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Tax Specialist Group
Corporate Tax Guide: Mexico
Mexico

Members:

The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
Mexico – entire country.
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
30% over a net basis for legal entities.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
Worldwide income.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
Yes. Same CIT of 30%.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
Mainly used: Corporation (SA), Partnership (SC), Limited Liability Company (SRL, flow-through entity for US taxation), Co-partnership, Joint Venture (SA), Consumer’s Cooperatives and Producer’s Cooperatives.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
30% of capital gain from sales of real property (i.e., land), shares and other fixed assets.

Non-residents are subject to a 25% tax rate on gross income or a 35% rate on net income; particular requirements must be met before the transactions takes place.

Capital gains derived from sales of publicly- traded shares by individuals or non-Mexican residents are taxed at a rate of 10%.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
A Mexican holding company may obtain an authorization no later than 15 August of the prior year for which the integration will apply to compute income tax on an integration regime, but each company of the group is responsible for filing and paying the corporate tax individually.

Certain requirements should be observed to qualify under this regime, and particularly if 80% or more of the holding company’s shares are owned by a foreign corporation.

Under this regime an individual company is allowed to offset losses against profits of other companies in the same group during a three-year deferral period.

The deferral benefit must be paid before the three-year deferral period if:
  1. a member leaves the integrated group;
  2. the ownership percentage is reduced;
  3. the group is disintegrated.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
Research and Development Incentive:

A 30% tax credit for research and development expenses and investments. The tax credit will be equal to current-year research and development expenses in excess of the average research and development expenses incurred in the previous three years.

Accelerated (Immediate) Deduction of New Fixed Asset Items:

Application of higher depreciation percentages (close to 100%) to the investment amount. Limited to certain type of taxpayers with maximum revenue generated in the previous fiscal year of $100mio MXN.

Repatriation of Capital:

A tax incentive is granted to individuals and entities resident in Mexico and to residents abroad with a permanent establishment in the country, to return resources that have been maintained abroad until 31 December 2016.

The incentive applies to the total amount of the resources returned to the country; rate of 8% with no deduction allowed for income tax.

Incentives on Real Estate Investment:

There are many tax benefits for qualifying real estate investment trusts in Mexico. FIBRAS.

On the Hiring People with Disabilities:

An incentive for employers that offers a credit equivalent to 100% of the income tax corresponding to the salary paid to workers/employees with certain types of disabilities. An additional deduction, equivalent to 25% of the salary, paid to workers/employees over the age of 65.

Tax Incentive for National Film Production:

A tax credit equivalent to the amount contributed in the relevant fiscal year to projects of investment in national film production. This tax credit is capped at 10% of the total income tax of the prior year, provided certain requirements are met.

Incentives for Investments in Theatre Production:

A tax credit equivalent to the amount contributed to investment projects in theatrical productions in Mexico. This tax credit shall not be accruable for income tax purposes. Under no circumstance will this incentive exceed 10% of the income tax owed for the fiscal year prior to the one in which it is applied.

Capital Investment:

Several benefits are granted to encourage risk capital investments in Mexico using a Trust.

Equipment of Power for Electric Vehicles:

Credit tax equivalent to 30% of the amount of the investment that is made in equipment of power for electric vehicles whenever it is available in public places.

Incentive of High Performance Sports:

A tax credit equivalent to the amount contributed to investment projects and infrastructure in specialized sports facilities and development of high performance of Mexican athletes. This tax credit shall not be accruable for income tax purposes. Under no circumstance will this incentive exceed 10% of the income tax owed for the fiscal year prior to the one in which it is applied.
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Yes. 3:1 debt-to-equity ratio. Interest deduction may be disallowed if exceeding the ratio.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Yes. There are several transfer pricing rules set forth in the Tax Legislation, which is based on the OECD principles. The acceptable transfer pricing methods are the comparable uncontrolled price method (CUP), the resale price method, the cost-plus method, the profit-split method, the residual profit-split method and the transactional net-margin method. If CUP is justifiably inapplicable, a different method may be applicable.

Following action 13 of BEPS report, starting 2017, certain taxpayers must file the Master File, Country-By-Country report.

The transfer pricing report is mandatory to be kept as part of the taxpayer’s records.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
A preferential tax regime (PTR) is deemed to exist if a “foreign entity” is subject to tax in that country at a rate less than 75% of the income tax that would be triggered in Mexico.
Passive income includes: interest, dividends, royalty payments, transfer of shares and other intangibles, commissions, agency income, capital gains derived from the sale of goods not located in the foreign country, income from services provided outside of said country, etc.

Income and profits subject to PTRs are taxed separately. The tax applicable to this type of income is payable along with the annual CIT return.

