMANENT ESTABLISHMENT – (PE)
Any foreign resident, person or company, that is generating wealth through operations in Mexico, by itself or through others must tribute ISR upon the generated wealth that is attributed to the Operation in Mexico. The 2020 tax reform in Mexico nsolidifies the requirement for all foreign residents to obtain a tax ID in Mexico, even despite previous exemptions for Shelter service providers.
The primary exemptions of VAT:
- the sale of land transactions
- credit instruments
- residential construction
- interest paid by banks
- medical services
- education
- salary and wages
- rentals of residential property
- the sale of non-amortisable certificates on real estate investment trusts (REITs).
The VAT law also taxes sales in Mexico of temporarily imported goods by non-residents to (a) other non-residents, (b) maquiladoras, or (c) companies in the automotive industry.
VAT paid by companies on their purchases and expenses related to VAT-added activities may usually be credited against their liability for VAT they collect from customers on their own sales, services rendered, etc. VAT is calculated for each calendar month as a final tax. Additionally, VAT overpayments may be used to offset the tax liabilities arising from other federal taxes.
PAYROLL TAX
For the payroll tax calculation, the following premiums are declared:
- Monthly, biweekly or weekly wages and salaries
- Overtime work
- Awards, bonuses, and incentives given to employees
- Commissions
- Compensations
- Seniority premiums
- Employer participation in savings fund
- Payments made to administrators, managers or other workers of the company
PROFIT-SHARING
Profit-Sharing is more like a benefit to workers than it is an additional tax.
Employers in Mexico are obligated to pay workers a share of the profits based on their annual tax declaration. The amount to be distributed among the workforce is 10% of the profits before income tax. It must be paid within 60 days of the annual declaration of taxes to the authorities.
Profit-sharing must be paid within 60 days after the payment or submission of the annual tax declaration even if there is an objection of the union or the employees. Also the employer has 10 labor days to deliver a copy of the annual tax declaration to the union or to the representative of the employees.
For profit-sharing calculation, the following are considered:
- The number of days worked by each one during the year
- Proportional wages paid during the year
The profit distribution of each employee will be capped to the highest average of the profit-sharing received by the employees in the past 3 fiscal years or 3 months of its regular salary.
Companies operating in their first year of operation can be exempt from profit-sharing. Directors, General Managers, and Administrators do not participate in profit-sharing of the company.
PROPERTY / REAL ESTATE
Property / Real Estate Tax in Mexico, the acquisition is between 2-4% of assessed value of the property at the moment of the purchase. Then it will be paid annually and is calculated at a fraction of the value of the property.
A cadastral appraisal has to be performed, which is a calculation that takes into account characteristics of a property, such as the unit values of the land and construction, multiplies them by the surface of the land, and the result determines the cadastral value, which is used to determine the amount of taxes that a person must pay for owning the property. The predial fee may vary according the location of the property.
These values are compared with a maximum and minimum range of the property price. Based on this result, and on the result of the cadastral appraisal, the value of the taxes that the owner of the property must pay is determined. This payment normally has to be performed in January and the municipalities may offer incentives or discounts for early payments, for example 20% discount of the fee.
Municipalities use the predial collections to improve or change some aspects of the city or the municipality.
How is the property tax calculated?
To calculate the property tax, the authorities take into account the following values:
- Location of the property
- Land value
- Construction value
- Property type
- Property characteristics (number of floors, age, state of materials)
- The land’s surface
- Construction surface
Taxes in Mexico
INCOME TAX
The INCOME TAX in Mexico is a federal tax payable at a flat 30% rate for corporations, like a direct tax on the profit obtained. Residents in Mexico, residents abroad with a permanent establishment in Mexico or sources of wealth in Mexico, are compelled to do monthly prepayments under certain business conditions to the Mexican SAT authority. Transfer pricing regulations in Mexico are ruled by the Income Tax Law and control transactions between related companies at local and international level. Maquila operations are specifically ruled by the Safe Harbor methodology which is to determine the taxable profit out of the higher amount between 6.9% of the total value of assets and inventories or 6.5% of the total amount of cost and expenses of the operations must be considered.
PERMANENT ESTABLISHMENT – (PE) Any foreign resident, person or company, that is generating wealth through operations in Mexico, by itself or through others must tribute ISR upon the generated wealth that is attributed to the Operation in Mexico. The 2020 tax reform in Mexico nsolidifies the requirement for all foreign residents to obtain a tax ID in Mexico, even despite previous exemptions for Shelter service providers.
