| Mexico Income Tax Rates Monthly Taxable Income (MXP) / Tax Due on Lower Limit (MXP) / Marginal Rate on Excess (%)
Up to 496.07: 0 3%
496.08 - 4,120.41: 14.88 10%
4,210.42 - 7,399.42: 386.31 17%
7,399.43 - 8,601.50: 928.46 25%
8,601.51 and above: 1,228.98 28%
Persons residing in Mexico calculate their annual tax on their total income generated both in the country and abroad. In the case of foreign income, taxes paid abroad are generally credited against taxes payable in Mexico.
There are specific rules for each type of personal income such as: wages, fees, capital gains, dividends, etc. In the case of wages, the taxes are withheld by the employer.
In the case of salaries paid by a foreign company to a foreigner working in Mexico, personal taxes have to be computed and paid, except when the foreign company has no branch or fixed base in the country and the person spends less than 183 days in the country during the year.
There are only a few personal expenses that a taxpayer can deduct from their income which are as follows:
(a) school transportation for their children (only in certain cases)
(b) medical and dental fees, including hospital expenses for the taxpayer, spouse, direct-line ascendants or descendants
(c) funeral expenses for the persons mentioned under (b) above
(d) donations to authorized entities
(e) contributions for employee retirement
(f) medical insurance payments.
Provisional payments have to be made on a monthly basis by the employer and the annual taxes must be calculated at the end of each year. Personal tax rates apply up to a maximum rate of 28% in the case of foreign residents.
Mexico Corporate Tax RatesTax is calculated for each calendar year, comparing income obtained less allowable deductions. Currently, the corporate tax in 2010 is 30% of taxable profits.
All income obtained by companies is taxed, regardless of the source, except in the case of branches of foreign companies. Branches are taxed based on income attributable to the branches.
Foreign companies, branches and persons established in Mexico which obtain income abroad are allowed to credit any foreign taxes paid against Mexican taxes payable by them up to the total local tax applicable in each case.
Capital gains tax: Taxable profits on the sale of land, securities and other assets are calculated by deducting the tax cost from the selling price. The tax cost is based on the original cost of the asset being sold, adjusted for inflation for the period during which the asset was owned.
A more complicated procedure is adopted to determine the tax cost of shares, which takes into account tax profits and losses obtained, dividends paid and received, reimbursements of capital paid, and inflation adjustments.
Loss from the sale of shares and other securities is deductible only if certain requirements are met, and may be offset against profits obtained in the same year or in the following five years.
Branch profits tax: Branches compute income tax in the same manner as companies established in Mexico and apply the 30% corporate tax rate on taxable income.
Branches are entitled to deduct expenses incurred both abroad or in the country provided that certain conditions are met. This also applies to prorated expenses.
Remittances sent abroad in the form of payments of invoices, interests, royalties, reimbursement of expenses or for any other reason are subject to withholding tax of between 25% and 28% and are deductible for income tax purposes if adequately supported.
Sales tax / value added tax (VAT) in MexicoVAT rate in Mexico is 16%, beginning 2010.
Companies and persons who engage in the business of selling, rendering services, leasing, importing or exporting goods are subject to VAT. In most cases, this tax does not represent an expense for the companies or persons since it is collected from the consumer of the goods or services and paid monthly to the tax authorities.
The VAT paid on purchases of goods and services received can be offset against the VAT collected and payable. In the case that the VAT paid exceeds the VAT collected in a given period, companies and persons are entitled to be refunded for the difference by the tax authorities or, under certain conditions, to offset the VAT receivable against other taxes payable.
The following rates apply in general, depending on the type of activity:
- 0% in the case of priority activities such as basic foods, medicines, agricultural, exports, etc
- 10% when the activities are performed in the border region
- 15% for all other activities.
Mexican VAT tax law provides for specific exemptions on certain other activities.
Fringe benefits tax (FBT): Specified employee benefits provided to employees over and above those required by law are exempt from income tax up to certain limits and are deductible for companies insofar as they are granted to all employees.
Entrepreneurial Flat Tax (Ietu): From 2008, a new entrepreneurial flat tax (IETU) came into force by which taxpayers (individuals with commercial or independent personal services providers, as well as companies) and foreign residents with a permanent establishment are required to pay on a monthly basis this tax at a rate of 16.5% on the income obtained on a worldwide basis.
Income tax will be credited against the new tax IETU. Therefore, if the income tax rate is higher than the IETU, this tax will be paid and the excess of Income tax shall be paid separately.
This new tax is revenue oriented and therefore should be understood as a flat tax with limited deductions based on the added value of different sectors of the economy.
The IRS has issued a letter stating that it will accept the IETU tax paid in Mexico by US residents as creditable under the US-Mexico tax convention until it has a further evaluation of the mechanics of the tax. This also applied to other countries that have accepted this tax within the scope of the treaty. These are currently: Germany, Australia, Austria, Barbados, Belgium, Canada, Czech Republic, Denmark, Ecuador, Korea, Finland, France, India, Ireland, Italy, Japan, Luxembourg, Norway, Netherlands, New Zealand, Romania, Slovak Republic, Romania, Spain, South Africa, Switzerland and the United Kingdom.
Foreign Trade Taxes: Customs duties are maintained both for import as well as for export. Duties on export are minimal or none and import duties average 20%, depending on each specific item.
In accordance with the North American Free Trade Agreement (NAFTA), duties on imports from the United States and Canada will be gradually eliminated over a 15-year period and will disappear completely at the end of that time. Beginning in 1994, Mexico eliminated taxes on the importation of specific products from the United States and Canada.
Tax On Purchase Of Real Property: A tax of 1% to 5% of the assessed value of the property is paid by the buyer on all purchases of property. The federal government works with the states of the Republic so that in co-operating states only the local tax applies with no levy of federal tax.
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