Mexico: Taxation Of Individuals

Last Updated: 26 June 1996
An individual resident in Mexico is liable for personal income tax on his or her worldwide income. Nonresident individuals are taxed on all their Mexican-source income, generally by way of withholding taxes (see "WITHHOLDING TAXES" and, in the case of business activities, "TAXATION OF NON RESIDENT COMPANIES"). For tax purposes, a resident individual is a person who has established a home in Mexico, unless that person remains in another country for over 183 days within the calendar year and can prove that tax residence has been acquired in that other country. When an individual resident in Mexico changes his or her place of residence to another country during a calendar year, provisional tax payments are regarded as definitive and no annual return need be filed.

Personal Income Tax Rates

Business tax earnings are taxed at a fixed rate of 34%, and some special rates apply to income from prizes. In other cases, progressive rates apply. The table of progressive rates for the year is, in effect, compiled by adding together the twelve monthly wage withholding tax tables in force during the year. (These tables are adjusted semiannually to take into account the effects of inflation.) Table A shows wage withholding tax rates as of January 1996.

                         TABLE A
        WAGE WITHHOLDING TAX RATES AS OF JANUARY 1996

       MONTHLY INCOME                     TAX WITHHELD

Lower Limit     Upper Limit     Fixed Amount       Rate on Excess 
   (Ps$)           (Ps$)           (Ps$)          over Lower Limit(%)

     0.01          193.31           -                     3
   193.32        1,640.72           5.80                 10
 1,640.73        2,883.41         150.53                 17
 2,883.42        3,351.85         361.80                 25
 3,351.86        4,013.06         478.90                 32
 4,013.07        8,093.79         690.49                 33
 8,093.80       12,756.93       2,037.12                 34
12,756.94           -           3,622.59                 35

Treatment Of Families

Married couples may adopt the concept either of joint ownership of property or of separate ownership of property. For couples who adopt the concept of joint ownership of property, income from capital gains and capital investments, including interest and rents, is regarded as joint income, and each spouse must declare 50% of such income. Couples who adopt the concept of separate ownership of property must declare all income individually. Children who earn taxable income are regarded as taxpayers in their own right.

Taxable Income

To determine annual taxable income, individuals must determine the income earned in the calendar year for each income category prescribed by law, make the deductions authorized for each category, add together the net income from each category, and subtract authorized personal deductions from that sum. If the deductions for a given category of income exceed the income in that category, the difference may be subtracted from other categories of income, excluding income derived from independent personal services. As an exception, income from business activities is taxed separately from other types of income.

Personal income tax is levied on receipts in cash, kind, or credit. Gains on the sale of shares, buildings, land, and personal property are chargeable as taxable income when the transaction is carried out, whether the proceeds are received in cash or by way of credit. Salaries, professional fees, rent from real property, most types of interest, and dividends are generally taxable on the basis of the amount received.

Employment Income

All income derived from employment is subject to tax (apart from that described at "Exempt income" below), including income from profit sharing, remuneration paid to members of boards of directors, bonuses, gratuities, allowances, and some fringe benefits. If the rate of interest on a loan from an employer to an employee is less than the daily average interest rate on a ninety-day treasury certificate during the prior month, the resulting difference or rate is applied to the outstanding balance and is taxable as part of employment income. Employment income is subject to tax withholding at source. The amounts withheld may be credited against the taxpayer's final liability. No deductions are authorized for expenses incurred in earning employment income.

Income From Personal Services

Income from personal services consists of all income from the rendering of independent personal services that does not fall within the category of employment income (for example, royalties earned by authors). Expenses that were necessarily incurred in earning the income may be deducted from gross income. An excess of expenditure over income may not be deducted from other income.

Real Estate Rental Income

Individuals renting out residential real estate may either itemize their deductions or take a standard deduction of 50% of the gross rental income.

Income From The Acquisition Of Goods

Income from the acquisition of goods includes goods received as donations, except exempt donations; treasure troves; goods acquired at a cost lower than their real value; and permanent constructions and improvements made to real property by the tenant when ownership of the construction or improvement is transferred to the owner. The tax authorities may require that the value of the goods be appraised by an expert. In the case of goods acquired at a cost below their real value, if the appraisal value is in excess of 10% of the agreed-upon price, the buyer is taxed on the difference.

