Mexico City GMT -6
EY
Antara Polanco
Av Ejercito Nacional No. 843-B
5th Floor
Colonia Granada
11520 Mexico City Mexico
Executive contacts
Carlos Sandoval
+57 (1) 484-7397 (resident in Bogotá)
Email: carlos.sandoval@co.ey.com
Maria Avila +52 (55) 1101-7326 Email: maria.avila@mx.ey.com
Rodrigo Lechuga +52 (55) 5283-1300, Ext. 7448 Email: rodrigo.lechuga@mx.ey.com
Alejandro Banderas +52 (44) 2216-6429, Ext. 2679 (resident in Querétaro, Email: alejandro.banderas@mx.ey.com Querétaro)
Immigration contacts
Carlos Sandoval
+57 (1) 484-7397 (resident in Bogotá) Email: carlos.sandoval@co.ey.com Oscar Santos +52 (55) 5283-8679
Fax: +52 (55) 1101-8450 Email: oscar.santos@mx.ey.com
Marcela Lozano +52 (55) 5283-8682
Fax: +52 (55) 1101-8450 Email: marcela.lozano@mx.ey.com
Zatzin Delgado +52 (55) 1101-7425 Email: zatzin.delgado.guadarrama@mx.ey.com
A. Income tax
Who is liable. Resident individuals are taxed on worldwide income. Nonresidents are taxed on Mexican-source income only.
Individuals who establish their home in Mexico are considered residents of Mexico. If individuals also have a home in another country, they are considered residents of Mexico if their center of vital interests is located in Mexico. An individual’s center of vital interests is considered to be located in Mexico in the following circumstances:
• More than 50% of the individual’s income in a calendar year is derived from Mexican sources.
• The center of the individual’s professional activities is located in Mexico.
Individuals who break residency ties with Mexico must notify the tax authorities within 15 business days before such change in their status and no later than a month following the change of residency. For this purpose, they must designate a legal representative in Mexico.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Taxable employment income includes sal aries, wages, directors’ fees, bonuses, gratuities, allowances, certain fringe benefits, benefits in kind and statutory employee profitsharing distributions.
Education allowances provided by employers to their expatriate or local employees are taxable for income tax and social security purposes if the allowances are not generally provided to all the employees under the applicable rules for fringe benefits.
Nonresidents who receive salaries paid by resident employers or by employers with permanent establishments in Mexico are subject to withholding tax at source as described in Rates. Salary income and income for personal services paid by a nonresident individual or company are exempt from tax if the services are not related to the nonresident payer’s permanent establishment in Mexico (or the nonresident payer does not have a permanent establishment) and if the services are provided for fewer than 183 days (including Saturdays, Sundays, holidays and vacations). For purposes of this rule, the 183 days need not be consecutive in a 12-month period. If services are provided for more than 183 days, individual tax calculated using nonresident tax rates must be paid from the first day the individual begins to work in Mexico.
Directors’ fees. Directors’ fees received by residents of Mexico from Mexican or foreign resident companies are subject to income tax at the rates set forth in Rates. The paying companies may deduct these fees if certain requirements are met.
Self-employment and business income. A self-employed individ ual who earns income from business activities or professional services is subject to tax at the applicable rates established in the law and published by the tax authorities. The tax is calculated on the net income derived by the individual for each month corre sponding to the period to which prepayment applies (see Section D). Self-employed individuals also must pay other taxes, such as value-added tax.
Business income related to services rendered through internet platforms is subject to an income tax withholding to be per formed by the company, resident or nonresident, for Mexico tax purposes, that provided the platform to perform such services. The income categories and tax withholding rates comprised under this section are the following:
• Ground transportation passenger services and delivery of goods or services: 2.1%
• Accommodation services: 4%
• Sale of goods: 1%
These withholdings can be considered as definitive payments if some requirements are met.
Professional fees paid by a Mexican resident to a nonresident for services rendered in Mexico are subject to withholding tax at a rate of 25%. If the services are rendered only partially in Mexico,
income tax is payable on the portion of the income related to the services rendered in Mexico.
Investment income. A company resident in Mexico that distrib utes dividends to its resident and nonresident shareholders is subject to a 30% corporate tax to the extent that such company has not already paid the tax on the underlying income. Dividends must be included in a resident’s taxable income. The corporate tax paid is credited against the resident’s final tax liability. Dividends paid by foreign resident entities to Mexican resident individuals are included in the individuals’ taxable income and taxed at the rates set forth in Rates.
