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Mexico's Tax Environment: A Brief Overview

Author:Ms Nancy Dominguez
Profession:TMF Group
 
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Latin America has a reputation as being a complex place to do business, and operating in Mexico does little to dispel that image - the country reached the global top 10 in TMF Group's 2018 Financial Complexity Index. Mexico is, however, working towards simplifying its tax regime, and to make it easier to invest and do business in the country.

The Mexican Financial Reporting Standards Board (CINIF) has been eliminating differences between its local Mexican Financial Reporting Standards (MFRS) and the International Financial Reporting Standards (IFRS) - at this time, small businesses can still use MFRS - and has an e-invoicing mandate which uses an officially-approved "digital invoicing via internet" format. But when it comes to taxes? Here's a brief overview of the tax environment.

Of course, if you require further information, get in touch with TMF Group's Mexico team.

Tax year

The Mexican tax year follows the calendar year.

Corporate tax

All income obtained by companies resident in Mexico is taxed, regardless of the source.

The corporate tax rate in Mexico is 30%. Any foreign enterprises established in Mexico face the same tax system as domestic enterprises, though some exemptions are in place, and some states offer competing tax incentives to attract foreign investors. That said - and in contrast to many Latin American countries - the majority of taxes in Mexico are levied at the federal level.

Companies may also be subject to an employee profit-sharing tax (10%).

VAT

Known as Impuesto al Valor Agregado, or IVA, the standard rate is 16%. There is a 0% rate applicable to foodstuffs, water, agricultural supplies, books and magazines, while those supplies exempt from VAT include immovable property, land, financial services, insurance, cultural exhibitions and events.

VAT returns detailing taxable activities must be submitted electronically each month by the 17th of the month following the period's end; any tax due must be paid by this date as well. VAT credits may be rolled over but may also be credited back.

Wage taxes and social security

Specific contributions from inhabitants are required by every state in Mexico; the largest such contribution is property tax. Some states will tax employee wages at an average of 2%, though in the Mexico City, employers must pay a 3% tax on wages paid to their employees every month.

An employer must register all of their employees with the Mexican Institute of Social Security, which provides job-related, unemployment and disability...

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