Mexico Tax & Business Guide - Deloitte

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Basic facts
Population 107.4m* Inflation 3.6% (2006)*
Main languages Spanish, indigenous languages GDP per head US$7,620*
Currency Mexican peso (MXN) GDP growth 4.7% (2006)*
Economic communities Asia Pacific Economic Co-operation, Latin America Integration Association, North American Free Trade Agreement, OECD, WTO
GDP sources 3.9% agriculture, 25.9% industry, 70.2% services (including the maquiladora industry)
*Economist Intelligence Unit estimates.
Political environment

MexicoÌs political system is presidential, bicameral (Senate and Chamber of Deputies) and federal (32 states).

The president is Felipe Calder€n of the ruling Partido Accion Nacional (PAN) party, who heads a minority government.
Foreign trade and investment
Exports US$252.2bn (2006)* Imports US$258.1bn (2006)*
*Economist Intelligence Unit estimates.

Major exports: Manufactured goods, oil and agricultural goods.

Leading export markets: The US, Canada, Spain and Japan.

To attract foreign investment, the authorities have relaxed reporting requirements on new projects and eased ownership restrictions in some sectors.

The two export programmesÛthe ÏMaquilaÓ and the ÏPITEXÓ programmesÛhave been combined into a single export programme.
Business and financing
Business forms Sociedad an€nima, sociedad an€nima de capital variable

The sociedad an€nima (SA, or corporation) and the sociedad an€nima de capital variable (SA de CV, or corporation with variable capital) are the most popular forms of organisation. Foreign investors with wholly owned subsidiaries that want added flexibility in increasing or decreasing capital favour the SA de CV. The only difference between the SA and the SA de CV is that the variable portion of an SA de CVÌs capital is usually unlimited. Another form of entity is the sociedad de responsabilidad limitada (SRL), for which the CV option is also available. Branches are at a disadvantageÛthey may not own real estate and may not deduct payments made to the head office for interest, royalties, fees or other services.

Mexico City, the capital, is the main financial centre; Monterrey, Guadalajara and Tijuana are also important cities.
Labour environment
Unemployment rate 3.6% (2006)* Minimum wage Three zones
*Economist Intelligence Unit estimate.

About 40% of the workforce is unionised.

Mexico has three daily minimum wages: MXN 50.57 in Mexico City and along the US border; MXN 49 in smaller urban centres; and MXN 47.6 in rural areas.

The social security system covers pensions, work-related disabilities, non-occupational diseases and paid maternity leave. The employerÌs share is about 20% of total payroll.

A 10% mandatory profit sharing with employees is established under the Federal Labour Law. The base for determining the amount to be distributed as profit sharing is similar to the taxable income base used for income tax purposes.

Mexico has agreed to permit temporary entry for four categories of non-Mexican North Americans: business visitors, traders and investors, intra-company transferees and certain other professionals.
Taxation
Corporate tax
Main rate 28%

Resident companies are taxed on their worldwide income; non-resident companies pay tax only on Mexican-source income. A company is resident if its place of main or effective management is in Mexico. The corporate tax rate is 28%. Generally all categories of income are aggregated to arrive at taxable income, but dividends from resident companies are not taxable. Inflationary accounting is applicable in certain areas, therefore triggering taxable income and deductions.

In addition to income tax, Mexico imposes a type of alternative minimum tax, the asset tax at a rate of 1.25% (reduced under recent reforms). Under the reform, the asset tax is imposed on assets without allowing the deduction of debt. The taxpayer must pay the higher of the income tax and the asset tax in a particular fiscal year. The asset tax may be credited against the Mexican corporate income tax liability.
Individual tax
Progressive rates to 28%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on Mexican-source income. An individual is considered resident if that person has a home in Mexico. If the individual also has a home elsewhere, the Ïcentre of vital interestsÓ determines residence, this being where more than 50% of income is earned or where the individualÌs business activities are centred. Individuals are taxed at progressive rates to 28%. A percentage reduction is then applied to the tax liability, based on income and tax payable.
Capital gains
Generally taxed as income

Capital gains of companies and individuals are generally taxed as income. In calculating the gains, an inflation adjustment can be made to the original cost of the asset. Gains of individuals on the sale of publicly traded securities and on the transfer of personal property (other than corporate shares, securities and investments) are exempt.
Indirect tax
Standard rate 15% Lower rate 10%

Value-added tax (VAT) applies to most transactions. The standard rate is 15% but exports are zero-rated. Other zero-rated items include food, books and newspapers, fertilisers and medicines. A reduced 10% rate applies to supplies by residents of a frontier zone, provided the supply takes place in the zone. Exemptions include construction of residential dwellings, certain financial and insurance services, teaching and medical services. VAT is determined on a cash-flow basis.

Registration is compulsory for businesses.
Tax administration and compliance
Tax year Corporations and individuals: calendar year

The tax year is the calendar year for companies and individuals. Companies must make monthly advance income tax payments based on the last profitable year within the past five years or the previous yearÌs tax in the case of the asset tax. A tax return is due three months after the end of the tax year.

Employment income of individuals is subject to withholding at source. Individuals must make advance tax payments in respect of other income.
Additional tax information
Withholding taxes Dividends 0%; Interest 4.9%, 10% and 28% and Royalties 28%. The rates may be reduced under the terms of an applicable tax treaty.
Tax treaties Mexico has concluded more than 30 tax treaties.
Dividends Dividends are not taxable.
Revenue protection There are armÌs-length rules, thin-capitalisation restrictions and anti-haven (CFC) legislation.
Groups Consolidated filing is possible.
Incentives New incentive to reward taxpayers that duly comply with their tax obligations, on which basis a credit is granted equal to 0.5% of the amount of the 2007 taxable income.
Import of natural gas.
Crediting of the excise tax (IEPS) that Petr€leos Mexicanos and its agencies incurred on the sale of diesel.
Incentive for the development of science and technology.
In-bond assembly operations (maquiladoras); export promotion; farming; free zones for customs purposes.
Other taxes Import duties, Payroll tax, Municipal property tax, Tax on motor vehicles, Real estate transfer tax.