Mexico: Tax

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This country-specific Q&A provides an overview to tax laws and regulations that may occur in Mexico.

It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.

This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-3rd-edition/

  1. How often is tax law amended and what are the processes for such amendments?

    In general, amendments to federal tax laws may be proposed by the President, members of the Federal Congress (i.e., the House of Representatives and the Senate), Sate Congresses and Mexican citizens (i.e. at least 0.13% of registered voters) and must be passed by both houses. After discussed and approved, the amendment must be then signed and published by the President if it agrees on the final terms of the proposed amendment.

    Federal tax law amendments may take place at any time of the year. Generally speaking, major tax amendments are presented by the President to the Federal Congress in September of every year, alongside the Federal Revenue Act and the Annual Federal Budget for the incoming year. If approved by Congress, these amendments will usually enter into force by January of the next year.

    Any other minor amendments to federal tax laws, once approved by Congress, signed by the President and officially published, will usually enter into force a few days after their publication in the Federal Official Gazette.

    It is important to bear in mind that Mexican tax authorities periodically issue the Tax Administration Rules (each year), which contains tax regulations that are intended to clarify tax obligations, and which is modified periodically throughout the year.

  2. What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?

    As a general rule, Mexican taxpayers must maintain accounting records for a period of five years, although this period may be prolonged in specific cases.

    Records that must be maintained and duly kept include accounting books, systems and registries, financial statements, working papers, tax and information returns and, in general, all documentation that supports the information included in tax returns filed by the taxpayer.

    For income tax purposes, taxpayers are required to file definitive annual tax returns every year, whereas for excise taxes and VAT, the definitive returns have to be filed on a monthly basis no later than the 17th day of the following month. Corporations are required to file the annual tax return no later than March of the following tax year, whereas individuals have until April of the following relevant tax year to file theirs. Additionally, taxpayers must file provisional income tax returns on the 17th of every month at the latest, alongside their monthly value added tax returns.

    There are taxpayers that are required to file certain informative returns before tax authorities, in which, for instance, they will need to report about specific transactions or about income derived from foreign jurisdictions.

    In general, the most important procedural obligations of taxpayers include the following:

    Filing

    Deadline

    Monthly tax returns of income tax, VAT, IEPS and withholdings taxes.

    - Income tax: 17th day of the following month.

     

    - VAT: 17th day of the following month.

     

    - IEPS: 17th day of the following month.

    Monthly informative return of transactions carried out with third parties (DIOT).

    Last day of the following month.

    Annual income tax return.

    Within the first three months of the following fiscal year.

    Multiple informative return (DIM).

    February 15th of the following fiscal year.

    Informative return of tax situation (DISIF).

    Within the first three months of the following fiscal year, alongside the annual tax return.

    Tax audit report

    Optional and no later than July 15th of the following fiscal year.

    If a taxpayer chooses to file the tax audit report, it would not be obliged to file the informative return of the tax situation (DISIF).

    Electronic accounting.

    Within the first three business days of the second following month.

    Informative Return of Relevant Operations.

    Within the following 60 days after the end of each trimester.

    Transfer pricing returns (master file, local file and country-by-country).

    No later than December 31st of the following fiscal year in which the relevant transactions are performed.

    Payroll tax.

    17th day of the following month.

    Social security contribution (IMSS).

    17th day of the following month.

    National housing fund for workers (INFONAVIT).

    17th day of the following month (every two months).

  3. Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?

    The key tax policy authority for tax related matters in Mexico is the Ministry of Treasury. Specifically, the Income Undersecretary and the Tax Attorney General’s Office, both dependent of the Ministry of Treasury, are in charge of overseeing Mexico’s tax policies and transforming such policies into law, respectively. This, of course, with the unavoidable participation of Congress when it comes to new legislation or amendments thereof.

    The Tax Administration Service (“SAT”) is the authority in charge of overseeing that tax obligations are duly complied with. From a regulatory perspective, the SAT annually issues regulations to gather and simplify the understanding of general rules they issue, which are generally related to tax compliance, but it is also empowered to assess taxpayers whenever tax obligations are infringed or overlooked.