An additional 10% withholding tax applies to dividends. For dividends paid by Mexican companies, the tax withheld by the paying company is final. Accordingly, individuals are required to declare the dividend income in their annual tax return and cannot claim a credit for the 10% withholding tax, thereby incurring an incremental tax cost. For dividends paid by foreign companies, individual resident taxpayers must pay the 10% tax by filing a monthly tax return by the 17th day of the month following the dividend distribution. They are also required to declare the divi dend income in their annual tax return and cannot claim a credit for the 10% tax paid, thereby incurring an incremental tax cost.
For 2021, interest on time deposits with Mexican banks and on publicly issued debentures is subject to a provisional 0.97% with holding tax on the capital invested that originated the interest. Interest derived from investments in other entities (other than publicly issued debentures) is subject to a 20% provisional with holding tax on the nominal interest. Gains derived from the sale of publicly issued debentures are also subject to this tax. Other interest income is included in taxable income and taxed at the rates set forth in Rates. Individuals include in taxable income the real interest received during the fiscal year; for interest derived from investments held abroad or loans granted to foreign resi dents, the real interest income is taxable on an accrual basis. Real interest equals the amount by which interest exceeds the inflationary adjustment effects of the tax year. For 2021, interest income received by nonresidents from Mexican banks is subject to a 4.9% withholding tax. Lower rates may apply under certain tax treaties. Real interest income derived from investment returns and/or the foreign-exchange gains generated on investments abroad are also considered taxable income in Mexico. Income tax paid abroad on these items may be credited against Mexican income tax provided that the requirements for claiming the cred its are met.
Income received by nonresidents from the rental of real estate and personal property is subject to a final withholding tax at a rate of 25%, with no deductions allowed. For real estate rental income derived by residents, taxpayers are subject to tax on their rental income even if it is derived from real estate located in foreign jurisdictions.
In general, individuals who receive rental income may deduct the following expenses:
Property taxes and local taxes paid
Maintenance expenses
• Real interest paid on mortgage loans (restrictions apply)
• Salaries, professional fees and commissions paid
• Property insurance premiums
• Depreciation of the property and of property additions and improvements
• Water usage rights
Taxpayers with real estate rental income can opt for a flat deduc tion of 35% of the rental income.
Taxpayers who earn real estate rental income must meet the fol lowing requirements:
• Register in the Mexican taxpayer registry for rental income activity.
• Maintain accounting records on the Mexican Tax Administration Service (Servicio de Administración Tributaria, or SAT) web site that are prepared based on the requirements of the federal tax regulations (tax law and code), except for taxpayers who opt to apply the 35% standard deduction applicable to rental income.
• Issue official digital invoices for the rental income received, indicating the property’s registration number.
• File monthly and annual tax returns for the rental income.
• Inform the Mexican tax authorities through electronic filings established by the SAT by no later than the 17th day of the month following the receipt of monthly rental income, if it was received in cash, gold or silver and if such payments exceed MXN100,000. This requirement is part of anti-money launder ing provisions. If the rental income is received in check, wire transfer or some other means that was recorded through the financial system, this informational reporting requirement does not apply.
If the taxpayer opts to claim an itemized deduction, all of the above conditions must be fulfilled.
If the taxpayer opts to claim the standard deduction equal to 35% of the rental income, all of the above conditions, except for the for the second condition must be fulfilled.
With respect to the fourth condition above, the taxpayer should make the monthly tax payments by no later than the 17th day of the month following the month that the rental income was earned.
As of 2020, in the case of a real estate rental judgment related to overdue rents, the judge may require the lessor to prove the issu ance of the corresponding digital invoices (third condition above) to issue a payment order from the lessee to the lessor.
Royalties received by nonresidents for the use of trade names, trademarks, patents or certificates of invention are subject to a 35% withholding tax. Fees received by nonresidents for technical assistance and royalties for know-how are subject to a 25% with holding tax. Lower rates may apply under certain tax treaties.
