THE MEXICAN TAX SYSTEM

The Mexican tax authority is called Secretaría de Hacienda y Crédito Público (SHCP), commonly known as “Hacienda”.

The administrative division of the SHCP for tax collection is called Servicio de Administración Tributaria or SAT.

Your Cédula de Identificación Fiscal, which is a certificate bearing the Registro Federal de Contribuyente or RFC.

The RFC is the tax ID number.

If you work as an individual and earn income directly from clients, or if you work for a Mexican company and receive income or dividends, you are required to pay taxes as a persona fisica using your personal tax identification number.

If you establish a Mexican corporation or Limited Liability Company, the business entity is required to pay income taxes as a persona moral using its tax identification number.

	Type	Rate	Basis	Filing	Payment
	Corporate Income Tax (ISR)	30%	Taxable Profits	Annually	Monthly
	Flat Tax (IETU)	17.50%	Cash Flow	Annually	Monthly
	Profit Sharing	10%	Taxable Income	Annually	Monthly

NOTE: Income tax and Flat tax are not paid jointly, ony the higher amount.

	Type	Rate	Basis	Filing	Payment
	Value Added Tax (IVA)	16%	Purchased goods & services provided	Annually	Monthly
		11%	At the Mexican border, VAT is 11%

	Type	Rate	Basis	Filing	Payment
	IMSS - Social Security, sickness, maternity, pensions, disability, cease & nursery	24% approximately	Employee's wages	Monthly	Monthly
	Social Security tax - retirement fund	2%		Bimonthly	Bimonthly
	Low Income housing (INFONAVIT)	5%
	Payroll tax	2%		Monthly	Monthly

	Type	Rate	Basis	Filing	Payment
	Employee personal tax	15% - 30% variable	Emplyee's wages	Annually	Monthly
	Independent Contractor Fees	10% ISR + 10% IVA	Professional Services	Annually	Monthly
	Leasing properties to Individuals	10% ISR + 10% IVA	Professional Services	Annually	Monthly

• BUSINESS STRUCTURE

The business structure you choose will depend on your business activity, level of expected income, type of capital equipment, number of employees, legal liabilities and many other factors.

Independent Contractor
If you are an individual providing your services to clients and are willing to accept personal liability, then you can probably conduct business and pay taxes as a persona fisica and not establish a Mexican business entity. This kind of worker is generally referred to as an independent contractor. These jobs include lawyers, doctors, translators, photographers, massage therapists and consultants, to name a few. As an independent contractor, you can issue formal invoices called facturas to clients that require them, and these clients will withhold and pay your taxes. Income received from these clients is called honorarios. If you receive income that is not reported by your clients, you are personally liable for the withholding taxes and they must be paid by you through a Mexican tax accountant.

Note: Foreigners who want to perform certain activities, such as legal or medical services, will need to validate their credentials according to Mexican legal criteria for their specific field.

Sole-Ownership Corporation
There is technically no such thing as a “sole proprietorship” in Mexican business law. However, there is a sole-ownership form of company called Actividad Empresarial. There can be only one shareholder and the individual is liable for any and all aspects and activities of the business, and his personal assets are at risk. Neither can the corporation own real assets. But it can employ others, issue facturas and pay taxes as a business entity.

Note: Independent contractors and small businesses, such as the above, may receive a tax designation from SAT called Pequeno Contribuyente, or small contributor. If the business earns less than $2 million pesos per year (roughly $154,000 dollars at an exchange rate of $13 pesos), then it can pay a reduced flat tax with simplified tax filing. Foreigners must hold a working visa to qualify.

Limited Liability Company
A Mexican LLC is called a Sociedad de Responsabilidad Limitada (S. de R.L.) or if funded with variable capital, the title is appended with de C.V. This business entity is similar in most respects to Limited Liability Companies in other countries. The Members of a Mexican S. de R.L. are liable only for the amount of their investment and may or may not receive income, depending on their role.

Corporation
A Mexican corporation is called a Sociedad Anonima (S.A.) or if funded with variable capital, the title is appended with de C.V. This business entity is similar in most respects to corporations in other countries. Shareholders are not personally liable other than for the actions taken by them as members of the management of the company. The company can issue facturas, hold real property and pays taxes on a monthly and annual basis.

These business entities are established through a legal document called a Acta Constitutiva. From a legal, accounting and business administration perspective, there are no meaningful differences between a Mexican corporation and a Limited Liability Company. The only significant differences are those related to the formation and management of the company.

• OBLIGATIONS OF A MEXICAN CORPORATION WITH FOREIGN INVESTMENT

1. Give annual notice to the National Registry of Foreign Investment (RNIE). Depending on the corporation account profit/loss balance there might be responsible for filing quarterly. Also notifying RNIE about changes on shareholders, structure, address or any other relevant modification to the information originally registered.
2. Shareholders may choose to file as Mexican tax residents or give annual notice to the Mexican tax office.
3. Submit monthly and annual tax obligations.

• FOREIGNERS AS OFFICERS OF A MEXICAN COMPANY

Foreigners wishing to join the Board of Directors of a Mexican company must have an “FM3” visa. These individuals would first enter Mexico with status of tourist and then request a change of their status from tourist before the Local Delegate of the Immigration Institute, so that they can form part of the Board of Directors.

• General Timeline for Starting a Business

TIME REQUIRED TO INCORPORATE A COMPANY IN MEXICO

If the Mexican corporation will be managed directly by two individuals, (Mexicans or foreigners

Activity

• Notary, Preparation of draft of the constitution (articles of incorporation) upon receipt of the information needed


• Filing with public records


• Obtaining Tax ID and CIEC key for filing tax reports


• Obtaining FIEL key for filing tax reports

 
 
 
Period of time

10 days


25 days

1 day

1 day

Total amount of time: approximately 1.5 months

It is worth mentioning that to execute all the procedures described above a foreign citizen does not necessarily have to be in Mexico; he/she can appoint an individual to act as his/her legal representative directly in the By-laws of the Mexican corporation or even grant powers to represent him/her individually. The foreigner granting these powers can also limit them to specific activities, as he/she desires.

The cost varies depending on the region and notary.