    When it comes to dealing with key regulators, although not established under law as a formal process per se, it is a common practice for taxpayers to be involved with tax authorities in the issuance of Tax Administration Rules, in particular when it comes to the issuance of rules that are industry or sector specific where the contribution of taxpayers adds value.

    Additionally, taxpayers have other means to approach authorities when it comes to resolving standard issues; for instance, they may seek for clarity when interpreting tax laws or regulations by submitting consultations before tax authorities. In addition, through the Taxpayer’s Defense Office (Prodecon), there are certain procedures that may assist the taxpayer in approaching authorities to clarify about the application of certain legal provisions or regulations.

    Lastly, Accounting and Bar Associations in Mexico frequently release public statements addressing certain issues regarding tax policies and practices, situation that often times materializes in the amendment of certain tax provisions.

    However, effectiveness in resolving standard issues normally takes more time than the time established under tax regulations. For instance, obtaining VAT refunds has been always an important issue. According to a study issued by the World Bank Group it takes, in average, up to 42 weeks to obtain a VAT refund in Mexico while in countries such as France (6.2), Canada (14) or Spain (16.2), to mention a few, it takes less than half the time.

    Notwithstanding, auditing procedures usually do follow the timeframes established under tax laws due to the fact that, if this is not the case, taxpayers would most likely controvert the validity of the assessment (successfully).

  4. Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?

    Taxpayers may seek remedies before the tax authority itself, although this is an optional remedy that may be bypassed.

    Taxpayers that choose not to challenge a tax assessment before tax authorities, or if having done so, they wish to contest a confirmed assessment, may file an annulment lawsuit before the corresponding Administrative Tribunals, which are self-governing independent Tribunals.

    Further, if the taxpayer wishes to challenge the decision issued by the Administrative Tribunals, an “amparo” lawsuit (which works much like an appeal in an international context) may be filed before the corresponding Circuit Courts.

    The complete litigation process typically lasts from two to three years, but this timeframe may substantially vary on a case by case basis.

    It is important to note that throughout an auditing process and before a final assessment letter is issued, taxpayers may turn to the Prodecon in order to engage in a mediation process in views of resolving the issue prior to escalating the matter to a Court level. Although during the substantiation of this process tax authorities could, at any time, refuse to enter into an agreement with the taxpayer, the effectiveness of this alternative dispute resolution method is undeniable, considering that in roughly 75% of the cases so handled, taxpayers and tax authorities reach an agreement.

    This mediation procedure has proven to be exceptionally effective, especially if compared to traditional litigation, since agreements, if reached, are usually finalized within a six-month period.

  5. Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?

    By general rule, taxes for which there is no specific date established for payment remittance to tax authorities must be paid within 5 days following the date in which the tax was triggered. However, taxes that are levied through a withholding mechanism must be duly remitted to tax authorities in the 17th day of the following month in which the tax was triggered, at the latest.

    For income tax purposes, corporations must pay the corresponding taxes in March of the following tax year to that in which the taxes were triggered. However, provisional payments (not definitive) and tax returns must be filed by taxpayers on a monthly basis (the 17th day of the following month).

    For VAT and excise tax purposes, taxes must be paid on a monthly basis by filing a tax return in the 17th day of the following month in which the tax was triggered at the latest.

    Disputed tax amounts do not have to be effectively paid if the taxpayer controverts the corresponding assessment before the tax authorities.

    However, if/when the assessment is disputed before the Mexican Tax Tribunals, taxpayers will have to secure payment of the assessment through a guarantee, until the controversy or litigation is definitively resolved (some exceptions apply); otherwise, tax authorities could coercively collect any owed taxes.

  6. Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
    Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?

