Mexico Tax Regime

Mexico taxes resident companies on worldwide income at a flat federal corporate income tax (ISR) rate of 30%, and non-residents on Mexican-source income and the income of a Mexican permanent establishment. There is no state tax on corporate net income. A defining feature is the integration of corporate and shareholder tax through the after-tax-earnings account (CUFIN): profits distributed out of already-taxed earnings bear no further corporate tax, but a 10% withholding tax applies to dividends paid to individuals and foreign residents, and distributions out of untaxed earnings are grossed up and taxed at the corporate level. Mexico also still recognises the effects of inflation for tax purposes.

Individuals are taxed on a progressive scale to 35%, and employees are entitled to a mandatory 10% profit-share (PTU). Indirect taxation runs through a 16% value-added tax (IVA), reduced to 8% in the northern and southern border regions. A company is resident if its principal place of management is in Mexico.

1.1 Sources of law and treaties

The Income Tax Law (Ley del ISR), the Value-Added Tax Law (Ley del IVA), the Special Tax on Production and Services Law (IEPS) and the Federal Fiscal Code govern the system, administered by the Tax Administration Service (SAT). Mexico has an extensive treaty network and applies the OECD multilateral instrument, and mandatory electronic invoicing (CFDI) underpins compliance.

1.2 Recent developments

The most consequential recent and pending changes are:

Nearshoring incentives — accelerated (immediate) depreciation for qualifying fixed-asset investment and an additional deduction for worker-training expenditure — designed to attract supply-chain relocation to Mexico.

Continuing northern- and southern-border-region incentives reducing IVA to 8% and granting an income-tax credit, subject to registration and conditions.

Tightened digital-economy rules requiring foreign digital-service providers to register and collect IVA, and intensified SAT enforcement, CFDI and beneficial-ownership reporting.

Mexico has not, at the time of writing, enacted the OECD Pillar Two minimum tax.

Headline statutory corporate income tax rate for a resident company. Where sub-national (state, provincial, cantonal or municipal) corporate taxes apply, the combined rate reported by the OECD is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

Top marginal statutory personal income tax rate on employment income for a resident individual. Where sub-national (state, provincial, cantonal or municipal) income taxes are a standard part of the system, the combined top rate is shown. Projected 2026–2028 rates carry the current rate forward unless a change is already enacted or officially scheduled. As-of 2026.

2.1 Residence and scope

A company is resident — and taxed on worldwide income — if its principal administration or place of effective management is in Mexico; non-residents are taxed on Mexican-source income and on income attributable to a Mexican permanent establishment. Branches of foreign companies are generally taxed under the ordinary corporate rules on their attributable income.

2.2 Rate, CUFIN and dividends

Federal corporate income tax is a flat 30%. Once tax is paid, profits are tracked in the after-tax-earnings account (CUFIN) and can be distributed without further corporate tax; a 10% withholding tax applies to dividends paid to individuals and to foreign residents (this 10% does not apply to pre-2014 earnings). Distributions out of earnings that have not borne corporate tax are grossed up by a factor of 1.4286 and taxed at 30% at the corporate level, with a credit mechanism over the following two years.

2.3 Inflation adjustment and income determination

Mexico recognises the effects of inflation for tax purposes: an annual monetary adjustment computes taxable inflationary gain or deductible loss on monetary assets and liabilities, and depreciable assets and certain costs are restated. Taxable profit is otherwise computed from accounting records adjusted for tax, with deductions conditioned on proper CFDI invoicing, payment-method and withholding compliance.

2.4 Deductions, interest limitation and thin capitalisation

Business expenses are deductible if strictly indispensable and properly documented. Two rules limit interest: a thin-capitalisation rule disallows interest on related-party debt exceeding three times the taxpayer's equity (3:1), and an earnings-stripping rule caps net interest exceeding a threshold (around MXN 20 million) at 30% of adjusted taxable income (a tax-EBITDA measure), with the more restrictive applying. Payments to low-tax and related foreign parties face additional anti-abuse limits.

2.5 Losses

Tax losses may be carried forward (and inflation-indexed) for ten years to offset future profits; there is no carryback. Losses are personal to the taxpayer and generally cannot be transferred, except in limited merger circumstances and subject to anti-abuse restrictions.

