DOING BUSINESS IN MEXICO

Posted By Romain Ponsot on Oct 6, 1907 in Doing Business


Date de publication : 06-10-1907

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The following information are for the sole purpose  of providing a general overview of  the local taxation of the Corporate tax aspects of the country. In any case, it can not replace a tax advice, or be considered as an official information.

 

Yes we tax in Mexico

 

Flash News

New tax reform: No specific information

New tax treaties:

  • Protocol to tax treaty between Mexico and Spain is entered into force.
  • Tax treaty between Mexico and Saudi Arabia is approved by Arabian cabinet.

Local tax advisors

No specific information on the local tax advisors.

Local tax administration

Website Ministry of Finance: Click here

Website Tax administration: Click here

Permanent Establishment

The definition of Permanent Establishment follows the wording of article 5 of the OECD Model:

  • Dependent agent who habitually concludes contracts in the name of a non-resident company (except is the activity is limited to purchase of goods);
  • Fixed place of business, building site, construction, assembly or installation and any related supervisory activity, for a period of 183 days.

Resident companies are taxed on their worldwide income. However, non-resident companies are only taxed on their revenues derived from Mexican sources.

The definition of resident company for tax purposes, corresponds to the definition of the OECD Model Convention. As per article 4 of the OECD Model Tax Convention, a person is treated as resident of a contracting state if he is liable to tax in such a country by virtue of his domicile, residence or place of management or any other similar criterion.

Entities are considered to be resident for tax purposes in Mexico if their place of management & control is in Mexico.

Note: the definitions of permanent establishment and place of residence are subject to the relevant provisions of any applicable double tax treaty, if any.

Corporate Income Tax

The general CIT tax rate is 30%.

Non-taxable income includes the following:

No specific information.

Non-deductible expenses includes the following:

  • Dividends

 

Carry forward : Yes 10 years, but some restrictions may apply

Carry back: No

Companies should submit the tax return annually before the 31 March of the following year.

Annual tax returns are established by the company on a self-assessment system.

Companies shall pay monthly advance payments, however the first advance payment covers the first 3 months.

Whithholding Taxes (payment to foreign companies)

The local tax rates in Mexico are the following, subject to the provisions of an applicable double tax treaty, if any.

In practice, there is a 10% WHT on the profits repatriated from a branch to its foreign head office.

The general rate of WHT on dividends is 10% on the gross amount.

The general rate of WHT on interest is 35%.

However there are many various tax rate depending of the recipient of the interests (i.e. 15% for interest paid to reinsurance companies; 10% if paid to financial institutions,…).

Note: payments to recipients located in a preferential tax regime are subject to a 40% WHT.

The general rate of WHT on Royalties is 25%.

However, the rate of WHT related to payments for patents, trademarks and advertising is 35%.

Note: payments to recipients located in a preferential tax regime are subject to a 40% WHT.

The general rate of WHT on management fees is 25%.

Note: payments to recipients located in a preferential tax regime are subject to a 40% WHT.

The general rate of WHT on technical services is 25%.

Note: payments to recipients located in a preferential tax regime are subject to a 40% WHT.

Capital gains

Capital gains are taxed as general income under the regular CIT.

VAT

Standard VAT tax rate is 16%

Zero-rated supplies include, subject to certain conditions:

  • exports of goods and services;
  • international transport supplied by Mexican residents;
  • Information technologies services;

Exempt supplies include, subject to certain conditions:

  • International transport supplied by non-residents;
  • Certain financial services
  • Certain insurance services

Note: exempt transactions differ from zero-rated transactions in that the input VAT associated with exempt transactions is not deductible.

Certain companies may apply for a refund if the Input VAT in a month exceeds the Output VAT.

No other specific information of VAT in Mexico.

Miscellaneous

The general statute of limitation is 5 years starting at the end of the year in which the tax return had to be filed.

The statute of limitation could be extended to 10 years for negligent tax fraud and for wilful tax fraud.

There is no foreign exchange control in Mexico. Income and capital can be freely repatriated.

There are thin capitalization rules in Mexico. The interests derived from loans between related parties may not be deductible in case where interest exceeds some ratios (the applicable debt/equity ratio is 3:1).

 

 

 

Do not hesitate to share your experience in Mexico with us in the comments below. Any comments are welcome !

 

Romain Ponsot

Romain est conseiller en fiscalité au sein d’un leader mondial du shipping. Grâce à son expertise tant en matière de TVA, fiscalité internationale, problématiques intragroupe qu’en matière de fiscalité des particuliers, Romain vous guidera au travers d’articles professionnels et humoristiques. 

Romain, poète dans l’âme, aime particulièrement le couscous et passe beaucoup de temps à glacer ses souliers. Profil LinkedIn
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