    From a domestic standpoint, taxpayers’ data is generally kept as confidential by tax authorities. In fact, the Federal Fiscal Code requires them to maintain absolute confidence when it comes to tax returns and other information provided by taxpayers or other third parties related to them, with certain exceptions. For instance, tax authorities could share taxpayer’s information to authorized credit and financial management platforms that issue credit reports when a tax assessment is final, to the Federal Antitrust Commission, to the Health Ministry, among others Mexican agencies in order to safeguard the Mexican Governments’ fiscal sustainability.

    From an international perspective, exchange of information agreements and other international conventions permit the Federal Government to disclose taxpayers’ information under the terms, conditions and limitations established therein.

    Yes, Mexico is a signatory to the Common Reporting Standard (CRS). CRS was first implemented in Mexico primarily through the Tax Administration Rules, which came into force on January 1, 2016, while the automatic exchange of information under the CRS provisions effectively started in 2017. In general, CRS requires Mexico to obtain information from its financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

    Mexico does not maintain a public register of beneficial ownership; however, please note that the Mexican Income Tax Law often times requires beneficial owner tests in order to apply reduced rates for payments made to foreign jurisdictions. In addition, this standard requirement is also included in most of Mexico’s Double Taxation Treaties to access benefits included under certain provisions (i.e., dividends, interest or royalties). Lastly, the Anti-money Laundering Law requires financial institutions to identify the beneficial owner of certain payments made as a consequence of engaging in “vulnerable activities”.

  7. What are the tests for residence of the main business structures (including transparent entities)?

    Pursuant to article 9 of the Federal Fiscal Code, a legal entity will be deemed to be a resident in Mexico for tax purposes if its main business administration is established in Mexico or its place of effective management is established in Mexico. Further, article 6 of the Regulations to the Federal Fiscal Code provides that a legal entity will be considered to have established its main business administration or place of effective management in Mexico, when the place in which the person or persons that take or execute the control, direction, operation or management decisions of the entity in question and the activities it engages in are located in Mexico.

    Under most of Mexico’s double taxation treaties, the residence tie breaker rule for persons other than individuals that are residents of two States will be determined by the place in which they have established their place of effective management.

    It is important to mention that Mexico treats foreign entities or vehicles as tax transparent if (i) they are not considered to be a taxpayer in the country in which they are incorporated or have their headquarters or place of effective management; and (ii) their income is attributable to its members, partners, shareholders or beneficiaries.

    For Mexican investment structures held by U.S. partnerships, for instance, Mexico and the U.S. have signed a Mutual Agreement Procedure that generally specifies the cases where fiscally transparent entities are entitled to treaty benefits and clarifies the procedure for claiming benefits from Mexico. In general, a fiscally transparent entity organized in the U.S., such as a U.S. limited liability company that has elected to be treated as a partnership for federal tax purposes, will be treated as a U.S. resident and entitled to claim treaty benefits, to the extent that the income it derives is subject to tax as the income of a U.S. resident in the hands of its members, owners, partners or beneficiaries.

  8. Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?

    Yes, Mexican tax authorities pay close attention to cross border transactions in order to avoid base erosion practices and the inappropriate application of tax treaty benefits. In fact, a special unit within the SAT is in charge of reviewing these operations and is frequently pursuing the compliance of regulations enacted to avoid these practices.

    As of recent years, the Mexican Income Tax Law and other regulations suffered different reforms to adapt policies that are compatible with the BEPS Action plans. For instance, interest, royalty or technical assistance payments made by Mexican entities to foreign related parties controlled by the taxpayer shall now be considered as deductible only to the extent that (i) they are not made to a transparent entity, the owners of which are not subject to tax in their residence jurisdiction, (ii) the country of residence of the recipient considers such payments as taxable income in the hands of the recipient; or (iii) the payment is considered to exist for purposes of the jurisdiction in which the recipient is a resident of.

    In pursue of assuring the compliance of rules of the kind, Mexican tax authorities are considerably active and have implemented not only regulations that will facilitate the vigilance of base erosion practices, but also impose mandatory information returns and other reports that allow them to identify these transactions and verify whether any irregularities exist.

  9. Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?

