The Mexican Taxation SituationWed, 01/25/2012 - 14:56
The Mexican Tax Law provides revenues for all three levels of government: Federal Taxes include the Federal Income Tax (ISR), a Revenue Flat Tax (IETU) and a Value Added Tax (IVA), while state and local taxes include a Payroll Tax, a Property Tax, a Real Estate Acquisition Tax and all other general taxes on drainage, sewage, street lighting, and so on. The Tax Administration Service (SAT) is the government body in charge of handling federal taxes. All state and local taxes are calculated and collected by their respective treasuries.
The Federal Income Tax is imposed on the income of individuals and corporations. While individuals pay a tax between 1.92% and 30%, corporations are charged with a fixed rate of 30%, although between 2010 and 2012, the corporate tax rate was increased to this fixed rate and will be reduced back to the original 28% in 2014. For both individuals and companies, payment is made annually. The Revenue Flat Tax consists of a 17.5% tax on revenue and is calculated along with the Federal Income Tax since taxpayers only pay the higher of these two taxes. On the other hand, the Value Added Tax is imposed whenever a person or corporation sells goods or real estate, renders independent services, yields temporary use over goods or real estate and imports goods or services. The current rate of IVA is 16%, except for transactions taking place inside the border zone for which a rate of 11% applies. Food and medicines are exempt from this sales tax.
The Mexican government oers several tax benefits for general corporations. Among these are immediate deductions for investment, deductions for hiring people with disabilities, deductions for participation in film production and deductions for investments in real estate developments.
In the case of foreign investments, non-residents are only taxed a flat rate on their Mexican source of income unless they are considered to have a permanent establishment or a fixed base of operations in Mexico. In this case, they are taxed in the same way as registered branches of foreign corporations, usually under the same rules as resident corporations.
With regard to the oil and gas industry, no incentives for investment apply in Mexico. However, taxpayers benefit from deductions for specific new assets used in the country. For machinery and equipment used in the processing of crude petroleum or in the extraction of natural gas, taxpayers can receive a one-time deduction of 80% and up to 84% for equipment used in the processing of petrochemical products. For all companies in the industry that operate under contracts to perform specific activities related to Pemex’s objectives, the actual activities included in the contracts should be analysed in order to determine if the assets being used can classify for these deductions.
In June 2011, the Tax Administration Service issued a temporary tax regulation entitled the “Miscellaneous Resolution” that requires that all taxpayers that enter into contracts or provide services to the Mexican Government and to companies owned by the Mexican government— such as Pemex—must obtain a certificate from the authorities stating that the taxpayer is in compliance with any or all tax-related obligations.
In addition, all foreign goods, equipment and materials that enter Mexico are subject to customs and import duties as well as the Value Added Tax. However, there are some exemptions for import taxes under certain free-trade agreements. Preferential rates are available under the North American Free Trade Agreement (NAFTA) and the current free-trade agreements with Colombia, Venezuela, Costa Rica, Bolivia, Chile, Nicaragua, the European Union and Japan.