Aside from its favorable business environment, there are several other compelling reasons why businesses choose to operate in Mexico. These include its strategic location, large consumer market, competitive labor costs, and its strong trade relationships. However, it’s important to note that engaging in commercial activities within Mexico requires an understanding of local regulations—one of which is its corporate tax system.
Corporate tax in Mexico is governed by the Ley del Impuesto sobre la Renta (LISR), the Mexican Federal Income Tax Law. The LISR states every business entity operating in Mexico, irrespective of its structure or nature, must pay corporate income tax.
Mexican corporate tax
Mexican corporate tax is applicable to resident companies in Mexico, including branches of foreign companies, as well as non-resident companies that generate income from Mexican sources.
Corporate tax in Mexico: Taxable base
Resident corporations within Mexico are obligated to pay income tax on their earnings, regardless of origin. A corporation is considered a Mexican resident if its place of effective management is located within Mexican territory. The taxable base generally involves deducting eligible expenses from worldwide income.
Non-resident entities and permanent establishments
For non-resident entities conducting business in Mexico through a permanent establishment (e.g., office, branch, agency), income tax applies to earnings attributable to that establishment. In essence, they must fulfill obligations similar to Mexican corporations.
Taxable income
The taxable income of a company subject to corporate tax in Mexico is estimated by subtracting deductible expenses and authorized deductions from gross revenue. Deductible expenses typically include salaries, rent, interest, depreciation, and other ordinary and necessary business costs.
Corporate tax rates
In Mexico, the headline corporate income tax rate is 30% for both resident and non-resident companies. Certain reduced regimes may apply, for example to entities engaged in manufacturing or maquiladora operations, subject to meeting specific requirements.
Value Added Tax (IVA)
Mexico levies a Value Added Tax (VAT/IVA) on goods and services rendered within its territory. The standard rate is 16%. Reduced or zero rates (e.g., 0–8%) may apply to specific goods or services.
Other corporate taxes
- Employee Profit Sharing (PTU): typically 10% of profits after the first year of operations.
- Real estate transfer taxes: often in the range of 2%–5%, subject to local rules and exceptions.
- Real property taxes: imposed at the state/municipal level at varying rates.
Filing and payment
Mexican companies file an annual return (Declaración Anual) summarizing income, deductions, and tax liability. The tax year generally follows the calendar year. Quarterly estimated payments may also be required.
International tax treaties in Mexico
Mexico has tax treaties with 50+ countries, including the United States, many in the Americas, and the European Union, to mitigate double taxation and provide relief/clarity in cross-border transactions.
Contact your Damalion experts now for your tax compliance in Mexico.
Understanding corporate taxes in Mexico — core taxes, payer types, compliance calendar, cross-border withholding, VAT mechanics, and practical structuring notes for foreign-owned entities.
For entrepreneurs, foreign subsidiaries, SPVs, holding companies, family offices and international groups • Damalion facilitates scoping, bank and service-provider introductions, and coordination so advisors can review efficiently. Decisions and filings remain at the authorities’ and providers’ discretion.
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What drives your effective tax rate
Entity form, income character, cross-border payments, and proper VAT registration drive the outcome. Build a clean paper trail: incorporation docs, shareholder chart, intercompany agreements, substance (directors/decision-making), and bookkeeping aligned to Mexican GAAP/CFDI e-invoicing. We facilitate the right expert bench so your structure, registrations and filings stay consistent.
Main corporate taxes at a glance
| Tax | What it covers | Who typically pays | Key notes |
|---|---|---|---|
| Corporate Income Tax (CIT) | Resident entities on worldwide income; non-residents on Mexican-source income. | Mexican companies; PEs of foreign entities. | Rates and deductions depend on activity and compliance with transfer pricing and documentation. |
| Value Added Tax (VAT/IVA) | Most goods and services supplied in Mexico; imports. | VAT-registered taxpayers. | Credit/offset mechanism via e-invoices (CFDI). Exempt/zero-rated items apply by law. |
| Withholding Taxes | Dividends, interest, royalties, services to non-residents. | Mexican payers withholding at source. | Treaties may reduce rates where eligibility is documented; substance and beneficial ownership matter. |
| Payroll & Social Security | Wages, benefits, employer contributions. | Employers and contractors with staff. | Monthly/bi-weekly obligations; proper classification avoids recharacterization risks. |
Who is in scope — entities and nexus
- Resident companies (incorporated or center of effective management in Mexico) — taxed on worldwide income.
- Non-residents with a Permanent Establishment (PE) — taxed on profits attributable to the PE.
- Non-residents without a PE — exposure limited to Mexican-source income, often via withholding.
- Look-through and hybrids — classification follows Mexican rules; treaty and anti-hybrid rules may apply.
Compliance calendar — typical sequence
- Register & e-invoicing: RFC registration, e-signature, and CFDI readiness.
- Monthly returns: VAT, withholdings, provisional CIT payments; payroll filings as applicable.
- Annual CIT return: Financial statements, adjustments, and disclosures.
- Transfer pricing: Intercompany agreements, local file/master file, informative returns where required.
- Statutory housekeeping: Minute books, legal ledgers, timely renewal of digital seals.
Cross-border payments and documentation
- Dividends, interest, royalties: Apply domestic rates or treaty relief with valid residency and beneficial ownership evidence.
- Services: Characterization and place-of-use drive VAT/withholding; maintain engagement letters and deliverables.
- Transfer pricing: Support with benchmarks and contemporaneous documentation.
Costs and practical timelines
- Initial setup for RFC/e-invoicing, monthly compliance fees, audit/TP reviews as needed.
- From complete onboarding to first filings: a few days to a few weeks depending on registrations and banking.
- Advance planning reduces withholding leakage and avoids late-filing penalties.