    The Mexican Income Tax Law provides several General Anti-Avoidance Rules, including thin cap rules, transfer pricing policies and CFC, to name a few.

    CFC Rules

    The Mexican Income Tax Law establishes that income obtained by Mexican residents or foreign residents with a Mexican permanent establishment through foreign entities or vehicles in which they participate, directly or indirectly, is considered to be derived from a preferential tax regime or “Refipre” and must therefore be taxed according to the Refipre rules, if such income is (i) not subject to tax abroad or is subject to tax at a rate lower than 75% of the income tax that would have been due and payable in Mexico on such income, if it had been obtained directly by a Mexican resident, or (ii) earned through foreign legal vehicles or entities that are tax transparent abroad.

    For such purposes, the Refipre rules take into account income obtained in cash, in kind, in services or in credit through foreign legal entities or vehicles and those which are presumptively determined by the Mexican tax authorities, even when such income has not been distributed to Mexican residents. In general, Mexican residents who obtain income from a Refipre must recognize it as taxable in Mexico during the year in which the income was derived, even if such income is not distributed to them by the foreign legal entity or vehicle that received it.

    Thin capitalization

    The Mexican Income Tax Law provides, as a general rule, that interest expenses incurred by Mexican entities are deductible on an accrual basis, subject to certain limitations amongst of which is that if interest expenses are paid to a non-resident related party, a 3 to 1 debt to equity ratio must be met; otherwise, any portion of the interest payments to foreign based related parties exceeding such ratio shall be non-deductible. This rule does allow for exceptions when it comes to debt contracted by taxpayers that are part of the Mexican financial system or that are engaged in the construction, operation or maintenance of productive infrastructure linked to the development of strategic sectors or electricity generation.

    Transfer Pricing

    Transactions between related parties should comply with the arms’ length principle and be properly supported from a Mexican transfer pricing perspective (i.e., by a transfer pricing report), following the essential principles established under the OECD Transfer Pricing Guidelines.

    Under current legislation, it is in fact possible for companies to obtain APAs with the tax authorities. These rulings may be effective in the fiscal year during which the relevant request was made, in the preceding fiscal year and up to the three fiscal years following the year in which the request was made.

  10. Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?

    The Mexican Income Tax Law does provide with a series of general anti-avoidance rules which include CFC, back to back, thin capitalization, beneficial ownership tests and dividend re-characterization rules. In addition, for cross-border related-party transactions, tax authorities may use a “substance over form” approach to determine whether tax simulation practices exist to avoid taxes. In these cases, authorities are empowered to give the simulated transaction the tax treatment that corresponds to the actual transaction, and may thus require the payment of any triggered taxes based on such circumstances.

    Tax authorities have access to detailed information about transactions entered into by Mexican taxpayers with foreign related and un-related parties, as a consequence of the different information reports and returns that taxpayers are required to file.

    Since Mexico is a capital-importing country, compliance with general anti-avoidance rules is considered a priority for the tax authorities. As a result, the Tax Administration Service operates advanced systems to process the information filed by taxpayers and shared by other countries through specialized units that analyze information regarding international structures and cross-border transactions focusing exclusively in identifying and countering avoidance practices adopted by taxpayers.

    Consequently, tax assessments derived from a breach to general anti-avoidance rule are usually well supported, thus narrowing the possibilities of a successful negotiation with the tax authorities themselves and forcing taxpayers into negotiations through the Prodecon. If these mediation procedures are in turn unsuccessful, taxpayers will usually litigate the assessments derived from the application of GAAR before the tax courts.

  11. Have any of the OECD BEPs recommendations been implemented or are any planned to be implemented and if so, which ones?

    Mexico has incorporated most of the OECD BEPS recommendations.

    For instance, Action 2 recommendations aimed to counter the effects of hybrid mismatch arrangements has been addressed through a set of rules that will disallow deductions if payments are made to transparent vehicles that meet certain characteristics.

    Action 3 items related to the design of effective CFC rules that Mexico had in place have evolved to achieve compatibility with BEPS recommendations.

