Corporate taxation is a single federal tax regime (income tax and value added tax (VAT)).
State or municipal taxes are payable on real estate and housing, among other things. No income tax or VAT is payable at the state or city level.
In general terms, corporate entities pay income tax at a rate of 30% and VAT at a rate of 16% or 0% (for specific cases). A special tax on production and services (excise tax) applies to specific taxpayers for certain activities (eg, production of alcoholic beverages or tobacco products). Rates vary depending on the type of product or service.
Corporate income tax is imposed on a company’s profits. The bases of VAT and excise tax depend on the activity carried out by the taxpayer.
Yes, depending on the type of income, the treatment for income tax purposes may vary (eg, the transfer of shares with regard to dividends).
Mexican companies are taxed on their worldwide income.
Yes, tax losses can be utilised on a carry-forward basis (up to 10 years). However, carryback of losses is not permitted. Foreign losses cannot be utilised.
There is a concept of beneficial ownership, but this is not intended to be used to allocate income to a specific person for tax purposes. In this respect, the legal owner of the income is the party that is taxed.
Income tax at a rate of 30% is levied on the majority of income received by a legal entity. The rate may change depending on the type of income and/or the taxpayer (eg, income for the transfer of shares is taxed differently when the taxpayer is a foreign resident for tax purposes).
Yes, trusts (when performing business activities) and profit-sharing agreements are also subject to corporate taxes.
Special rules apply to real estate investment trusts (“FIBRAS”) and manufacturing regime. National cinematographic and theatrical productions, as well as investments in high-performance sports, electric vehicle power feeders, technology and R&D projects, benefit from federal incentives.
Taxpayers operating in the northern and southern border region may avail of tax benefits related to income tax and value added tax.
The Income Tax Law provides for a tax-neutral regime for certain qualifying corporate restructurings (eg, mergers, spin-offs). This regime is applicable to entities that are resident in Mexico for tax purposes and is subject to the fulfilment of certain requirements.
Mexican companies may elect to calculate their taxable base on a cash basis to the extent that:
- their income is less than MXN 35 million; and
- they have been incorporated by individuals.
Taxpayers must calculate their taxable base in Mexican pesos and submit electronic accounting records to the tax authorities on a monthly basis.
Intangibles are subject to income tax. Non-residents are subject to withholding income tax (the rate may vary depending on the type of income and/or the recipient).
Intangible assets may be deducted at a maximum annual amortisation rate depending on their lifespan.
Yes, employers’ pension contributions, including social security, are tax deductible.
No.
No.
No.
Assets are depreciated annually, applying a maximum specific rate depending on the type of asset.
Yes, the Income Tax Law establishes a tax incentive for investments in research and development. In addition, special rules apply to:
- real estate investment trusts (“FIBRAS”);
- national cinematographic and theatrical productions; and
- investments in high-performance sports and electric vehicle power feeders, technology and R&D projects.
In general terms, purchased inventory may be deducted as the cost of goods sold when such goods are effectively sold. Mexican companies can elect a specific cost valuation method.
Taxpayers must calculate the gain or loss for derivatives carried out each fiscal year. Derivatives are exempt from value added tax.
Under the Income Tax Law, non-resident corporate entities are taxed only on their Mexican-source income. In general terms, tax is calculated and withheld by the Mexican resident that makes the payment. The withholding rate may vary depending on the type of income and/or the recipient.
In accordance with the Income Tax Law, certain payments made by corporate taxpayers to non-residents are subject to withholding tax depending on:
- the type of income; and
- whether there is a Mexican source of wealth.
The rates may vary depending on the type of income and/or the recipient. The withholding tax rates may be reduced under an applicable double tax treaty.
Yes, in principle, subject to the fulfilment of several requirements set forth in Mexican law and any applicable double tax treaty.
Foreign taxes may be credited against Mexican tax, but the credit is limited to the amount of Mexican tax payable on the foreign income.
In the case of an asset acquisition, the buyer obtains a step-up basis for the assets acquired for income tax purposes. Otherwise, in a share purchase, the buyer does not obtain a step-up basis for the assets acquired.
Yes, any legal entity that changes its tax residence must file a tax notice before leaving Mexico; otherwise, it is still deemed to be a resident of Mexico for tax purposes. If the new tax residence is located in a country that is considered under Mexican law to have a preferential tax regime (tax haven), it will remain a Mexican tax resident for the year in which tax notice is filed and the following five years.
Both.
The latest Mexican tax reforms introduced anti-avoidance rules in accordance with the recommendations under the Organisation for Economic Co-operation and Development base erosion and profit shifting project related to issue such as:
- transfer pricing;
- the use of hybrid entities; and
- controlled foreign corporation rules.
There are several anti-avoidance rules related to issues such as:
- transfer pricing;
- interest deduction limitations;
- controlled foreign corporations;
- payments to low-tax jurisdictions; and
- transactions that lack a business purpose.
Yes, the Mexican tax authorities may issue rulings concerning inquiries issued by taxpayers regarding specific situations.
Yes, Mexican resident entities are obliged to determine their taxable income and deductions considering prices and amounts in accordance with the arm’s-length principle.
As a general rule, the period is five years, with a possible extension to 10 years (eg, if the taxpayer is not registered; or in case of non-compliance with tax returns or book-keeping obligations).
Mexican entities must file their annual tax return within the first three months of the following year (ie, by the end of March).
At the corporate level, failure to file an annual tax return in time can result in administrative sanctions (surcharges, restatements and penalties). No penalties are applicable if the taxpayer pays spontaneously.
At the executive level, joint liability to shareholders can be triggered in certain cases.
Yes, the Income Tax Law establishes an obligation for certain companies (depending on their transactions and revenues):
- to comply with country-by-country reporting; and
- to submit master and local files on transfer pricing matters.
Since fiscal year 2014, a tax integration regime has allowed a group to defer income tax for up to three years. Several formalities and requirements must be fulfilled to obtain authorisation from the Mexican tax authorities.
VAT and special tax on production and services (excise tax). The latter is applicable only to specific products and services (eg, alcohol and tobacco).
If the transfer of interest in a corporation is considered a sale according with Income Tax Law, there is a tax due which is computed as the difference between the tax basis of the shares and the fair market value. In certain cases (eg, merger or spin-offs) could be tax free to the extent it meets certain requirements.
The sale of shares is exempt from VAT.
No tax increases are planned for the next 12 months in domestic tax matters. For international tax purposes, Mexico has deposited its instrument of ratification for the Multilateral Base Erosion and Profit Shifting Convention. This instrument will enter into force in Mexico as from July 2023 and will apply as from 2024.
As Mexico is a jurisdiction that has tax regulations with a special formal approach, it is vital to comply with tax obligations within the specified deadlines and to meet all formal requirements, in order to ensure that no substantive tax implications arise.
