1 Basic framework
1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
Corporate taxation is a single federal tax regime (income tax and value added tax (VAT)).
State or municipal taxes are payable on real estate and housing, among other things. No income tax or VAT is payable at the state or city level.
1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
In general terms, corporate entities pay income tax at a rate of 30% and VAT at a rate of 16% or 0% (for specific cases). A special tax on production and services (excise tax) applies to specific taxpayers for certain activities (eg, production of alcoholic beverages or tobacco products). Rates vary depending on the type of product or service.
1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
Corporate income tax is imposed on a company's profits. The bases of VAT and excise tax depend on the activity carried out by the taxpayer.
1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
Yes, depending on the type of income, the treatment for income tax purposes may vary (eg, the transfer of shares with regard to dividends).
1.5 Is the regime a worldwide or territorial regime, or a mixture?
Mexican companies are taxed on their worldwide income.
1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
Yes, tax losses can be utilised on a carry-forward basis (up to 10 years). However, carryback of losses is not permitted. Foreign losses cannot be utilised.
1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
There is a concept of beneficial ownership, but this is not intended to be used to allocate income to a specific person for tax purposes. In this respect, the legal owner of the income is the party that is taxed.
1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?
Income tax at a rate of 30% is levied on the majority of income received by a legal entity. The rate may change depending on the type of income and/or the taxpayer (eg, income for the transfer of shares is taxed differently when the taxpayer is a foreign resident for tax purposes).
1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
Yes, trusts (when performing business activities) and profit-sharing agreements are also subject to corporate taxes.
2 Special regimes
2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
Special rules apply to real estate investment trusts ("FIBRAS") and manufacturing regime. National cinematographic and theatrical productions, as well as investments in high-performance sports, electric vehicle power feeders, technology and R&D projects, benefit from federal incentives.
Taxpayers operating in the northern and southern border region may avail of tax benefits related to income tax and value added tax.
2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
The Income Tax Law provides for a tax-neutral regime for certain qualifying corporate restructurings (eg, mergers, spin-offs). This regime is applicable to entities that are resident in Mexico for tax purposes and is subject to the fulfilment of certain requirements.
2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
Mexican companies may elect to calculate their taxable base on a cash basis to the extent that:
- their income is less than MXN 35 million; and
- they have been incorporated by individuals.
2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
Taxpayers must calculate their taxable base in Mexican pesos and submit electronic accounting records to the tax authorities on a monthly basis.
2.5 How are intangibles taxed?
Intangibles are subject to income tax. Non-residents are subject to withholding income tax (the rate may vary depending on the type of income and/or the recipient).
Intangible assets may be deducted at a maximum annual amortisation rate depending on their lifespan.
2.6 Are corporate-level deductions available for contributions to pensions?
Yes, employers' pension contributions, including social security, are tax deductible.
2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
No.
2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
No.
2.9 Are there any deemed deductions against corporate tax for equity?
No.
3 Investment in capital assets
3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
Assets are depreciated annually, applying a maximum specific rate depending on the type of asset.
3.2 Are there research and development credits or other tax incentives for investment?
Yes, the Income Tax Law establishes a tax incentive for investments in research and development. In addition, special rules apply to:
- real estate investment trusts ("FIBRAS");
- national cinematographic and theatrical productions; and
- investments in high-performance sports and electric vehicle power feeders, technology and R&D projects.
3.3 Are inventories subject to special tax or valuation rules?
In general terms, purchased inventory may be deducted as the cost of goods sold when such goods are effectively sold. Mexican companies can elect a specific cost valuation method.
3.4 Are derivatives subject to any specific tax rules?
Taxpayers must calculate the gain or loss for derivatives carried out each fiscal year. Derivatives are exempt from value added tax.
4 Cross-border treatment
4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?
Under the Income Tax Law, non-resident corporate entities are taxed only on their Mexican-source income. In general terms, tax is calculated and withheld by the Mexican resident that makes the payment. The withholding rate may vary depending on the type of income and/or the recipient.
4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
In accordance with the Income Tax Law, certain payments made by corporate taxpayers to non-residents are subject to withholding tax depending on:
- the type of income; and
- whether there is a Mexican source of wealth.
