The taxation system in Mexico can be somewhat complicated; this can make it difficult for foreigners operating in the country. Taxpayers in Mexico are divided into four groups, all which have specific tax requirements. It is essential that both foreigners and locals conducting business in Mexico have a comprehensive understanding of the taxation system and their tax obligations.
Mexico Accounting – Classification of Taxpayers
Permanent Establishments of Foreign Corporations in Mexico
Permanent establishments of foreign corporations and all their entities (other than specifically designated non-profit organisations) will generally be taxed in the same manner and under the same rules as resident corporations. These include most private business enterprises, as well as public companies and professional service providers. These taxpayers must include income from all sources, with very few exceptions.
Mexico – Resident individuals
Resident individuals, whether Mexican or foreign, are subject to Mexican taxation on their worldwide income of all types, most of which must be included in an annual personal income tax return. Taxable income is subject to tax according to a graduated rate tax. There is special treatment for capital gains and domestic interest income.
Mexico – Non-residents
Non residents may be considered to have a permanent establishment for income tax purposes in Mexico under certain circumstances. In these cases, the permanent establishments are taxed in the same way as duly registered branches of foreign corporations, basically following the rules for resident corporations. Non-resident Mexican or foreign individuals without a permanent establishment are taxed only on their Mexican-sourced income, at flat or graduated rates applied separately to different types of gross income without deductions. However, under special rules, they may elect to be taxed at higher rates on net taxable profits from sales of property or capital stock or short-term construction and similar work, among others.
Generally, no overall annual return is required from non-residents. Non-resident individuals rendering personal services temporarily in Mexico, who are employees of a non-resident corporation that do not have a permanent establishment in Mexico, are exempt if their services are rendered for less than 183 days, consecutive or not, in any 12-month period. If the duration of their services exceeds 183 days, they are subject to tax. Non-resident individuals who render personal services on a temporary basis in Mexico directly to Mexican taxpayers are subject to a graduated withholding tax rate.
Government Agencies and Other Organisations in Mexico
A limited number of organisations and government agencies are exempt from taxes. These include formally registered political parties, the federal, state and municipal governments, and their agencies not engaged in business activities. Other non-profit organisations are generally considered non-taxpayers, rather than as exempt from tax.
Biz Latin Hub Mexico has team of expert back office and accounting specialists that can help you understand everything you need to know regarding the different types of Mexican taxpayers. Do not hesitate to contact us here and see how we can assist you with taxation issues and financial reporting.