VALUE-ADDED TAX
The VALUE-ADDED tax is payable at a general rate of 16% on sales of goods and services, import of goods and lease payments. Some exemptions apply such as the sale of medicines, food products, and related, primary sector activities such as agriculture and livestock, sale of land, residential construction and rentals, medical services, salaries and wages.
Declarations must be done monthly, and taxpayers can apply for a credit on the VAT paid on purchases and expenses versus VAT collected from clients on sales. Refunds of VAT are available for companies showing higher credits than collections.
VAT must be withheld in the following cases:
- Commissions paid to individuals
- Services provided by individuals
- Tangible goods leased by individuals
- Ground transportations of goods services (4% retention rate)
- Outsourcing services (6% retention rate)
- Waste purchases to be used in your industrial activity or for sales
- Purchases to residents abroad without permanent establishment in the country
PAYROLL TAX
Mexico's PAYROLL TAX is a state fee that is paid when carrying out transactions in the company’s labor relations. For example, the payment of wages and salaries, amount paid for overtime, seniority bonuses, are considered remuneration for the payment of this tax.
It is declared monthly to the Finance Secretary of the corresponding state, and ranges from 2-3%. The application of the tax starts from the first payment made to the workers. It varies according to the state, as well as the laws that support it, which are found within the Financial Code of each of them.
For the payroll tax calculation, the following premiums are declared:
- Monthly, biweekly or weekly wages and salaries
- Overtime work
- Awards, bonuses, and incentives given to employees
- Commissions
- Compensations
- Seniority premiums
- Employer participation in savings fund
- Payments made to administrators, managers or other workers of the company
PROFIT-SHARING
PROFIT-SHARING Employers in Mexico are obligated to pay workers a share of the profits based on their annual tax declaration. The amount to be distributed among the workforce is 10% of the profits before income tax. It must be paid within 60 days of the annual declaration of taxes to the authorities.
Profit-sharing must be paid within 60 days after the payment or submission of the annual tax declaration even if there is an objection of the union or the employees. Also the employer has 10 labor days to deliver a copy of the annual tax declaration to the union or to the representative of the employees.
For profit-sharing calculation, the following are considered:
- The number of days worked by each one during the year
- Proportional wages paid during the year
The profit distribution of each employee will be capped to the highest average of the profit-sharing received by the employees in the past 3 fiscal years or 3 months of its regular salary.
Companies operating in their first year of operation can be exempt from profit-sharing. Directors, General Managers, and Administrators do not participate in profit-sharing of the company.
INTEREST, ROYALTIES, ETC.
Interests, Royalties and Technical Assistance Fees interests paid to a resident abroad with permanent establishment in Mexico are subject to a withholding tax rate of 4.9% to 35%. Royalties paid to a resident abroad are subject to a withholding tax of 35% and the rate may be reduced with a tax treaty. Technical Assistance paid fees are subject to a 25% withholding tax, unless the tax is reduced with a treaty.
PROPERTY / REAL ESTATE TAX
The PROPERTY / REAL ESTATE TAX in Mexico, the acquisition is between 2-4% of assessed value of the property at the moment of the purchase. Then it will be paid annually and is calculated at a fraction of the value of the property.
A cadastral appraisal has to be performed, which is a calculation that takes into account characteristics of a property, such as the unit values of the land and construction, multiplies them by the surface of the land, and the result determines the cadastral value, which is used to determine the amount of taxes that a person must pay for owning the property. The predial fee may vary according the location of the property.
How is the property tax calculated?
To calculate the property tax, the authorities take into account the following values:
- Location of the property
- Land value
- Construction value
- Property type
- Property characteristics (number of floors, age, state of materials)
- The land’s surface
- Construction surface
These values are compared with a maximum and minimum range of the property price. Based on this result, and on the result of the cadastral appraisal, the value of the taxes that the owner of the property must pay is determined. This payment normally has to be performed in January and the municipalities may offer incentives or discounts for early payments, for example 20% discount of the fee.
Municipalities use the predial collections to improve or change some aspects of the city or the municipality.
TABLE OF CONTENTS
OUR SERVICES
Taxes in Mexico
- Income
- Value-Added
- Payroll Tax
- Profit-Sharing
- Interest, Royalties, Etc.
