Income Tax Compliance and Filings

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Everything you need to know about Income Tax Compliance

What are Corporate Income Tax Requirements in Mexico?

All legal entities in Mexico, including Limited Liability Companies and Corporations (Sociedad de Responsabilidad Limitada or Sociedad Anonima, respectively), must file monthly income taxes. Corporate income taxes known as Impuesto Sobre la Renta or ISR in Mexico, are filed electronically by way of the Mexican government’s tax system operated by the SAT or Servicio de Administración Tributaria.

Companies should not attempt to file income taxes on their own and should contract the services of an accounting firm specifically experienced in the nuances of foreign-owned companies operating in Mexico. It is not practical for non-Mexican accountants to attempt to file income taxes on their own, because the Mexican tax filing system and GAAP rules differ significantly from other jurisdictions.

Overview of Mexican Income Tax Obligations

Category	Details
Tax Name	Impuesto al Valor Agregado (IVA) – Value Added Tax
Taxpayer Scope	Mexican resident companies: Taxed on worldwide income.- Non-resident companies with a Permanent Establishment (PE): Taxed on Mexican-source income attributable to the PE.- Non-residents without PE: Subject to withholding tax on Mexican-source income.
Tax Base	Net taxable income = Gross income – Authorized deductions (as per ISR Law).
Standard Corporate Rate	30%
Filing Frequency	Monthly provisional payments: Due by the 17th of the following month.- Annual return: Due by March 31 of the following year.
Authorized Deductions	Necessary expenses strictly related to the business.- Salaries and benefits (with payroll tax compliance).- Depreciation and amortization.- Interest (subject to thin capitalization rules).- Certain social security contributions and taxes paid.- Bad debts written off.
Non-Deductible Expenses	Personal expenses.- Fines and penalties.- Certain donations.- Undocumented or non-CFDI-backed expenses.- Expenses not paid via authorized payment methods.
Special Regimes	Agricultural, livestock, fishing, and forestry activities may have reduced rates.- Maquiladora regime with special calculation rules.- Tax incentives for certain industries and investments.
Loss Carryforward	Up to 10 years (no carryback allowed). Losses are applied against future taxable income.
Transfer Pricing Rules	Apply to related-party transactions (domestic and cross-border). Must comply with OECD guidelines and file transfer pricing documentation if applicable.
Withholding Obligations	Companies must withhold ISR on certain payments to individuals or foreign residents (e.g., dividends, interest, royalties, professional fees).
Penalties for Non-Compliance	Late payment interest (recargos) at SAT-set rates.- Fines for late filing or non-filing.- Possible suspension of Digital Seal Certificate (CSD) preventing issuance of invoices.- Audit adjustments and retroactive assessments.
Legal Basis	Ley del Impuesto sobre la Renta (LISR) – Latest reform in force.

What does Income Tax in Mexico Involve?

You will need to incorporate a legal entity in most cases. Payment of corporate tax obligations is not possible as a foreign
company without an RFC ID, which is the Mexican Tax Identification number. Obtaining an RFC ID in Mexico
requires the incorporation of a corporate entity such as a Sociedad de Responsabilidad Limitada or
Sociedad Anomima. Tax branches in Mexico are subject to the same requirements, obligations and establishment
requirements as traditional corporations and are neither recommended nor practical.

Example of how income tax works
Step	Description	Example Calculation
1. Subtract Authorized Deductions	Deduct expenses strictly necessary for business operations, documented with CFDI invoices and paid via authorized methods.	Deductible expenses: $3,200,000 MXN
2. Calculate Taxable Income	Gross income − Authorized deductions = Taxable income.	$5,000,000 − $3,200,000 = $1,800,000 MXN
3. Apply Corporate ISR Rate	Apply the current corporate rate (30%) to taxable income.	$1,800,000 × 30% = $540,000 MXN annual ISR
4. Make Monthly Provisional Payments	Pay ISR in advance each month based on cumulative income and deductions, crediting against the final annual ISR.	January–November provisional payments total: $500,000 MXN
5. File Annual Return	Final reconciliation of ISR owed vs provisional payments made; due by March 31 of the following year.	Annual ISR: $540,000 − Provisional $500,000 = $40,000 MXN payable
6. Apply Loss Carryforward if Applicable	If prior years’ losses exist, deduct them from taxable income (up to 10 years).	Prior loss: $200,000 → New taxable income: $1,600,000; ISR = $480,000
7. Keep Documentation	Maintain accounting records, CFDIs, payroll records, and deductions support for at least 5 years.	Required for SAT audits or refunds.
8. Determine Gross Income	Add up all taxable income earned during the period (monthly for provisional payments, annually for final calculation).	Annual sales revenue: $5,000,000 MXN

Do I need to pay income taxes in Mexico?

If your company undertakes continuous and systematic business in Mexico, your income is subject to Mexican income taxes. Foreigner companies must pay taxes in Mexico in the following common situations.

Here is a decision making flowchart to help you decide if you are subject to Mexican VAT and income taxes and should register an RFC ID.

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