The rates may vary depending on the type of income and/or the recipient. The withholding tax rates may be reduced under an applicable double tax treaty.
4.3 Do double or multilateral tax treaties override domestic tax treatments?
Yes, in principle, subject to the fulfilment of several requirements set forth in Mexican law and any applicable double tax treaty.
4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?
Foreign taxes may be credited against Mexican tax, but the credit is limited to the amount of Mexican tax payable on the foreign income.
4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
In the case of an asset acquisition, the buyer obtains a step-up basis for the assets acquired for income tax purposes. Otherwise, in a share purchase, the buyer does not obtain a step-up basis for the assets acquired.
4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?
Yes, any legal entity that changes its tax residence must file a tax notice before leaving Mexico; otherwise, it is still deemed to be a resident of Mexico for tax purposes. If the new tax residence is located in a country that is considered under Mexican law to have a preferential tax regime (tax haven), it will remain a Mexican tax resident for the year in which tax notice is filed and the following five years.
5 Anti-avoidance
5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
Both.
5.2 What are the main 'general purpose' anti-avoidance rules or regimes, based on either statute or cases?
The latest Mexican tax reforms introduced anti-avoidance rules in accordance with the recommendations under the Organisation for Economic Co-operation and Development base erosion and profit shifting project related to issue such as:
- transfer pricing;
- the use of hybrid entities; and
- controlled foreign corporation rules.
5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
There are several anti-avoidance rules related to issues such as:
- transfer pricing;
- interest deduction limitations;
- controlled foreign corporations;
- payments to low-tax jurisdictions; and
- transactions that lack a business purpose.
5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
Yes, the Mexican tax authorities may issue rulings concerning inquiries issued by taxpayers regarding specific situations.
5.5 Is there a transfer pricing regime?
Yes, Mexican resident entities are obliged to determine their taxable income and deductions considering prices and amounts in accordance with the arm's-length principle.
5.6 Are there statutory limitation periods?
As a general rule, the period is five years, with a possible extension to 10 years (eg, if the taxpayer is not registered; or in case of non-compliance with tax returns or book-keeping obligations).
6 Compliance
6.1 What are the deadlines for filing company tax returns and paying the relevant tax?
Mexican entities must file their annual tax return within the first three months of the following year (ie, by the end of March).
6.2 What penalties exist for non-compliance, at corporate and executive level?
At the corporate level, failure to file an annual tax return in time can result in administrative sanctions (surcharges, restatements and penalties). No penalties are applicable if the taxpayer pays spontaneously.
At the executive level, joint liability to shareholders can be triggered in certain cases.
6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
Yes, the Income Tax Law establishes an obligation for certain companies (depending on their transactions and revenues):
- to comply with country-by-country reporting; and
- to submit master and local files on transfer pricing matters.
7 Consolidation
7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?
Since fiscal year 2014, a tax integration regime has allowed a group to defer income tax for up to three years. Several formalities and requirements must be fulfilled to obtain authorisation from the Mexican tax authorities.
8 Indirect taxes
8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
VAT and special tax on production and services (excise tax). The latter is applicable only to specific products and services (eg, alcohol and tobacco).
8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
If the transfer of interest in a corporation is considered a sale according with Income Tax Law, there is a tax due which is computed as the difference between the tax basis of the shares and the fair market value. In certain cases (eg, merger or spin-offs) could be tax free to the extent it meets certain requirements.
The sale of shares is exempt from VAT.
9 Trends and predictions
9.1 How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
No tax increases are planned for the next 12 months in domestic tax matters. For international tax purposes, Mexico has deposited its instrument of ratification for the Multilateral Base Erosion and Profit Shifting Convention. This instrument will enter into force in Mexico as from July 2023 and will apply as from 2024.
10 Tips and traps
10.1 What are your top tips for navigating the tax regime and what potential sticking points would you highlight?
As Mexico is a jurisdiction that has tax regulations with a special formal approach, it is vital to comply with tax obligations within the specified deadlines and to meet all formal requirements, in order to ensure that no substantive tax implications arise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