Exempt income. The following items, among others, are excluded from taxable income:
• Indemnities for accidents and illnesses
• Retirement benefits and pensions provided by public institu tions and Mexican private retirement plans (partially exempt)
• Reimbursement of medical, dental, hospital and funeral expenses incurred in Mexico
• Social security benefits granted by Mexican public institutions
• Savings funds established by employers to which the employees contribute up to 13% of their salaries (Mexican funds only), capped at 1.3 times the Unit of Measure and Update index (UMA; approximately MXN42,501)
• Travel expenses properly reported by the employee
• Social welfare and fringe benefits received from Mexican government institutions
Certain exemptions are subject to limitations and specific requirements.
Taxation of employer-provided stock options. Employer-provided stock options are taxed as salary income for the employee. They are taxed at the time of exercise on the difference between the exercise price and the fair market value of the stock. The income is taxed at the tax rates set forth in Rates. Gains derived from the subsequent sale of the shares are subject to tax as capital gains (see Capital gains and losses).
Capital gains and losses. In general, gains derived from the sale of shares and real estate are treated as capital gains. Capital gains are taxed as ordinary income at the rates set forth in Rates. The gain calculation includes adjusting the cost basis for inflation. Gains derived from the sale of shares of Mexican or foreign companies listed on Mexico’s stock exchanges are subject to a 10% income tax (before 2014, these sales were exempt from tax). The tax payment is considered final and cannot be credited on the annual taxpayer’s income tax return. The taxpayer calculates this 10% tax on the net gain at the end of the year by using informa tion provided by brokers. Capital losses can be carried forward 10 years.
A gain derived from the sale of a personal residence is exempt from tax if the amount of the proceeds does not exceed 700,000 investment units (UDIs; equal to MXN4,623,918). As of 31 December 2020, a UDI equaled MXN6.605597. Banking and credit institutions use UDIs to grant loans at a fixed rate. Gains derived from the sale of a primary residence are exempt from tax if the taxpayer demonstrates that he or she had not sold another home for which the exemption had been claimed during the preceding three years and if the title transfer is done through a notary public.
Capital gains derived from transfers of shares and real estate are taxed using an income-averaging method. The taxable gain is calculated separately for each asset and then divided by the num ber of years the asset was held, up to a maximum of 20 years. The resulting amount is added to other taxable income. After the graduated marginal tax rates are applied to the total income, the average rate is then applied to the balance of the capital gain. Income averaging does not apply to capital gains derived from transfers of real property used in a trade or business. These gains are added to ordinary taxable business income.
Although computed the same way, capital losses are treated differently. The tax benefit for the year in which a loss is incurred is limited to the tax attributable to the loss, divided by the number of years the underlying asset was held, up to a maximum of 10 years. The amount of the loss equivalent to one year is deductible from the individual’s gain on the sale of other assets or from other income derived in that year, except salary, self-employment and business income. The remaining loss in the relevant calendar year may be carried forward three years and can be used only to offset the tax on capital gains derived from the sale of shares or real estate.
Nonresident taxpayers deriving capital gains from the disposal of shares or real estate may elect to pay tax on the gross amount at a rate of 25% or to be taxed at a rate of 35% on the net gain. An individual electing the second alternative must designate a legal representative who is a tax resident of Mexico.
Deductions
Personal deductions and tax credits. Resident individuals are granted the following personal deductions:
• Fees and other payments for medical services; professional services in psychology and nutrition provided by persons who have legally issued professional qualifications and who are registered by the competent educational authorities; dental ser vices and hospitalization services, if these services are provided for the taxpayer and his or her dependents and if the fees and payments are paid by personal checks of the taxpayer; elec tronic transfers from the taxpayer’s Mexican bank account or by personal credit, debit or service cards
• Funeral expenses limited to an amount equal to the UMA (approximately MXN32,693)
• Certain donations to public works or utilities, charitable or welfare institutions, and promoters of the arts or culture, capped at 7% of the preceding year’s taxable income
• Real interest paid on mortgage loans obtained from Mexican financial institutions with respect to the principal residence, if the credit does not exceed 750,000 UDIs (approximately MXN4,954,198)
• Voluntary contributions made to an individual retirement account, limited to five times the Unit of Measure and Update (UMA; five times the UMA equals approximately MXN163,467) and not exceeding 10% of the taxpayer’s current year taxable income
• Insurance premiums for medical coverage paid to Mexican insurance institutions for the taxpayer and his or her dependents
• Payments for the school-bus transportation of dependent chil dren if it is mandatory for all the students in the school and if it is paid by personal checks of the taxpayer, electronic transfers from the taxpayer’s Mexican bank account or by personal credit, debit or service cards
• School fees paid with checks or electronic transfers, except materials and registration fees, up to the following amounts: — Preschool: MXN14,200 — Elementary school: MXN12,900
— Junior high school: MXN19,900
— Technician school: MXN17,100
— High school: MXN24,500
The total amount of personal tax deductions listed in the first, second, fourth, sixth and seventh bullets above is subject to a cap equal to five times the UMA or 15% of the taxpayer’s total income, whichever is lower.