    Action 4 recommendations directed to limiting base erosion involving interest deductions already existed in Mexico prior to the publication of the BEPS Action plans (i.e., thin-capitalization rules, back to back rules).

    Action 6 recommendations to prevent treaty abuse have also been addressed in Mexico by, for instance, denying the application of treaty benefits unless taxpayers prove, if so required, that (i) they are resident for tax purposes in the relevant country by providing with a residence certificate; and (ii) for related party transactions, file a sworn statement declaring that juridical double taxation will arise in the recipient’s country of residence if treaty benefits are not granted.

    Based on Actions 8-10, Mexican transfer pricing regulations have been amended to include provisions to allocate profits within Multinational Enterprises based on value creation and on the importance of the economic activities that are being carried out.

    As of 2018 and in accordance to Action 12, taxpayers are required to file trimestral reports providing detailed information on certain relevant transactions (as defined by the tax authorities), which include financing operations, corporate restructurings, sale or contribution of assets, among others.

    Under recommendations pertaining to Action 13 (transfer pricing documentation and country-by-country reporting), companies that carry out transactions with related parties and derive income equal or greater than MXN$755,898,920.00, must file a master and local file. In addition, multinational enterprises that derive income that is equal or greater than MXN$12 billion must also file a country-by-country report.

    As explained in the OECD’s report on Mexico’s compliance with Action 14, Mexico has partially implemented Action 14 Minimum Standard by including a Mutual Agreement Procedure program in most of its double taxation treaties. However, according to the OECD’s report, the average time to close a Mutual Agreement Procedure in Mexico is of 22 months, making it necessary to dedicate additional resources to the handling of cases in order to make it more efficient.

    Mexico, as a signatory to the OECD’s Multilateral Instrument (although still pending to be approved by the Senate), will incorporate several provisions to its tax treaties that will aim to avoid abusive practices.

  12. In your view, how has BEPS impacted on the government’s tax policies?

    As a member of the OECD, Mexico has been participating in the development of the BEPS action plans, and many of its recommendations have already been included into its domestic legislation.

  13. Does the tax system broadly follow the recognised OECD Model?
    Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
    If so, what are the current rates and are they flat or graduated?

    In general terms, the Mexican tax system follows the recognized OECD Model; however, there are some particular provisions that also follow the UN Model.

    a) Taxation of Business profits.

    Pursuant to the Mexican Income Tax Law, Mexican resident corporations are subject to corporate income tax at a 30% flat rate on their worldwide income, regardless of the source. Foreign residents may be taxed in Mexico if they have a permanent establishment in country on the income attributable to such establishment or if they derive Mexican source income.
    b) Taxation of employment income and pensions
    Individuals are generally taxed at a graduated rate that goes from 0% to 35%. Employers are required to withhold the corresponding taxes upon salary payments.

    Salaries paid to foreign residents shall be considered to be sourced in Mexico to the extent that the employment is exercised in Mexico. There is an exemption in case salaries are paid by foreign residents with no PE in Mexico, or when having one, the employment activity is not thereto related, to the extent that employees stay in Mexico for less than 183 days. However, such exemption is not available when the foreign employer has an establishment in Mexico in respect of which the service is related.

    Social security pensions received by Mexican individuals are not subject to tax for up to certain amounts; any excess thereof is taxed as ordinary income. Pensions sourced in Mexico and derived by foreign residents are: (i) exempt when they do not exceed MXN$125,900; (ii) subject to a 15% withholding tax rate if they exceed such amount but do not exceed MXN$1,000,000; and (iii) subject to a 30% withholding tax rate when they exceed MXN$1,000,000.

    c) Value added tax.

