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Mexico Tax Aspects

Una pareja sosteniendo felizmente tres paquetes de Amazon

Overview

The main taxes affecting companies doing business in Mexico are Income Tax (ISR), Value Added Tax (IVA), Excise Tax (IEPS) and the Social Security fees that must be paid on employees’ behalf. Furthermore, companies with employees must distribute and pay an amount equal to 10% of tax profits to their employees.

When is a company required to comply with Mexican Taxes?

A company is resident for tax purposes in Mexico if its main business headquarters are located in there. A company also acquires tax residence in Mexico through the figure of a permanent establishment, an assumption that arises when a foreign resident has a place of business in Mexico where it performs business activities (e.g. FBA). In this case, only the revenues attributable to the permanent establishment are taxable.

The obligation of digital platforms to withhold tax has been in effect since June 1, 2020. However, prior to that date, vendors and services providers operating through these platforms, whether companies or individual’s resident in Mexico or abroad, had to fulfill tax payment obligations on their own. The amendment of legal provisions as of June 1, 2020 has centered on digital platforms becoming the withholders of taxes that were always payable by vendors or services providers.

Income Tax (ISR)

Companies resident in Mexico pay tax based on their total tax income under worldwide source. However, nonresident companies only pay tax on income derived from a source of wealth located in Mexico. In general terms, the source of wealth of revenues is deemed to be located in Mexico when the activities and/or assets related to a company’s operations are located in Mexico or when payments are made by Mexican entities to foreign residents.

The corporate ISR rate is 30%. The same rate is applicable to the Mexican branches of foreign entities operating under the permanent establishment figure, in alignment with the principles established by the OECD in this regard.

A company’s net income is a result of subtracting costs, deductible expenses, investments and the tax losses obtained during the 10 preceding fiscal years from its annual gross revenue. Revenues and expenses are recognized on an accrual basis.

Value Added Tax (IVA)

IVA is applicable to the sale of goods, provision of services, the import and export of goods or services and lease transactions.
The standard IVA rate is 16%, while the 8% rate is applicable in certain municipalities located in Mexico’s northern and southern border regions. The IVA on imports is calculated according to the customs value of the imported goods.

Companies may credit their IVA payments against their payable tax; if the excess amount cannot be fully credited, the taxpayer may request its refund.

Excise tax (IEPS)

IEPS is applicable to certain specific products and services. For example, it is applicable to the import and sale of tobacco, alcoholic beverages, mobile telephony services, automotive fuel and other hydrocarbons, flavored beverages, fossil fuels, pesticides, etc. Tax rates vary depending on the product type. A special 8% tax is also applicable to foodstuffs with a high caloric value, including fried foods and ice cream, among others.

2020 Amendment of Legal Provisions

Derived from the June 1, 2020 amendment of legal provisions there are two options of tax payment for digital platform users:

1. Payment of tax by digital platform users that are not resident in Mexico

A digital platform used to perform intermediation operations to connect vendors and buyers must provide certain information to identify the customers purchasing goods to the Mexican tax authorities, including the federal taxpayer’s registration (RFC), fiscal domicile and transaction amount, etc.

When the vendor marketing goods via a digital platform does not provide an RFC (for example, foreign residents that do not have an RFC, the platform must withhold income tax (ISR) and value added tax (IVA) based on the following rates:
ISR: 20% on the total income effectively received, excluding IVA IVA: 100% of the tax collected

2. Payment of tax by digital platform users resident in Mexico Companies (including permanent establishments)

If the vendor of goods via the digital platform is a company, it must pay tax by filing monthly ISR and IVA returns; the platform will not withhold tax.
IVA payments may be credited (e.g., the IVA incurred on the commission collected by the digital platform, IVA paid on imports) against payable tax.

For ISR purposes, when performing the annual calculation, tax must be paid based on the company’s tax income, while subtracting costs, deductible expenses and investments from its annual income.

First Steps - Soft Landing in Mexico

In the case of companies wishing to start operations in Mexico, they have two options create a new company or register through the figure of permanent establishment. The most relevant steps for Consideration to obtain taxpayer’s registration (RFC) for each are as follows:

Creation of a new company in Mexico

1

Legal and corporate analysis of investment characteristics.

2

Incorporation of the new company.

3

Preparation of the powers of attorney that will be granted abroad for the representation of companies regarding the incorporation of the new entity in Mexico.

4

Request permission to register a corporate denomination with the Economy Department.

5

Preparation of the corporate bylaws for the new Mexican company.

6

Registration application filed with the Federal Taxpayer’s Registration.

7

Perform the procedures required to obtain an electronic signature (e.signature).

8

Open corporate ledgers.

Figure of a permanent establishment

1

The permanent establishment pays tax in the same way as a Mexican resident on the income attributable to it.

2

Registration application filed with the Federal Taxpayers’ Registry.

3

Define a fiscal domicile in Mexico.

4

Appoint a legal representative registered with the Federal Taxpayers’ Registry.

5

Perform the procedures required to obtain an electronic signature (e.signature).

Accounting and tax compliance

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Prepare accounting records and monthly financial statements in conformity with Mexican accounting standards, in pesos and in Spanish, as required by Mexican rules.

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Prepare monthly corporate tax returns (ISR, IVA and withheld taxes).

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According to current tax rules, monthly submit electronic files containing Mexican accounting data.

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Design an electronic billing procedure and request its authorization by the authorities.

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If applicable, upon hiring its first employee, it must obtain the necessary employer registrations, prepare payrolls according to local rules and file a monthly employment tax returns.

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File an annual tax return.

Comparative Effect on Payable Taxes - Companies

Common Mistakes to Avoid

1. Trying to figure out Mexican taxes yourself

Get expert guidance to understand Tax obligations early on. Unless you’re a tax expert, don’t try to handle this on your own.

2. Asking your local accountant about Mexican Taxes

Most foreign accountants are not Mexican Tax experts. Even asking them for general advice about is not recommended.

3. Hiring a VAT expert who doesn’t understand Amazon in particular

3rd Party Service Providers

Given the complexity of Mexican taxes, many sellers hire a Mexico tax expert. Many of these VAT experts provide a free first consultation to discuss your specific need.

Here are some popular picks from the service provider network.
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