MEXICO Law and Practice Contributed by: Edgar Klee and Joel Gonzalez Lopez, Haynes and Boone, S.C.
In the case of a dual-resident company, most tax treaties entered into by Mexico require the compe - tent authorities to resolve the issue through a mutual agreement procedure (MAP). By contrast, the Mexico– US tax treaty directly denies treaty benefits in such circumstances. 1.4 Applicable Corporate and Individual Tax Rates Incorporated businesses are subject to corporate income tax at a rate of 30%. According to Article 4-B of the Income Tax Law, Mexi - can entities must treat the income generated abroad by tax-transparent entities or legal vehicles as taxable income (in certain cases, only the profits), in propor - tion to the Mexican resident’s participation, even if such entities or legal vehicles do not distribute the income. The applicable tax triggered in these circum - stances may amount to 35%, plus an additional 10% upon dividend distribution. If taxpayers have operations through these entities or legal vehicles (whether transparent or not) they will have to file a tax report with the Tax Administration Service. The income will be directly attributed to the Mexican taxpayer, and any tax paid abroad by these entities or vehicles will be considered as having been paid by the Mexican resident, but only in respect of the taxable income that was recognised. The tax paid abroad will generate a tax credit for the Mexican resident in proportion to the income received by the entity or legal vehicle that was treated as tax - able income by the taxpayer.
also take into account inflationary gains. Dividends distributed by a Mexican entity are not treated as tax - able income. Normal deductions or business expenses are allowed (depreciation and amortisation of assets, cost of goods, interest payments, other expenses, etc). To qualify for these deductions, there are general require - ments that must be fulfilled. These include ensuring that the expenses are properly documented, that they are strictly necessary for the business’s operation, and are supported by relevant invoices. Additionally, each type of deduction has specific requirements that must be met. For example, there are particular criteria for deductions related to bad debts, charitable contribu - tions, and interest expenses. Taxpayers are required to make advance income tax payments on the 17th of each month. These advance payments must be made on the basis of an estimated annual taxable income. Advance payments are not required during the first year of operation of a busi - ness. 2.2 Technology Investments Mexico does not have specific incentives such as a patent box or special tax treatment exclusively designed for technology investments. However, like many jurisdictions, Mexico has a general framework of tax incentives and deductions that may indirectly benefit technology‑related investments and research and development (R&D) activities. Some of the general incentives that could be relevant to technology investments in Mexico include deduc - tions for R&D expenses incurred by businesses. Eligi - ble expenses may include costs related to technologi - cal innovation and development. 2.3 Special Incentives • Accelerated Depreciation: Businesses in Mexico may benefit from accelerated depreciation for certain assets, including technology‑related equip - ment and machinery. • Maquila Programme: Although not specific to technology, Mexico’s Maquila programme allows companies to conduct manufacturing activities with certain tax advantages. This programme is
2. Corporate Tax Regime 2.1 Taxable Profits
Taxable profits are calculated by considering all tax - able income (on an accrual and worldwide basis) and reduced by authorised deductions (including the prof - it-sharing payment made in the last year). Income includes any positive modification to a taxpay - er’s patrimony and encompasses amounts received in the form of credit, goods, or services. Entities must
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