Doing Business in Mexico, English

Taxation in Mexico: A Guide

24 Aug , 2020  

Taxation in Mexico, income tax law, corporate tax rate, withholding tax, vat, tax rates, mexican lawyers, mexican accountants, Mexico City, Guadalajara

Our sixth chapter of Doing Business in Mexico, Taxation in Mexico, will provide a general overview of the main Mexican taxes focused on foreign individuals and/or legal entities, including rules on permanent establishment, tax withholding, among other tax obligations.

This chapter includes the following sections:

  1. Overview: Main Taxes in Mexico
  2. Residents and non-residents in Mexico for tax purposes
    1. Tax Residents in Mexico
    2. Non-Tax Residents in Mexico
  3. Income Tax in Mexico
    1. Individuals and the Income Tax
    2. Companies and the Income Tax
      1. Tax incentives
        1. IMMEX
        2. Tax Incentives for the Northern Border Region
    3. Foreign Residents Earning Income from Mexican Sources of Wealth
  4. Value-Added Tax in Mexico
    1. VAT and Exported Goods and Services
    2. VAT and Imported Goods and Services
    3. VAT refunds
  5. Obligations of Foreign Shareholders in Mexican Companies to Register in the Federal Taxpayer Registry
  6. Tax Treaty

Taxation in Mexico

As noted in Chapter 1 – Why Invest in Mexico? Mexico is a Federation made up of 32 States, and each State, in turn, is made up of municipalities. The Mexican constitution establishes the jurisdiction for each level of government and, thus, different taxes apply. Federal taxes are the primary level of taxation in Mexico, while States and municipal (local) taxes are more limited. Needless to say, States and municipalities, to a great extent, receive budget allocations from federal taxes that are collected within their borders.

The Tax Administration Service (SAT, acronym in Spanish) is the relevant government body or agency in charge of collecting federal taxes as well as surveilling compliance.

At a local level, States and Municipalities have their own treasuries that enforce their local Tax Law. However, the Federal government and a State government may enter into tax coordination agreements, whereby the State is entitled to audit and collect federal taxes.

Overview: Main Taxes in Mexico

The main federal and local taxes in Mexico are the following:

 Federal taxes

  1. Income Tax (ISR, acronym in Spanish): The corporate income tax rate is 30%, individuals are subject to income tax rates ranging from 1.92% to 35%.
  2. Value Added Tax (IVA, acronym in Spanish): The standard rate is 16%, and 0% rate is applicable in certain activities.
  3. Tariffs or Import duties (See Chapter 3 – International Trade Policy)
  4. Special Tax on Production and Services (IEPS, acronym in Spanish): The tax may be expressed as a percentage, ranging from 3% to 160%, specific, or a compound tax.
  5. Social Security: An employer is subject to social security taxes that can represent between 25% and 30% of the employee’s salary.

 Local taxes

  1. Taxes on Real-Estate or Land: The States have in place a Property Acquisition Tax. The buyer of a house, land, building, apartment, or any type of real-estate property is responsible for paying said tax. The applicable tax may vary from State to State, but the average is a 2% rate. However, the Property Acquisition Tax may reach 6.5% on the sale price in some states.
  2. Payroll Tax: States have in place the Payroll Tax on wages and other expenditures that derives from an employment relationship. The tax rate may vary from State to State, but such tax normally amounts to 2% and 3% on the wage paid.

Taxation in Mexico For Residents and Non-residents.

Foreigners are individuals or entities that are normally subject to the tax law legislation of another country for reasons such as nationality, address, place of residence, or business, among other criteria. Mexican Tax Law, however, establishes a set of rules whereby a foreign individual or entity is considered as a resident –for tax purposes– in Mexico (hereon referred to as “tax resident”).

Residents in Mexico

The individuals, whether Mexicans or foreigners, that have their home in Mexico are tax residents. Furthermore, an individual without a home can still be a tax resident when, for instance, his or her “place of professional activities” is located in Mexico or more than 50% of his or her annual income comes from Mexico.

As for legal entities, a company incorporated in Mexico is a tax resident. Foreign entities are tax residents when their main place of business or corporate address is in Mexico.

Non-residents in Mexico

Individuals or legal entities that are non-residents may, under certain circumstances, be subject to Mexican taxes. For instance, a foreign individual or entity is subject to Mexican taxes when he or she has a “permanent establishment” in Mexico or obtains income from any source of wealth located in Mexico. A permanent establishment, in general terms, is any business place where activities are partially or totally developed or where independent personal services are offered. The law lists examples of permanent establishments in Mexico, including the following:

  1. Branches;
  2. Agencies;
  3. Offices;
  4. Factories;
  5. Installations;
  6. Mines; and
  7. Any place where exploration, extraction or exploitation of natural resources activities are carried out;

We highlight that the previous list is non-exhaustive. A foreign resident may, nevertheless, establish a permanent establishment when it has a representative or non-independent agent in Mexico.