Business expenses. Ordinary expenses, including salaries, fees, rent, depreciation, interest and other general items, may be deducted from the amount of gross business revenue to compute taxable net income, if business activities are carried out.
Taxpayers are encouraged to retain all digital invoices (CFDIs) related to these expenses because the tax authorities may require the taxpayer to submit these receipts for review. Payments should be made by check, wire transfer, debit or credit card. The CFDIs must meet all requirements established under Mexican law, including, among others, they must contain the following:
• Name, business name, tax address and tax identification (RFC) of the issuer
• Invoice number and digital stamp
• Date and place of issue
• RFC of the taxpayer to whom the invoice is being issued
• Description and amounts of the services and goods acquired
• Form of payment (check, wire transfer, debit or credit card)
In general, only personal deductions incurred in Mexico are deductible. Expenses that were reimbursed to the taxpayer are not deductible.
Employment subsidy. The employment subsidy is calculated on a monthly basis. It is a tax credit that is subtracted from the month ly tax due. No employment subsidy applies when calculating tax in the annual tax return. The following table provides the resident individual monthly employment subsidy for 2021.
Monthly income Employment Exceeding Not exceeding subsidy MXN MXN MXN
0.00 1,768.96 407.02 1,768.96 2,653.38 406.83 2,653.38 3,472.84 406.62
3,472.84 3,537.87 392.77
3,537.87 4,446.15 382.46 4,446.15 4,717.18 354.23 4,717.18 5,335.42 324.87 5,335.42 6,224.67 294.63 6,224.67 7,113.90 253.54 7,113.90 7,382.33 217.61 7,382.33 0.00
Rates
Residents. For 2021, the maximum income tax rate for a resident individual is 35%. The following are the monthly income tax rates applicable in 2021.
Monthly taxable income
Tax on lower Rate on Exceeding Not exceeding amount excess MXN MXN MXN %
0.0 644.58 0.00 1.92 644.58 5,470.92 12.38 6.40 5,470.92 9,614.66 321.26 10.88 9,614.66 11,176.62 772.10 16.00 11,176.62 13,381.47 1,022.01 17.92 13,381.47 26,988.50 1,417.12 21.36 26,988.50 42,537.58 4,323.58 23.52 42,537.58 81,211.25 7,980.73 30.00 81,211.25 108,281.67 19,582.83 32.00 108,281.67 324,845.01 28,245.36 34.00 324,845.01 101,876.90 35.00
The following table sets forth the 2021 annual tax rates for resi dent individuals.
Monthly taxable income
Tax on lower Rate on Exceeding Not exceeding amount excess MXN MXN MXN %
0.0 7,735.00 0.00 1.92 7,735.00 65,651.07 148.51 6.40 65,651.07 115,375.90 3,855.14 10.88 115,375.90 134,119.41 9,265.20 16.00 134,119.41 160,577.65 12,264.16 17.92 160,577.65 323,862.00 17,005.47 21.36 323,862.00 510,451.00 51,883.01 23.52 510,451.00 974,535.03 95,768.74 30.00 974,535.03 1,299,380.04 234,993.95 32.00 1,299,380.04 3,898,140.12 338,944.34 34.00 3,898,140.12 — 1,222,522.76 35.00
Nonresidents. The following withholding tax rates apply to income from salaries paid in a calendar year to nonresident employees by Mexican resident employers or by employers with a permanent establishment in Mexico.
Annual taxable income Rate on Exceeding Not exceeding excess MXN MXN %
Relief for losses. Losses incurred in business or professional activities may be carried forward for 10 years against future earn ings of the same type of income, restated by inflation.
B. Estate and gift taxes
No estate or inheritance tax is levied except for a local real estate property tax.
Gifts or donations from direct line family members (ascendants or descendants) are exempt from income tax if certain requirements are met.