    The general VAT rate is 16% (a 0% rate applies in certain cases) and is determined on a cash flow basis. VAT applies to most sales of goods, rendering of services, leasing of goods and imports of goods or services in Mexico, as defined under the Mexican VAT Law.

    d) Savings income and royalties

    Interest income is subject to taxation as ordinary income (some exceptions apply for individuals). Interest payments made by Mexican residents to other Mexican residents are subject to withholding taxes only to the extent that they are made by entities that are considered to be part of the Mexican financial system, at a 0.46%. Interest payments made by Mexican residents to foreign residents or interest paid in respect to a loan, the capital of which is invested in Mexico, are subject to withholding taxes at rates that range from 0% to 35%.

    Royalties are also taxed as ordinary income (some exceptions for individuals may apply). Royalty payments made from Mexican residents to other Mexican residents are not subject to withholding taxes. Royalty payments made by Mexican residents to foreign residents are subject to withholding taxes at a rate that may range between 5% and 35%.

    f). Taxation on income from land.

    Income from land is generally taxed as ordinary income for income tax purposes. In addition, it is important to mention that the acquisition of land generally triggers State taxes which range between 1% and 5%.

    From a VAT perspective, the sale of land is generally exempt.

    Income derived by foreign residents from the sale of land that is located in Mexico is subject to a 25% withholding rate applied to the gross income. Alternatively, to the extent that certain requirements are met such as appointing a legal representative in Mexico, a 35% rate on the net gain may be applied.

    g) Taxation of capital gains.

    Capital gains derived by Mexican residents are taxed as ordinary income.

    Capital gains derived by foreign residents from the sale of shares that are issued by a Mexican resident or that derive their accounting value in more than 50% from immovable property located in Mexico are subject to at a 25% withholding rate applied to the gross income. Alternatively, to the extent that certain requirements are met such as appointing a legal representative in Mexico, a 35% rate on the net gain may be applied.

    Mexican individuals and foreign residents are subject to tax at a 10% withholding tax rate upon the sale of Mexican shares that are regularly traded in recognized stock markets.

    h) Stamp and/or capital duties.

    There are no stamp or capital duties in Mexico.

  14. Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?

    Taxable profits are determined by the rules set forth in the Mexican Income Tax Law. These rules may sometimes differ from the general accounting principles, although usually general accounting and tax-law principles are homologous. In some cases, Mexican tax regulations make specific references to the applicable general accounting principles (i.e., IFRS, USGAAP) for purposes of maintaining accounting records.

  15. Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?

    Legal entities such as companies or partnerships incorporated under the laws of Mexico are taxable entities.

    Mexican law does not recognize the transparency of any corporate or legal forms.

    However, passive income trusts or participation associations (asociación en participación), which are not considered to be a corporate form but rather a contract from a legal perspective, do qualify as pass-through vehicles since they are not considered taxable entities, to the extent they comply with certain requirements. Trusts of the kind are mainly used, for instance, by private equity funds considering that they not only recognize a transparent tax treatment, but also provide with considerable flexibility to regulate corporate governance issues that may not be achieved through traditional legal entities.

  16. Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?

    Pursuant to article 9 of the Federal Fiscal Code, a legal entity will be deemed to be a resident in Mexico for tax purposes if its main business administration is established in Mexico or its place of effective management is established in Mexico. Further, article 6 of the Regulations to the Federal Fiscal Code provides that a legal entity will be considered to have established its main business administration or place of effective management in Mexico, when the place in which the person or persons that take or execute the control, direction, operation or management decisions of the entity in question and the activities it engages in are located in Mexico.

    Under most of Mexico’s double taxation treaties, the residence tie breaker rule for persons other than individuals that are residents of two States will be determined by the place in which they have established their place of effective management.

  17. Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?

    Yes, the government recently enacted a decree regulating the so called “special economic zones” to promote the economic growth of less developed areas of the country. Companies that operate through special economic zones are eligible for important tax incentives: (i) income tax exemptions (during the first 10 years and 50% reduction during the 5 years thereafter) (ii) VAT levied at a 0% rate on the acquisition of goods, hiring of certain services and leasing of tangible goods; (iii) VAT exemption upon importation of foreign goods and the acquisition or use or enjoyment of intangible goods; (IV) VAT exemption upon the use or enjoyment of tangible goods that are delivered abroad and the use within the special economic zone of independent personal services rendered by foreign residents; (v) no VAT applies on activities performed within the special economic zones; and (vi) exemption from foreign trade duties (limited to 60 months).