Certain exceptions may apply. Income earned in a PTR will be taxed when distributed, to the extent the income arises from a business activity. This exception applies if passive income such as interest, dividends, royalties, rents and certain capital gains represent more than 20% of the total income generated.

It is important to mention that, in Mexico, foreign entities are obliged to submit, in February of each year, an informative return for the income earned in a PTR in the previous year, along with the bank statement for deposits, investments, savings or any other type of bank account. Not submitting this return within the three months of its due date, or doing so with errors, may be treated as a felony offence.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
Please refer to the section Tax Incentives (8. above).
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
Yes. In general, a tax credit is allowed for foreign income tax paid. It is limited to the amount of Mexican tax incurred on the foreign-source portion of the company’s worldwide taxable income.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
Losses may be carried forward for 10 years. No carry-backs.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
Yes.
  • Income Tax: 55
  • TIEA: 18
  • LOB provisions: Some treaties have LOB or principal purpose test, most do not.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
TREATYNON-TREATY
Interest4.9%, 5%, 10%, 15%4.9%, 15%, 21%, 35%, 40%
Dividends0%, 10%, 15%10%
Royalty10% - 15%25%
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
Shall coincide with the calendar year. When legal entities begin operations after 1 January, the fiscal year shall be irregular for that year: it shall begin on the date operations start, and end on 31 December of the year in question.
This is the due date for filing a tax return. Where extensions are available, this is noted.
Corporate taxpayers are required to file annual CIT returns for the preceding calendar year by 31 March of the following year.

Employees’ profit sharing payments are generally due by 31 May of the year following that in which the corresponding profit was obtained.

Information returns also must be filed not later than 15 February each year, reporting on, among other things, the following parties and activities performed in the immediately preceding year:
  • Payments made to parties resident abroad.
  • Loans received from or guaranteed by non-residents.
  • Transactions conducted through a business trust.
  • Parties to which the taxpayer makes payments and withholds income tax.
  • Parties to which the taxpayer has made donations.
  • Parties to which the taxpayer has paid dividends, and the value of such payments.
  • Transactions carried out with suppliers and clients, either local or overseas.
The typical tax instalment requirements are noted.
Yes, typically monthly and based on previous year.
Taxpayers shall make monthly tax payments on account of the fiscal year.
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
The tax for the fiscal year shall be paid through a return filed at an authorized office in the term of three months next following the date of the end of the fiscal year.

Additionally, corporate taxpayers are required to make estimated payments of CIT by the 17th day of each month based on their estimated taxable income at the end of the previous month, and calculated principally by applying the profit factor to the cumulative monthly gross income.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
In general, the right of the tax authorities to collect taxes, review tax returns, or claim additional tax expires five years after the date the respective return is filed. However, in cases where the taxpayer has not secured a federal tax registration number, has no accounting records, has failed to keep accounting records for the required five-year period, or has not filed a tax return, the statute of limitations expires in ten years. Similarly, the period for claiming a refund of overpaid tax expires after five years.
If a country has exchange controls, this is noted, together with the main requirements.
No.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
Federal at 16% standard rate, 0% rate on certain cases and exports. There are some exempt activities.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
N/A
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
Generally none.
Where significant, other taxes are noted.
Payroll taxes, local taxes, depending on the state.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
TL allows the tax authorities to deem transactions to have occurred between related parties and to calculate the Mexican-source income arising from such transactions. This rule is intended to be applied to counter tax avoidance associated with preferential tax regimes and multinational companies. However, the scope may be broader based on the actual wording of the rule, given that it makes reference to Mexican-source income.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
When the sale is conducted in stock markets or in derivative markets recognized under the Securities Market Law, it is subject to a 10% income tax rate.
In certain cases, the 10% income tax on the sale of such shares does not apply, but the general treatment (i.e., 25% on the gross or alternatively 35% on the gain) must be applied.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Rulings are required and they are used by the authorities in special cases.
Taxpayers may submit a petition to the tax administration for a ruling in connection with the interpretation of tax provisions in specific cases that are not already under review by the tax authorities.
31. Other
Other important aspects of the tax system are noted.
Companies engaged in oil exploration and production are subject to a special tax regime as set out in the Hydrocarbons Revenue Law.

The legislation sets out the rights and responsibilities, including applicable contributions and taxes, of the Mexican government and private companies with respect to contracts for the exploration and extraction of hydrocarbons. The law also establishes a framework for government/private company participation in such activities and a tax regime for income arising from such activities. Mexican state-owned production entities and Mexican corporations may participate in public tenders individually, as joint ventures or as consortia.