Individuals who obtain income from the acquisition of goods may deduct federal taxes (except income tax), local taxes, and notarial expenses incurred for the purposes of the acquisition; expenses incurred in lawsuits establishing the right to acquire; and appraisal expenses and commissions paid by the acquirer.

Income From The Transfer Or Disposition Of Goods

Capital gains realized by individuals from the transfer of immovable property, securities, and personal property are taxed as income from the transfer or disposition of goods. Acquisition cost is reduced by depreciation under rules that vary according to the nature of the asset sold. That reduced acquisition cost is then adjusted for inflation on the basis of a factor for the period from the date of purchase to the date of sale. The adjustments to be made in the case of shares are similar to those applying to companies (see "TAXATION OF RESIDENT ENTITIES"). In the case of real property, payments made for real estate appraisals, both in relation to acquisitions and sales, are deductible. To arrive at tax rates, the gain must be divided by the number of years that have elapsed between purchase and sale, subject to a maximum of twenty. The resulting amount is added to the individual's taxable income for the year. The amount of the gain not added to taxable income is taxed separately at the average effective rate applicable to the individual's taxable income for the year (including the portion of the gain added to income) or at rates over the last five years.

Income From Business Activities

Individuals who carry out business activities must determine their business tax earnings (total income from business activities less authorized deductions, including tax losses carried forward). The rules for determining taxable income and provisional payments of income tax and for setting off losses are similar to those described at "TAXATION OF RESIDENT ENTITIES" for companies. Business tax earnings are not added to income obtained from other categories; a fixed rate of 34% is applied instead of the rates applying to other income. However, individuals who obtain income from business activities may opt to add to their other income any withdrawal or earnings, in which case the accruable amount is that resulting from multiplying these earnings by the factor of 1.515. Tax at the rate of 34% of the accruable amount may be credited.

Individuals engaged in business activities whose income for the previous year did not exceed Ps$1,484,533 (as of January 1996) may opt to have their taxable income from those business activities determined on a simplified basis. Special rules also apply to some low-income retailers.

Dividend Income

Dividend income includes profits distributed by resident companies; profits obtained by shareholders of resident companies from repayments arising in the course of a liquidation or capital reduction; and loans to shareholders, except those that are a normal result of company transactions or are for less than one year at an interest rate equal to or higher than that established yearly for late tax payments. Companies that make distributions to their shareholders must pay tax at the rates given in "WITHHOLDING TAXES". For residents and nonresidents alike, this tax is generally final. For individuals, this rule means that they do not have to add dividends to other income in calculating tax payable. However, resident individuals whose level of income gives them an effective income tax rate below the maximum rate of 35% may add an adjusted figure for dividends received to the other income earned during the calendar year. The adjusted figure for 1996 is determined by multiplying the actual dividend by a factor of 1.515. Tax at the rate of 34% of the adjusted figure may be credited to annual income tax.

Interest Income

Interest income includes interest derived from any class of bonds, debts, financing granted by credit institutions, securities quoted on the Mexican stock exchange, and exchange gains on transactions denominated in a foreign currency but payable in Mexican pesos. Certain items of interest are regarded as other income (see below).

Income From Prizes

Income from prizes includes income from lotteries, raffles, games of chance, and contests. Income tax is charged at special rates of 8% on prizes of up to Ps$8 and 15% on prizes over that amount.

Other Income

Other income includes all income of individuals that does not fall within any of the other categories and is not expressly exempt from tax. Various types of interest are regarded as other income, including interest on credit documents or credit acquired from or transferred to persons other than credit institutions or the stock exchange. The taxable amount of interest derived from such credit documents or credit is arrived at by deducting the inflationary component from nominal interest, which means that tax is incurred only when interest earned exceeds inflation for the period. If inflation is higher, the individual may deduct the inflationary loss. Other types of interest regarded as other income, including exchange gains treated as interest, are taxable. Other income for individuals also includes that arising from derivatives, in which case the same rules applicable to corporations are followed to determine accruable gain or deductible loss and interest.

