Accountancy in Mexico

>> Taxation in Mexico

Reforms made paying taxes in Mexico easier for companies as the business flat tax was abolished—though they also made paying taxes costlier, as they allowed only a portion of salaries to be deductible.

There are several federal tax laws, which need to be taken into consideration for doing business in Mexico:        

  • Federal Tax Code
  • Income Tax Law
  • Value-Added Tax Law
  • Social Security Law
  • Housing Tax Law
  • Federal Labor Law

Federal tax code

The Federal Tax Code provides the basic administration procedures applicable to federal tax laws. It defines the different types of taxes, taxpayers, domicile, residency, as well as rules relating to administrative procedures, litigation, penalties, reimbursement and compensation of taxes, statute of limitations and other related matters.

Income tax law

The following are key aspects of the Income Tax Law:

  • Mexican companies are subject to income tax on their taxable income at a fixed rate of 30%. Taxable income is determined by subtracting authorized deductions from total taxable revenues.
  • Individuals who are considered Mexican residents are subject to income tax on their worldwide income.
  • Non-resident individuals and corporations who have no permanent establishment in Mexico are required to pay income tax only on revenue obtained from sources of wealth located in Mexico.
  • The annual tax return is due on March 31st, as all corporations must have a calendar fiscal year. Estimated tax payments are due by the 17th day of each month.
  • Dividends are subject to 10% withholding when such dividends are paid out from the “Net Tax Profit” account. Otherwise the withholding would be 40%.
  • The Net Tax Profit account is made up of the taxable income amount rather than book income, and the withholding would be 10%.
  • Recipients of dividends would gross up the dividend received and credit the tax paid by the corporation and/or the amount withheld.

Value added tax law

  • Value-added tax is levied on the value added to goods and services at each stage of the production process. Under this procedure, the final consumer pays the tax once on the total value-added at each level.
  • The general rate of the value-added tax is 16%. However, there is a 0% rate, mainly for export sales, including indirect exports by companies with an Export Program.
  • The Value-Added Tax Law provides that it is mandatory to pass on the tax on each sales invoice. The companies pay the difference between the tax passed on to the consumer and the tax paid by the company on its purchases.
  • Companies subject to 0% rate will be entitled to refund of the value-added tax paid on its purchases, or may compensate it against other Federal taxes.
  • Monthly payments are calculated based on the value-added tax actually paid or collected.

Electronic requirements  for accounting records

As part of the 2014 Mexican tax reform, the Federal Tax Code included a requirement for taxpayers to file accounting information with the tax authorities monthly.

Taxpayers are required to maintain accounting records through electronic systems that can create XML format files, which include the following:

  • Chart of Accounts
  • Trial Balance
  • Journal Entries

Transfer pricing requirements

Mexican transfer pricing provisions require that related parties charge an “arm’s- length” price for inter-company transactions.

Any transactions with Mexican or foreign residents which are related parties must be made at prices and terms like the ones that would have been used with unrelated parties.

A transfer pricing study is required to support the prices among related parties.

What are the details?
The following chart presents how many taxes and mandatory contributions the business must pay; how these taxes are filed and paid; and how much time taxpayers spend preparing, filing and paying three major taxes.

Mexico City:  Tax or mandatory  contribution Payments (number) Notes on payments Time (hours) Statutory tax rate Tax base Total tax rate (% of profit) Notes  on total tax rate
Employer paid  – payroll tax 1 online 3% gross salaries 3.38
Corporate  income tax 1 online 122 30% taxableprofit 25.56
Employer paid:  social security  contributions 1 online 64 various rates gross salaries 22.15
Property tax 1 online various rates property value 0.86
Vehicle tax 1 online various rates value of vehicle 0.04
Value added tax (VAT) 1 online 100 16% sale price 0.00 not  included
Employee paid: social security  contributions 0 jointly various rates gross salaries 0.00 withheld
Totals 6.0 286.0 52.0

Latest version updated 25th October 2017

Country Breakdown

127.5

Million

Population

$

Mexican Peso

Currency

$ 8200

GDP

1.964

Million

km2