2.6 Group taxation

Mexico's former tax-consolidation regime was replaced by an optional regime for groups of companies (régimen opcional para grupos de sociedades) that allows a limited deferral of part of the group's income tax for up to three years rather than a true consolidation of results, subject to strict conditions and reversal rules. Most groups operate on a stand-alone basis.

2.7 Controlled foreign companies

Under the preferential-tax-regime (REFIPRE) rules, income earned through foreign entities or arrangements that is subject to tax abroad at less than 75% of the Mexican tax that would apply is attributed to and taxed currently in the hands of the Mexican shareholder, unless an active-business or other exception applies. A separate reporting obligation covers investments in low-tax jurisdictions.

2.8 Transfer pricing and maquiladoras

Mexico has a detailed transfer-pricing regime applying the arm's-length principle and the OECD Guidelines, with local-file, master-file and country-by-country documentation and extensive informative returns. Maquiladoras (IMMEX manufacturers operating for foreign principals) must meet specific transfer-pricing safe harbours (a return on assets or costs) or obtain an advance pricing agreement to avoid creating a taxable permanent establishment for their foreign principal — a defining feature of Mexico's export-manufacturing model.

2.9 Incentives

Beyond the agricultural credit, Mexico offers nearshoring incentives (immediate depreciation of qualifying investment and an enhanced training deduction), the northern- and southern-border-region income-tax and IVA reliefs, a research-and-development and a film/sport tax credit, and special regimes for specified sectors. The incentive landscape is increasingly oriented toward attracting supply-chain relocation.

3.1 Residence and rates

An individual is resident if their home (or, where they have a home in two countries, their centre of vital interests) is in Mexico, and residents are taxed on worldwide income. The personal income tax is progressive across multiple brackets to a top marginal rate of 35%, collected through employer withholding on salaries and through provisional payments on other income. Non-residents are taxed on Mexican-source income, with salaries exempt up to a threshold and then taxed at 15% and 30%.

Indicative; brackets are indexed and updated periodically. As-of June 2026.

3.2 Investment income, capital gains and profit-sharing

Dividends received by individuals bear the 10% withholding and are also included in the progressive computation with a credit for corporate tax paid; gains on the sale of listed shares through the Mexican exchange are taxed at a flat 10%, while other gains are taxed at progressive rates. Employees are entitled to a constitutionally mandated profit-share (PTU) of 10% of the employer's taxable profit, capped at three months' salary or the average of the last three years.

3.3 Wealth, gifts and inheritance

Mexico levies no annual net wealth tax and no separate inheritance or estate tax; gifts and inheritances received by individuals are generally exempt from income tax (subject to reporting and to limits for gifts between unrelated persons), though the acquisition of real estate triggers a local property-acquisition tax. Retirement saving through the mandatory pension system (Afore) is tax-favoured within limits.

Dividends paid to non-residents bear 10% withholding. Interest withholding varies widely by the nature of the lender and instrument — broadly 4.9% on interest paid to banks and on publicly traded bonds resident in treaty countries, 10% to 21% for other arrangements, and up to 35% (or 40% to low-tax jurisdictions) otherwise. Royalties bear 25% generally (35% for trademarks and certain rights, with a low rate for railway and similar leases). Treaties materially reduce these rates. Representative outcomes:

5.1 Anti-deferral, pricing and financing

The preferential-tax-regime (REFIPRE/CFC) rules (Section 2.7), the transfer-pricing rules (Section 2.8) and the thin-capitalisation and earnings-stripping rules (Section 2.4) form the core of Mexico's outbound and inbound framework, attributing low-taxed foreign income, requiring arm's-length pricing and capping related-party interest. Additional limits deny deductions for certain payments to related parties subject to low taxation or arising from hybrid mismatches.

5.2 General anti-avoidance and disclosure

A general anti-abuse rule allows the SAT to re-characterise transactions that lack a business reason and produce a tax benefit, supported by a mandatory reportable-scheme regime, beneficial-ownership reporting and rigorous CFDI-based information. Mexico applies the OECD treaty-abuse standard and exchanges financial-account information automatically.