Income Tax in Mexico

Depending on the “tax-residency” status, the income tax may apply to all the income or the income attributable to the permanent establishment or source of wealth as follows:

  1. Residents in Mexico’s income is subject to the income tax in its entirety, regardless of its origin or source.
  2. If a non-resident has a permanent establishment in Mexico, the income attributable to the permanent establishment is subject to the income tax.
  3. If a non-resident has a source of wealth in Mexico, the income attributable to the source of wealth is subject to the income tax. In Section 6.3.3, we will discuss this aspect in greater detail.

Thank you for your interest, to continue reading please fill out the form below.

For more information about VTZ Law Firm services, visit our website or contact us info[@]vtz.mx
Loader Loading…
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download [949.92 KB]

Subscribe and Receive Immediately and for Free our Guide

Subscribe to VTZ digital content

* indicates required
Subscriptions

, , , , , ,

English, News

INDEX Tax Forum: The Highlights

30 Aug , 2019  

Tax Forum on Manufacturing Industry

Download our Tax Alert in PDF: Alert – IMMEX Tax Forum

Last Tuesday, the National Council of the Export Manufacturing and Maquiladora Industry, Index, organized the 1st National Tax Forum of the Export Manufacturing Industry.

Vázquez Tercero & Zepeda (VTZ) was a proud sponsor of this forum, and our partner, Jorge Montes, provides you a summary of the highlights of what was discussed in the forum:

 

  1. Expectations on Advance Price Agreements (APA) (2018 to 2022).

 

Ms. Myrna Aguilar, of the Transfer Pricing area of ​​the Tax Administration Service (SAT), said that SAT has APA applications corresponding to the period from 2013 to 2017 that are still pending resolution. She suggested that taxpayers can apply the alternate procedure known as Fast Track and approach SAT to dissipate doubts.

 

Mrs. Aguilar considered that SAT must analyze and resolve each particular case, respecting the right that taxpayers have to request an individual resolution regarding transfer pricing and not oblige taxpayers to apply a procedure that may give them a theoretical profit margin higher than what they actually get in their operation.

 

On the other hand, she indicated that next October SAT will meet with the Internal Revenue Service (IRS) of the United States in order to analyze the possibility of continuing with the Fast Track procedure for the years from 2018 to 2022.

INDEX, IMMEX, Industria Manufacturera, Foro Fiscal, VTZ, IMMEX

  1. Problem: VAT tax returns.

 In the forum, the different problems regarding the delay of VAT tax returns in the manufacturing sector were exposed, for example, the excessive information requirements issued by the tax authority, the breach of deadlines for returning VAT favorable balances for certified companies and the different criteria applied by the authority to deny applications. In this regard, Mr. Luis Balderas, Director of the Area of ​​Complaints of PRODECON (Tax Ombudsman), suggested using the procedure called “Complaint” (Queja) to try to expedite the resolutions of the tax return applications filed by the taxpayers.

 

On this point, he believes that taxpayer should initiate and exhaust the Complaint procedure before PRODECON when the taxpayer believes that his tax rights were violated before using one of the traditional legal remedies, e.g. Revocation Remedy or administrative lawsuits, which have the disadvantage that they take more time than the Complaint.

, , , ,

English, News

Update: Special Economic Zones

17 Aug , 2017  

On June 23, 2017, the Inter-Ministerial Commission approved the creation of five SEZ, namely those that will be located in the states of Chiapas (Puerto Chiapas), Veracruz (Coatzacoalcos), Michoacán (Lázaro Cárdenas), Guerrero (Puerto Unión), Yucatán (Progreso) and Oaxaca (Salina Cruz).

Now, the next step is for the President to issue the Decrees that will officially create each SEZ. It is expected that in the upcoming months, or even weeks, Decrees will start being published in the Official Gazette. The Mexican States also play an important role in the development of a SEZ.

Therefore, the purpose of this update is to inform which are the economic sectors that are being targeted by the Mexican government to invest in the SEZ, as well as the significant legal developments regarding the implementation of the Mexican SEZ at the state level.

To access our update, please download it from the following link: Update-SEZ-17082017

, , , , , , , , , , , , ,