Taxation in Mexico

Understanding the corporate and personal tax system is a critical step for any expatriate, real estate investor, or business owner moving to Mexico. Over the years, the Mexican tax framework has undergone significant modernization by the tax authority (SAT). Today, the fiscal landscape is streamlined, digital-first, and strictly regulated. Here is a comprehensive overview of the major taxes in Mexico you need to know.

1. Income Tax (Impuesto Sobre la Renta – ISR)

The ISR is the direct tax levied on income generated by both individuals and corporations residing in Mexico, as well as non-residents earning income from Mexican sources (such as rental properties or local businesses).

• Corporate ISR Rate: Mexican business entities (such as an S. de R.L. or S.A. de C.V.) are taxed at a flat rate of 30% on their net annual profits.
• Individual ISR Rate: For individual taxpayers (Personas Físicas), the ISR is calculated using a progressive bracket system that ranges from 1.92% up to 35%, depending on the volume of income.

Taxpayers are required to file monthly provisional tax declarations in advance. For standard regimes, official corporate business expenses and deductions are fully balanced and verified during the definitive annual tax return filed every spring.

The RESICO Tax Stimulus for Expats and Entrepreneurs

If you register as an independent contractor or operate a small business as an individual, you might qualify for the **RESICO** (Régimen Simplificado de Confianza). This modern regime offers simplified accounting requirements and an incredibly low progressive ISR rate ranging from just **1% to 2.5%** on gross revenues, provided your annual income does not exceed $3.5 million MXN. Holding a valid residency visa with explicit working rights is mandatory to apply.

2. Value Added Tax (Impuesto al Valor Agregado – IVA)

The IVA is an indirect consumption tax applied throughout the entire production and service supply chain, ultimately paid by the final consumer. All individuals and corporate entities executing the following activities within Mexican territory are legally required to manage IVA:

• The sale or transfer of commercial assets.
• The rendering of independent professional services.
• The granting of temporary use, leasing, or rental of real estate property.
• The importation of goods and international services.

The standard, general IVA rate across Mexico (including the entire Yucatan Peninsula) is 16%. Business owners hold the legal right to execute tax credits by subtracting the IVA they pay to suppliers from the IVA they collect from clients. The net balance results in either payable taxes or a tax credit (IVA a favor).

Important Fiscal Rules: Accrual vs. Cash Flow

A crucial distinction in Mexican accounting involves how income and deductions are formally recognized by the SAT:

For standard **Corporations (Personas Morales)**, taxation operates on an accrual basis. This means a company triggers a taxable event the moment an official invoice (factura) is issued to a client, regardless of whether the actual cash payment is collected in that current month or a subsequent period.

Conversely, for **Independent Individuals (Personas Físicas)** and small business regimes like RESICO, taxation functions strictly on a cash-flow basis. Income is only accumulated when the payment is physically deposited, and expenses are only deductible once the funds have completely cleared your bank account.

International Double Taxation Treaties

If you maintain income sources, retirement accounts, or corporate entities in the United States, Canada, or Europe, you are protected by Mexico’s extensive network of international tax treaties. These bilateral agreements are explicitly designed to prevent double taxation on the same income stream, allowing you to declare foreign tax credits effectively.