    In order to promote the Mexican “maquila” industry, companies that operate under the IMMEX program are subject to certain incentives. In general, this program is an instrument which allows for the temporary importation of goods for transformation/repair which are exported thereafter, without covering the payment of general import tax and countervailing duties. For VAT purposes, companies under this regime will be able to obtain a certification to be tax-exempt from VAT upon the importation of raw materials destined to manufacturing processes and will also benefit from simplified customs procedures.

    Additionally, non-Mexican residents carrying out transactions with companies under an IMMEX program will not be considered to have a permanent establishment in Mexico from manufacturing activities carried therein.

    As per the oil and gas industry, companies are subject to specific tax rules. For instance, sector companies shall apply different deduction rules for investments, enabling them to deduct the 100% of the investment in one year. In addition, these companies shall be able to offset tax losses for a period of 15 years.

  18. Are there any particular tax regimes applicable to intellectual property, such as patent box?

    No, there are no particular tax regimes applicable to intellectual property in Mexico.

  19. Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?

    The Mexican Income Tax Law provides for an integration regime applicable to companies that belong to the same group. In general terms, in order to apply this regime, the “integrating” company must hold (directly or indirectly) at least 80% of the shares with voting rights of the “integrated” companies and all of the companies of the consolidated group have to be Mexican residents.

    If this tax regime is applied, the integrating company will determine any taxes due by the consolidated group, having the possibility of deferring a portion of such taxes for a three-year period. However, it should be noted that this regime is not widely employed.

  20. Are there any withholding taxes?

    Yes, withholding taxes apply to a wide array of payments. For instance, financial institutions must withhold taxes from interest payments made to individuals or legal entities. In most cases, withholding taxes apply upon payments made to foreign residents that are considered to be sourced in Mexico.

    Even though preferential rates could apply based on tax treaties, the withholding rates provided in the Mexican Income Tax Law are as follows:

    Payment

    WHT (%)

    Wages and pensions

    0/15/30

    Professional fees and board members’ remunerations

    25

    Lease of real property and movable property

    25

    Lease of containers imported on a temporary basis, airplanes, and ships authorized by the Mexican Government to be commercially exploited

    5

    Chartering services

    10

    Capital gains

    25 (or 35 on net gain) 

    Sale of shares through a  recognized stock exchange

    10

    Derivative transactions

    25

    Dividends

    10

    Interest

    4.9/10/15/21/35 

    Royalties

    5/25/35 

    Construction services

    25 (or 35 on net gain) 

  21. Are there any recognised environmental taxes payable by businesses?

    Yes, Mexico imposes taxes on energy use. There is an excise tax on transport fuels and fossil fuels (carbon tax). While the excise tax on transport fuels applies to premium gasoline, regular gasoline and diesel for transport use, the carbon tax applies to, among others, gasoline, diesel, fuel oil, kerosene, LPG and coal for use by households, industry and electricity generation. However, as a share of GDP, Mexico has the lowest environmentally related tax revenue among 34 OECD economies.

  22. Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?

    Generally speaking, dividends paid by Mexican companies or non-resident companies to Mexican individuals are taxed as ordinary income at the applicable progressive rate.

    Dividends received by Mexican resident corporations from another Mexican resident corporation are not taxable. However, dividends received by a Mexican-resident corporation from a foreign resident corporation, are taxable at a 30% income tax rate, as ordinary income, although the taxes paid abroad could be credited against taxes due in Mexico.

    In addition, please note that dividend payments made by Mexican companies to individuals or foreign residents (individuals or corporations) are subject to tax at a 10% withholding rate.

  23. If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?

    Mexico offers the most important treaty network within Latin America. Therefore, any UK based company interested in making an investment throughout Latin America could find Mexico as an important hub for its operations.