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Accounting in Mexico and Tax Compliance Requirements

Entering the Mexican business market holds great potential for investors, thanks to its thriving economy and strategic location. With a large consumer base, a diverse industrial sector and recent efforts to streamline business regulations, Mexico offers a promising outlook for those looking to set up shop in the region. However, understanding accounting in Mexico is crucial to succeeding in this market.

Accounting in Mexico involves compliance with various tax regulations, including corporate tax rates, value added tax (VAT) and social security contributions. Companies must adhere to Mexican Financial Reporting Standards (NIF), which are aligned with International Financial Reporting Standards (IFRS) but have specific local requirements.

In addition, companies must be aware of the deadlines and procedures for filing tax returns and financial statements to avoid penalties and ensure smooth operations. Properly navigating accounting in Mexico will help your company comply with local laws and take full advantage of the opportunities offered by this vibrant economy.

This article provides an overview of the legal and accounting requirements for doing business in Mexico. By understanding the complexities of accounting in Mexico, you can effectively manage your financial obligations and position your business for long-term success in this dynamic market.

What are the Corporate Income Taxes in Mexico?

Corporations are subject to different tax rates than other business models, families, or individuals. They are listed by percentage here:

  • Corporate Income Tax- 30%
  • Capital gains considered as corporate income- 30%
  • Value Added Tax- 16%

Withholding taxes are as follows:

  • Dividends paid to residents and non-residents- 10%
  • 5% royalties from railway rentals
  • 25% royalties for technical assistance
  • 30% royalties for patent rental
  • Interests paid to non-residents- between 4.9 and 40%
a biz latin hub infographic about accounting and taxation in mexico
A Biz Latin Hub snapshot of Accounting in Mexico

Tax Incentives in Mexico

  • Dividends received from a resident company do not have to pay withholding tax.
  • Due to Mexico’s lack of exchange controls, businesses can freely send funds back to their country.
  • Companies registered in Export Processing Zones are exempt from corporate income tax.

Tax Administration in Mexico – Servicio de Administración Tributaria (SAT)

The Tax Administration is similar to the IRS in the USA and has its regulations and timelines. It is required for all companies to file annual tax returns in Mexico with the Tax Administration within 3 months of the end of the upcoming fiscal year. Later than the 17th of each month, the Value Added Tax must be filed. Digital invoices are required for every transaction that a trading company in Mexico makes.

This includes the RNIE reports which are filed every quarter, and a year consolidated report. It is necessary to comply with filling the notice before the RNIE (National Foreign Investment Registry) if in any of the quarter’s investment has exceeded MXN 20 million of foreign investment in the following accounts:

  1. Capital stock and/or shareholding structure that implies a change in the participation in the capital stock of foreign individuals or legal entities.
  2. Assets. Accounts receivable from Subsidiaries resident abroad, Partners or Shareholders resident abroad, and/or Companies resident abroad that are part of the corporate group and do not participate as partners or shareholders.
  3. Liabilities. Accounts payable to Subsidiaries resident abroad, Partners or Shareholders resident abroad, and/or Companies resident abroad that are part of the corporate group and do not participate as partners or shareholders.
  4. Stockholders’ equity. Contributions for future capital stock increases.
  5. Stockholders’ equity. Capital stock reserves or results of previous years.

What are Some Additional Tax and Accounting Considerations?

  • Employers must pay 15-25% of each employee’s monthly salary to the Mexican Social Security Institute (IMSS).
  • Mexico has signed double tax treaties (avoids or mitigates double taxation) with 61 countries, including the U.S., Canada, and many European countries.
  • Mexico is a member of the NAFTA and EFTA free trade agreements and nearly 20 others.

What Accounting Standards are Used in Mexico?

The Mexican General Law of Corporations outlines the general legalities that all companies must follow. A few of its rules are:

  • All resident companies must keep records of the company’s shareholders’ contact information, the amount of time in each shareholder meeting, and any changes in the share capital.
  • A local registered address is required for all Mexican resident companies.
  • All companies listed publicly must file financial reports with the Mexican Securities and National Banking Commission.
  • Up to 10% of the annual income must be shared with the company’s employees.
Accounting in Mexico. What accounting standards are used in Mexico?  

What Are the Employer Considerations for Entity Requirements?

Employers should be aware of the general regulations for workers in Mexico and the payments that they are entitled to. A few considerations below:

  • A workweek in Mexico is a maximum of 48 hours, with a maximum of 3 hours of overtime per day and three times a week.
  • Workers are permitted to engage and be members of a union.
  • The minimum wage per day in Mexico is USD 12.26.
  • 2% of payroll must go to workers’ retirement funds while 5% must go to their housing funds.

Biz Latin Hub can support you with accounting in Mexico 

Mexico is a country of opportunity and is very open to the prospect of foreign business and trade. Understanding the legalities before designing your business plan will create the foundation for a smoother market entry. 

If you would like more information on accounting in Mexico, Biz Latin Hub has a group of experts who can provide guidance for your business in Mexico. We offer professional accounting, legal, and financial services tailored to you and your company’s needs.

Contact us today to learn more about how we can support you in doing business.

Or read about our team and expert authors.

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Biz Latin Hub video on how to form a company to help with Accounting in Mexico

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.
Accounting Team Mexico

Accounting Team Mexico

Accounting Team Mexico is the Biz Latin Hub leading experts on doing business in Mexico. The Team writes on the news, doing business, accounting, and changing regulations. The team are experts on auditing, local taxation, international taxation, payroll processing, payroll compliance, IFRS and financial advisory services. Read more about them here. You can contact Accounting Team Mexico via our "contact us page".

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