5.3 Foreign tax relief

Mexico relieves double taxation of resident companies and individuals by a foreign tax credit (direct and, for dividends from substantial holdings, underlying), limited per category to the Mexican tax on the foreign income, with a five-year carryforward of excess credits. Treaties allocate taxing rights and provide a mutual-agreement procedure.

6.1 Value-added tax

VAT (IVA) is charged at a standard rate of 16%, reduced to 8% in the qualifying northern- and southern-border regions, with a 0% rate for exports, most food and medicines and certain other supplies, and exemptions for medical, educational and some financial and residential services. Businesses register, charge and recover IVA on a cash basis, and foreign suppliers of digital services to Mexican consumers must register and collect IVA.

6.2 Excise, payroll and property taxes

The special tax on production and services (IEPS) applies to fuel, tobacco, alcoholic and sugary drinks and certain other goods. State payroll taxes (broadly 1%–3% of wages) and an employer social-security (IMSS) and housing-fund (Infonavit) burden apply to employment, and municipal property tax and a property-acquisition tax apply to real estate. There is no net wealth tax.

6.3 Customs and trade

Customs duties apply on imports, with extensive relief under the USMCA and Mexico's wide free-trade-agreement network, and the IMMEX programme allows the temporary importation of inputs for export manufacturing free of duty and IVA (subject to certification). Trade facilitation and the maquiladora model are central to Mexico's export economy.

7.1 Filing, provisional payments and CFDI

Tax is self-assessed and administered by the SAT. Companies make monthly provisional income-tax payments and file an annual return within three months of the calendar year-end (by 31 March), with monthly IVA returns and extensive informative returns. Mandatory electronic invoicing (CFDI) and electronic accounting give the SAT near-real-time data, and a statutory tax audit report (dictamen fiscal) applies to larger taxpayers.

7.2 Audit, rulings and limitation

The SAT conducts desk and field audits and electronic reviews, and binding rulings (consultas) are available. The general statute of limitation is five years (extended in cases of non-registration or non-filing). Penalties, inflation adjustment and surcharges apply to underpayments, and the taxpayer-defence agency (PRODECON) offers conciliation.

7.3 Disputes

A taxpayer may file an administrative appeal (recurso de revocación) with the SAT or proceed directly to the Federal Court of Administrative Justice, with further review (amparo) before the federal courts. The mutual-agreement procedure under treaties addresses cross-border double taxation, and advance pricing agreements are available for transfer-pricing certainty.

Indicative deadlines. As-of June 2026.

9.1 Entity choice and presence

Foreign investors typically operate through a sociedad anónima (S.A. de C.V.) or the limited-liability S. de R.L., or through a branch of a foreign company; both bear the 30% corporate tax on Mexican-attributable income. The permanent-establishment analysis is critical for non-residents — and especially for foreign principals using Mexican contract manufacturers, where the maquiladora safe harbours are designed to avoid creating one.

9.2 Manufacturing, nearshoring and financing

Mexico's export-manufacturing model runs through the IMMEX/maquiladora regime, which allows duty- and IVA-free temporary importation of inputs and provides transfer-pricing safe harbours, now reinforced by nearshoring incentives (immediate depreciation and an enhanced training deduction). Inbound financing must respect the 3:1 thin-capitalisation rule and the 30%-of-EBITDA interest cap, and dividend repatriation is planned around the CUFIN account and the 10% withholding.

9.3 A worked illustration

A Mexican company with MXN 10 million of taxable profit pays corporate tax at 30% (MXN 3 million), leaving MXN 7 million in its CUFIN. If that after-tax profit is then distributed to an individual or foreign shareholder, a 10% dividend withholding of MXN 700,000 applies — so the combined corporate-and-shareholder burden on fully distributed profit is about 37%. Employees separately receive a 10% profit-share (PTU) of the taxable profit.

9.4 Compliance and practical points

Mexico's CFDI electronic-invoicing and electronic-accounting systems give the SAT real-time visibility, monthly provisional payments and IVA returns drive a heavy compliance calendar, and audits frequently focus on the deductibility conditions, transfer pricing and the materiality (business substance) of transactions. A statutory audit report and beneficial-ownership records are required for larger taxpayers, and treaty relief requires residence certification.