Exempt Income

Exempt income includes fringe benefits provided to individuals earning only the general minimum wage for their geographical area, as long as the benefits do not exceed the minimum amounts prescribed by labor law; for employees earning more than the general minimum wage, a portion of vacation bonuses and profit-sharing payments; a portion of overtime pay and pay for work on nonworking days; a portion of retirement and pension fund benefits; as a rule, income from savings funds established by companies; severance or retirement pay received from employers, up to specified limits; fringe benefits such as scholarships for employees and their children, provided that they are extended to all employees; gains on the sale of a home if the taxpayer lived there for at least two years prior to the sale; gains on sales of specified shares or other securities traded through an authorized stock exchange or similarly active market; income from specified derivatives related to publicly traded shares or securities; gains on sales of other personal property, up to specified limits; yields on treasury certificates and some other bonds issued by the federal government if various conditions are met; inheritances; gifts to immediate family members; other donations that do not exceed specified limits; and royalties on copyrights for musical and literary works if conditions are met.

PERSONAL DEDUCTIONS AND RELIEFS

In addition to the deductions that are allowed under the rules for each category of income, individuals may claim personal reliefs. A general credit may be claimed against the final tax liability, equivalent to 10% of wages at the annual general minimum salary, restated semiannually. Deductions include medical and hospital expenses for the individual and dependents, to the extent that they are paid to persons or institutions resident in Mexico; funeral expenses for dependents; donations to authorized institutions; and voluntary employee contributions toward retirement insurance.

In addition, residents may deduct from their total income deposits made in the tax year in special personal savings accounts, pension plan insurance premiums paid to Mexican institutions, and the cost of shares in specified investment companies. These deductions may not, in total, exceed in any calendar year Ps$69,237 (as of January 1996). When the deposits are withdrawn, the pensions collected, or the shares sold, the proceeds are treated as other income (see "Other income" above) for the year in which the event occurs. However, the applicable tax rate may not exceed that in force for the year in which the deposits or other payments were made. These transactions are subject to a withholding tax of 35%. If this withholding results in an overpayment of tax on total income, the taxpayer may set off the overpayment against future tax payments or may request a refund.

All individuals are entitled to tax credits that take into account both the income receivable and the tax chargeable on that income. In effect, the lower the amount of the individual's income, the higher the amount of the credit. The credits are calculated according to tables (see Table B for an example).

                      TABLE B
             TAX CREDITS AS OF JANUARY 1996

       MONTHLY INCOME                     TAX WITHHELD

Lower Limit     Upper Limit      Fixed Amount      Rate on Excess
   (Ps$)           (Ps$)            (Ps$)        over Lower Limit (%)

     0.01          193.31             -                  50
   193.32        1,640.72            2.89                50
 1,640.73        2,883.41           75.27                50
 2,883.42        3,351.85          180.89                50
 3,351.86        4,013.06          239.46                50
 4,013.07        8,093.79          345.24                40
 8,093.80       12,756.93          883.89                30
12,756.94       16,187.56        1,359.53                20
16,187.57       19,425.05        1,599.68                10
19,425.06            -           1,712.99                 -

Losses

The rules for deducting losses on business activities are similar to those applying to companies (see "TAXATION OF RESIDENT ENTITIES"). Capital losses must be divided by the number of years that fall between the date of purchase and the date of sale of the asset, up to a maximum of ten years. The resulting portion of the loss may be deducted from taxable income in the year of sale only. The remaining capital loss (excess of the total capital loss less the current-year deduction) may offset capital gains in the next three years by way of a tax credit.

Recoverable tax is calculated by multiplying the remaining capital loss by the individual's average effective tax rate in the year in which the loss was suffered or, if no tax was payable in that year, by the rate for the next year in which tax is due, provided that the year falls within three years of the year of loss. Recoverable tax determined in this way is credited in the subsequent three years against tax due on capital gains and not against tax due on other categories of income.

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.

For further information contact Deirdre Silberstein, Deloitte & Touche, Washington on +1 202 955 4000 or enter a text search 'Deloitte & Touche' and 'Business Monitor'.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions