Mexico’s tax system is a vital component of its national revenue strategy, administered by the Servicio de Administración Tributaria (SAT), under the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, SHCP). It blends federal, state, and municipal tax obligations, making compliance both essential and nuanced for residents, businesses, and international investors.
This guide provides an authentic, up-to-date, and exhaustive overview of tax laws in Mexico, including the types of taxes, filing obligations, international tax treaties, and recent reforms.
Overview of the Mexican Tax System
The Mexican tax system is centralized, with most tax revenue derived from federal taxes. However, state and municipal governments also levy specific duties, particularly on property and local services.
Key Tax Authorities in Mexico
- SAT (Servicio de Administración Tributaria): Enforces and collects federal taxes.
- SHCP (Secretaría de Hacienda y Crédito Público): Oversees fiscal policy.
- State and municipal authorities: Administer certain local taxes, especially on property and hospitality.
Primary Federal Taxes in Mexico
1. Income Tax (ISR – Impuesto Sobre la Renta)
Income Tax is imposed on individuals and corporations and is governed by the Income Tax Law (Ley del Impuesto sobre la Renta).
For Individuals (Residents)
- Progressive rates from 1.92% to 35%.
- Applies to worldwide income.
- Filing is annual, though monthly advance payments are often required.
- Deductions include mortgage interest, medical expenses, donations, and education.
For Non-Residents
- Flat withholding rates apply (15%–30%) depending on the type of income (e.g., interest, royalties, professional services).
- Only Mexican-sourced income is taxed.
For Corporations
- Flat corporate tax rate: 30%.
- Worldwide income is taxed for resident entities.
- Annual tax returns are due by March 31 following the tax year.
- Deductions are available for business expenses, but transfer pricing rules apply to related-party transactions.
2. Value Added Tax (VAT – IVA: Impuesto al Valor Agregado)
- Standard VAT rate: 16%.
- A 0% rate applies to specific goods and services (e.g., food, medicine, books, and exports).
- Exemptions include residential rent, education services, and financial transactions.
- Filed monthly by businesses and professionals.
3. Social Security Contributions
These are jointly paid by employers and employees and administered by the IMSS (Instituto Mexicano del Seguro Social).
Employer contributions cover:
- Health insurance
- Retirement funds
- Risk premiums
- Maternity leave
Total employer cost may range between 15%–35% of payroll, depending on various risk and benefit factors.
4. Payroll Tax (Impuesto Sobre Nómina)
- Levied at the state level (rate varies by state, usually 2%–3%).
- Paid monthly by employers based on total payroll.
- Not deductible for federal tax purposes.
5. Excise Tax (IEPS – Impuesto Especial sobre Producción y Servicios)
Applies to:
- Alcohol and tobacco
- Sugary drinks
- Gasoline and diesel
- Telecommunications
Rates vary by product and are intended to discourage consumption of harmful goods.
Other Notable Taxes
Property Tax (Predial)
- Collected by municipal governments.
- Based on the cadastral value (official property valuation).
- Paid annually; rates vary by locality.
Capital Gains Tax
- Treated as ordinary income for residents.
- For non-residents, rates vary:
- 25% on gross proceeds, or
- 35% on net gain (if supported by documentation).
Withholding Taxes in Mexico
Withholding tax applies primarily to non-residents:
- Dividends: 10%
- Interest: 4.9%–35% (depending on treaty status)
- Royalties: 5%–25%
- Professional services: Up to 30%
Double Taxation Treaties (DTTs) may reduce these rates. Mexico has treaties with over 60 countries, including the U.S., Canada, Germany, the UK, India, and Japan.
Transfer Pricing Regulations
- Mexico follows OECD Guidelines.
- Companies engaged in cross-border transactions with related parties must:
- Maintain transfer pricing documentation.
- File the Informative Return on Related Parties (Annex 9 of DIM).
- Submit a Master File, Local File, and Country-by-Country Report if they meet revenue thresholds.
Non-compliance leads to fines, income adjustments, and audits.
Recent Reforms & Updates (As of 2025)
Digital Economy Taxation
- Foreign digital service providers (Netflix, Amazon, Spotify, etc.) must register with SAT and charge 16% VAT on services.
- Individuals offering digital services are also taxed under simplified compliance regimes.
Anti-Avoidance Measures
- Mexico adopted BEPS (Base Erosion and Profit Shifting) standards.
- The General Anti-Avoidance Rule (GAAR) allows SAT to disregard artificial arrangements lacking economic substance.
Mandatory E-Invoicing (CFDI)
- All taxpayers must issue Comprobante Fiscal Digital por Internet (CFDI).
- New versions (CFDI 4.0 as of 2022) include enhanced validation fields for accurate compliance.
Tax Filing & Compliance
Key Deadlines
- Individual tax return: April 30
- Corporate tax return: March 31
- Monthly VAT/ISR filings: By the 17th of each month
- Annual informative returns: February of each year
Taxpayer Identification
- Residents must register with SAT and obtain a RFC (Registro Federal de Contribuyentes).
- Digital signatures and certificates are mandatory for businesses.
Penalties for Non-Compliance
- Late filing: Fines from MXN 1,400 to 17,000
- Failure to pay taxes: Interest and surcharges
- Tax fraud: May result in criminal prosecution, with penalties up to 9 years in prison
SAT actively conducts audits and encourages voluntary disclosure.
Conclusion: Navigating Mexican Tax Law
Understanding Mexican tax laws is crucial for compliance, investment planning, and business operation. The SAT continues to modernize and digitalize its tax administration, ensuring transparency and widening the tax net. While the framework is complex, particularly for foreign entities, Mexico offers tax treaties, incentives for strategic industries, and digital tools to ease compliance.
For accurate guidance, taxpayers are advised to consult registered tax advisors or legal counsel familiar with the Mexican tax code and SAT procedures.
FAQs About Mexican Tax Law
Q1. Is Mexico a high-tax country?
A: Mexico has moderate tax rates, with a 30% corporate tax and 35% top individual income tax, but relatively low tax-to-GDP ratio compared to OECD countries.
Q2. Do I need to pay taxes if I live in Mexico less than 183 days?
A: You may still owe tax on Mexican-sourced income even if you’re not a resident under the 183-day rule.
Q3. Are cryptocurrencies taxed in Mexico?
A: Yes. Income from crypto transactions is taxable. Gains are treated as income and subject to ISR.
Read More: Govt. Outlines Impact of Digital Competition Bill on Big-Tech Firms and Innovation Strategies
- Stem Cell Banking Services Exempt from Service Tax: Supreme Court - July 29, 2025
- Supreme Court Disposes Plea on GST Tracking Mechanism for Foreign Service Providers, Directs GST Council to Examine Representation - July 29, 2025
- An Exhaustive Guide to Tax Laws in Mexico: Structure, Types, and Compliance - July 29, 2025
