Mexico

Under the Mexican Income Tax Law (Ley del Impuesto Sobre la Renta) companies shall be deemed as Mexican residents when incorporated and registered as such in Mexico or if foreign entities have established a permanent place of business in Mexico. The aforementioned law defines a “permanent place of business” as any place where business, entrepreneurship activities or rendering of services are conducted.

In order to conduct business in Mexico, all Mexican companies must be registered before the Federal Taxpayer Registry (Registro Federal de Contribuyentes).

Company taxes are calculated on yearly basis and are self determined. The fiscal year for all companies must end on December 31 of each year, except in the case of the company’s liquidation or closure.

Mexican companies must file an annual income tax return, no later than three months after the end of the fiscal year and a provisional income tax return on a monthly basis.

A. Corporate Income Tax (ISR).
Companies are generally subject to a corporate income tax at a rate of 30% rate. In case of dividends paid to foreign shareholders, there is no withholding tax. No further taxes are applied if the dividends are distributed out of earnings on which the regular corporate tax has been paid (“after tax earnings” or “cuenta de utilidad fiscal neta CUFIN”). Other forms of payment abroad, such as royalties and interest, are also subject to withholdings.

For purposes of the calculation of income tax, net income is determined by subtracting from gross income, the specified costs, business expenses and net losses, which can be carried forward up to a maximum of 10 years.

Deductible expenses include, among others, losses, expenses, depreciation, interest, insurance premiums, rental payments, repairs, research, royalties, salaries and payroll contributions.

B. Value Added Tax (IVA).
Mexican Law provides a 16% rate value added tax to all transactions other than transactions such as the purchase of food, medicines and books. A special 10% VAT rate has been enacted in certain border regions. VAT is a recoverable tax for businesses. A company may offset VAT paid against VAT recovered and either forward the difference to the tax authorities if positive, or request a refund if negative.

C. Mandatory Profit Sharing (PTU).
Mexican resident corporations are required to pay 10% of their taxable net income to its employees on a yearly basis.

D. Taxes and Contributions Applicable to Payroll.
Social security contributions (IMSS) are paid at a rate of approximately 21%; contributions to housing fund (INFONAVIT) at a rate of 5%, and contributions to the employee retirement fund (SAR) at a rate of 2%. Additionally, payroll tax is paid locally at a variable rate not exceeding 2%.

E. Sole Rate Corporation Tax (IETU).
Enacted in 2008, the Sole Rate Corporation Tax (impuesto empresarial a tasa única) supplements income tax. This tax can be credited against income tax and is calculated at a rate of 17.5% on all income from the sale or allowance of temporal use of assets and the rendering of services, minus all applicable deductions. IETU is payable when it exceeds the income tax for the year. Please notice that deductions hereto differ from those of the income tax.

Mexico has entered double taxation treaties with Argentina, Australia, Austria, Bahrain, Barbados, Belgium, Brazil, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Germany, Greece, Hungary, India, Iceland, Indonesia, Ireland, Israel, Italy, Japan, Korea, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Panama, Poland, Portugal, Romania, Russia, Singapore, Slovak Republic, South Africa, Spain, Sweden, Switzerland, UK, Uruguay and USA.

Tax treaties signed but pending ratification: Colombia, Kuwait, Latvia, Peru and Venezuela.

Treaties under negotiation: Lebanon, Malaysia, Morocco, Nicaragua, Pakistan, Slovenia, Thailand, Turkey, Ukraine.