MEXICO Law and Practice Contributed by: Edgar Klee and Joel Gonzalez Lopez, Haynes and Boone, S.C.
ibility of interest payments, taxpayers must adhere to several conditions: • The principal amount must be invested in the primary activity of the borrower (directly associated with their business). • If the interest comes from abroad, the correspond - ing withholding tax must be applied. • A digital tax receipt detailing payment amounts and the tax withheld from the lender must be issued. • An informative return, known as the multiple informative declaration (DIM), must be submitted by 15 February of each tax year, disclosing loan- related information and the interest paid to the foreign tax resident. The Income Tax Law imposes a limitation on interest deductibility, applying to the net interest amount (tax - able accrued interest less deductible interest) exceed - ing 30% of adjusted taxable profit. This limitation only applies to taxpayers whose interest accrued from debt in the fiscal year exceeds MXP20 million. This limitation does not apply to members of the finan - cial system. Any non-deductible net interest will be able to be carried forward for up to ten years until the outstanding amount has been paid. Under thin capitalisation rules, interest paid by a Mexi - can resident to a non-resident related party is non- deductible for income tax purposes to the extent the amount of debt exceeds three times the equity of the Mexican subsidiary (the thin capitalisation rules only apply in transactions between related parties). 2.6 Consolidated Tax Grouping Limited tax grouping rules exist and enable Mexican entities holding 80% directly or indirectly of equity to apply for an authorisation for the benefit of offsetting losses against profits of other entities of the group for a period of three years, considering the deferred income payable at the end of the period. 2.7 Capital Gains Capital gains from the sale of shares or other assets are generally considered part of the company’s tax - able income. The basic rules for calculating capital gains on the sale of shares include deducting the
cost of acquisition from the selling price. The result - ing amount is then subject to the corporate income tax rate. There are no specific exemptions or reliefs for capital gains from the sale of shares under Mexican law. Spe - cific tax treaties might offer certain reliefs. 2.8 Other Taxes on Transactions Besides income tax, there are several other taxes that may be payable by an incorporated business. Some of the notable ones include the following: • Value Added Tax (VAT): This is a consumption tax that is levied on the sale of goods, the provision of services, use of goods, and the importation of goods into Mexico. The standard rate is 16%, but there are reduced rates and exemptions for certain goods and services. • Special Tax on Production and Services (IEPS): This is an excise tax on the production and sale of specific goods and services. It applies to items such as gasoline, diesel, tobacco, alcoholic bever - ages, and certain energy products and services. • Local Transfer Tax (ISAI): This tax is levied on the acquisition of real estate and is typically paid by the buyer. Social Security Quotas Employers are required to contribute to social security and other employee-related taxes, including contribu - tions to retirement funds and housing funds. Payroll Tax The payroll tax is a local tax that is currently effec - tive in the 32 states of Mexico and represents one of their principal sources of income. It is levied on all employers for the payment of payroll or salaries – ie, it is imposed on employers for the employment relation - ship they maintain, including the payment of salaries and other items corresponding to their obligations
with their employees. Environmental Taxes
Environmental taxes are imposed at the state level. These taxes aim to regulate and discourage green - house gas emissions by establishing financial obliga - tions based on the volume of pollutants released into
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