Latin America’s second-largest economy is performing strongly despite tough global market conditions.
Mexico´s economic outlook has been boosted by increased manufacturing investment, growing nearshoring opportunities, and cooling inflation.
These positive indicators make it an ideal time to consider doing business in Mexico.
However, like most new international markets, there are specific local rules and regulations that you need to understand and follow to be successful.
One of these factors is setting up an international tax account in Mexico and understanding how the tax rules may affect your plans for entering this large Latin American market. Meeting your local and international tax obligations is essential when doing business in Mexico.
Read on to learn more about an international tax account in Mexico, and how company incorporation in Mexico works.
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How does international tax work in Mexico?
In Mexico, the tax legislation differentiates between residents and non-residents; regardless of whether they are individuals, corporations, or other entities deemed as legal persons.
Typically, residents are liable to pay taxes in Mexico on their income from all global sources, while non-residents are only taxed on their income from Mexico.
Under domestic legislation, both individuals and corporate entities must pay income taxes under the following circumstances:
- Residents need to pay taxes on their entire income, regardless of its source location.
- Foreign residents who possess a permanent establishment (PE) in Mexico are liable to pay taxes on the income that is attributed to such establishment.
- Foreign residents must pay taxes on the income derived from Mexican sources when they do not have a PE in Mexico. Alternatively, when they have one, but the related income is not attributable to that PE.
Your international tax account in Mexico must be compliant with these regulations.
The IMMEX Program
The IMMEX maquiladora program enables foreign manufacturers to import raw materials and components into Mexico, without paying taxes or duties if all finished products are exported out of Mexico within a government-mandated time frame.
However, under new tax reforms that came into effect in 2022, maquiladoras will no longer be permitted to apply for an APA (Advance Pricing Agreement) to comply with Mexican transfer pricing rules regarding the fees they charge to their foreign companies.
Operators now must adhere to the following tax rules:
- Pay 6.5 percent of the total costs and expenses incurred by the maquiladora in the manufacturing process
- Pay 6.9 percent of a theoretical net tax basis of all the maquiladora’s assets used to perform the assembly or manufacturing of products, including assets owned by the maquiladora and assets owned by the foreign company
- Foreign companies that hire a third-party contractor – a shelter maquiladora –to manufacture or assemble products in Mexico must pay a shelter tax to avoid creating a permanent establishment in the country.
Does Mexico have any tax treaties?
Mexico has double-taxation agreements (DTAs) with 60 countries. These include the U.S., Australia, China, Italy, Canada, Russia, Spain, Chile, Brazil, and Kuwait.
It is important to be aware that the Multilateral Tax Treaty (MLI), signed in 2022 by Mexico may mean these treaties are subject to additional obligations to access their benefits.
The Mexican Income Tax Law provides a 30% tax credit for research and development (R&D) expenses, including investments in R&D. The tax credit will be equal to current-year R&D expenses more than the average R&D expenses incurred in the previous three years. This incentive cannot be combined with other tax incentives.
Key points to consider when establishing a company in Mexico
If you are interested in starting a business or expanding into Mexico, you will need to take into account several factors, such as:
Partner with a legal representative: To form a business in Mexico, you must have a legal representative if you don’t live there permanently. Choose a legal representative who knows the local business community and has knowledge of corporate law or accounting to help your business.
Entity type: There are several types of companies in Mexico available to choose from, depending on your business type, number of initial investors, and management strategies.
Economic activity: When registering your business in Mexico, it is crucial to accurately register your economic activity to prevent legal issues. Your legal representative can guide you on how to properly describe your activities, ensuring compliance with local regulations.
Research the market: It’s necessary to conduct due diligence and professional market research to identify sectors that are suitable for your business and skill set. An experienced corporate legal representative can offer valuable advice or connect you with the right people.
Biz Latin Hub can help with your international tax account in Mexico
At Biz Latin Hub, we have a team of specialists who can provide you with customized services to meet your Mexico business needs.
Our comprehensive range of legal, accounting, and back-office solutions enable us to serve as your primary contact point, helping simplify and speed up your entry into the Mexican market.
Talk to our team of local experts today about an international tax account in Mexico, company formation, and how to find the top talent in the region.
If you found this article about international taxes in Mexico interesting, be sure to explore the rest of our coverage of the region. Additionally, you can learn more about our team and expert authors here.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.