- Property / Real Estate
Income Tax in Mexico is a federal tax payable at a flat 30% rate for corporations, like a direct tax on the profit obtained. Residents in Mexico, residents abroad with a permanent establishment in Mexico or sources of wealth in Mexico, are compelled to do monthly prepayments under certain business conditions to the Mexican SAT authority. Transfer pricing regulations in Mexico are ruled by the Income Tax Law and control transactions between related companies at local and international level. Maquila operations are specifically ruled by the Safe Harbor methodology which is to determine the taxable profit out of the higher amount between 6.9% of the total value of assets and inventories or 6.5% of the total amount of cost and expenses of the operations must be considered.
PERMANENT ESTABLISHMENT – (PE)
Any foreign resident, person or company, that is generating wealth through operations in Mexico, by itself or through others must tribute ISR upon the generated wealth that is attributed to the Operation in Mexico. The 2020 tax reform in Mexico nsolidifies the requirement for all foreign residents to obtain a tax ID in Mexico, even despite previous exemptions for Shelter service providers.
Value-Added tax is payable at a general rate of 16% on sales of goods and services, import of goods and lease payments. Some exemptions apply such as the sale of medicines, food products, and related, primary sector activities such as agriculture and livestock, sale of land, residential construction and rentals, medical services, salaries and wages.
Declarations must be done monthly, and taxpayers can apply for a credit on the VAT paid on purchases and expenses versus VAT collected from clients on sales. Refunds of VAT are available for companies showing higher credits than collections.
VAT must be withheld in the following cases:
- Commissions paid to individuals
- Services provided by individuals
- Tangible goods leased by individuals
- Ground transportations of goods services (4% retention rate)
- Outsourcing services (6% retention rate)
- Waste purchases to be used in your industrial activity or for sales
- Purchases to residents abroad without permanent establishment in the country
Payroll Tax is a state fee that is paid when carrying out transactions in the company’s labor relations. For example, the payment of wages and salaries, amount paid for overtime, seniority bonuses, are considered remuneration for the payment of this tax.
It is declared monthly to the Finance Secretary of the corresponding state, and ranges from 2-3%. The application of the tax starts from the first payment made to the workers. It varies according to the state, as well as the laws that support it, which are found within the Financial Code of each of them.
For the payroll tax calculation, the following premiums are declared:
- Monthly, biweekly or weekly wages and salaries
- Overtime work
- Awards, bonuses, and incentives given to employees
- Commissions
- Compensations
- Seniority premiums
- Employer participation in savings fund
- Payments made to administrators, managers or other workers of the company
Profit-Sharing Employers in Mexico are obligated to pay workers a share of the profits based on their annual tax declaration. The amount to be distributed among the workforce is 10% of the profits before income tax. It must be paid within 60 days of the annual declaration of taxes to the authorities.
Profit-sharing must be paid within 60 days after the payment or submission of the annual tax declaration even if there is an objection of the union or the employees. Also the employer has 10 labor days to deliver a copy of the annual tax declaration to the union or to the representative of the employees.
For profit-sharing calculation, the following are considered:
- The number of days worked by each one during the year
- Proportional wages paid during the year
The profit distribution of each employee will be capped to the highest average of the profit-sharing received by the employees in the past 3 fiscal years or 3 months of its regular salary.
Companies operating in their first year of operation can be exempt from profit-sharing. Directors, General Managers, and Administrators do not participate in profit-sharing of the company.
Property / Real Estate Tax in Mexico, the acquisition is between 2-4% of assessed value of the property at the moment of the purchase. Then it will be paid annually and is calculated at a fraction of the value of the property.
A cadastral appraisal has to be performed, which is a calculation that takes into account characteristics of a property, such as the unit values of the land and construction, multiplies them by the surface of the land, and the result determines the cadastral value, which is used to determine the amount of taxes that a person must pay for owning the property. The predial fee may vary according the location of the property.
How is the property tax calculated?
To calculate the property tax, the authorities take into account the following values:
- Location of the property
- Land value
- Construction value
- Property type
- Property characteristics (number of floors, age, state of materials)
- The land’s surface
- Construction surface
These values are compared with a maximum and minimum range of the property price. Based on this result, and on the result of the cadastral appraisal, the value of the taxes that the owner of the property must pay is determined. This payment normally has to be performed in January and the municipalities may offer incentives or discounts for early payments, for example 20% discount of the fee.
Municipalities use the predial collections to improve or change some aspects of the city or the municipality.
ROYALTIES
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DOING BUSINESS IN MEXICO
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