MEXICO Law and Practice Contributed by: Luis Álvarez Cervantes, Adolfo Athié Cervantes, Alejandro Barrera, Jesús Colunga, Eduardo Kleinberg, Juan José López de Silanes, Carlos Martínez-Betanzos and Amílcar Peredo, Basham, Ringe y Correa S.C.
It is important to mention that there might be other fees that the employer could pay such as union fees, profit sharing, etc, but they do not qualify as tax con - tributions; rather as labour obligations of the employer. 5.2 Taxes Applicable to Businesses Mexican tax resident entities are subject to pay the following taxes. Income Tax Mexican tax resident entities are subject to income tax on their profits at a 30% tax rate. Profit in general terms in calculated by deducting from gross income the allowed deductions such as investments, costs of goods sold, etc. Taxpayers should file an estimated tax return on a monthly basis based on the monthly income received and applying a profit coefficient to this monthly income. In addition, taxpayers should file annual tax returns no later than the third month to the end of the fiscal calendar year (ordinarily running from January 1st until December 31st). Dividends When distributing dividends, there are two taxes to consider. • Corporate dividend tax – in Mexico, dividends paid out of profits on which the company has already paid the relevant tax are tax free from the corporate dividend tax. For this purpose, companies have to keep a record of the after profits account or Cuenta de Utilidad Fiscal Neta (CUFIN). • Individual or foreign resident dividend tax – 10% withholding applies to dividends paid to individuals or foreign residents. However, in the case of foreign residents, this tax could be reduced depending on the double tax treaties executed by Mexico. Interest Interest is a deductible item in Mexico, but there are several limitations and requirements to observe. • General requirements – interest would be deduct - ible as long as it is used for strictly indispensable activities of the company. • Net interest limit deduction – interest is deductible up to 30% of the adjusted taxable income.
• Preferential tax regime limit – interest paid to a related party that is a taxpayer in a preferential tax regime (tax haven) will not be deductible unless the taxpayer provides evidence that the transaction is at fair market value and it has a business purpose. • Hybrid transaction – if a transaction is considered as an interest in Mexico, but it is not taxed abroad, it will not be deductible in Mexico. • Back-to-back – if certain conditions are not met, interest paid to the creditor of a debt will not be deductible as it will be recharacterised as a divi - dend. • Transfer pricing – interest paid should be at fair market value, otherwise the excess will not be deductible. Value Added Tax Taxpayers are required to pay 16% VAT when, in national territory, they (i) transfer goods, (ii) render independent services, (iii) grant temporary use or exploitation of goods, or (iv) import goods or services. However, 0% VAT would apply if any of these activities are deemed to be exported. The taxpayer should pay the VAT on the difference between the VAT charged to its clients and the VAT charged by its suppliers. If the VAT paid to suppliers exceeds the VAT paid by the taxpayer to third party, then the difference shall be paid to the authorised offices. 5.3 Available Tax Credits/Incentives Mexican Income Tax Law allows the following incen - tives. • Individual taxpayers can deduct certain deposits in personal savings accounts, retirement insurance premiums, and qualifying mutual fund investments from taxable income, subject to an annual cap of MXN213,973.20 and 15% of the total income of the taxpayer, whichever is the lowest. • Income tax deduction equal to 25% of salary paid to employees with qualifying disabilities or to elderly employees (65+). • Special tax treatment for real estate investment trusts in Mexico that acquire, build or finance leased properties, or acquire rights to lease income.
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