Mexico: corporate tax guide

What the tax system covers

Mexican-resident companies are generally taxed on worldwide income. The location of principal management or effective management can make a foreign-incorporated entity resident; low-tax foreign earnings and dealings with related parties need further tests.

When a company becomes tax resident

For entities, article 9 refers to the principal administration of the business or the place of effective management. Corporate residence can be relevant even if a company was formed elsewhere. Identify who actually negotiates and approves important transactions, controls money, hires key personnel and directs the operation. A service provider’s foreign address or nominal director is not a substitute for the management facts. Permanent-establishment and payroll issues can arise independently.

Rates and the tax base

30% ordinary corporate income-tax rate. Shareholder distributions and foreign-source or controlled-entity inclusions must be analysed separately.

Outbound dividends, interest and royalties

Dividends: 10% shareholder withholding. Article 164 generally requires 10% withholding on dividends distributed to foreign recipients. Corporate-level tax on distributions outside the net-tax-profit account is a separate calculation; historic-profit transition and treaty entitlement must also be checked.

Interest: 35% residual; 4.9%–21% specified categories. Article 166 uses the highest Article 152 rate, 35%, for the residual interest category. Separate 4.9%, 10%, 15% and 21% categories and statutory exemptions depend on the lender, instrument, financing purpose and required information. Annual provisions and related-beneficial-owner restrictions must be checked; this is not a uniform 35% tax on every loan.

Royalties: 25% generally; 35% for patents and trademarks. Article 167 generally charges 25% on covered gross royalties and technical assistance. Patent, invention-related, trademark and trade-name royalties and advertising use the highest Article 152 rate, 35%. Narrow transport-equipment categories have lower rates. The rights and Mexican source must be established before treaty relief.

REFIPRE and undistributed foreign income

Article 176 addresses effectively controlled foreign entities whose income is subject to preferential taxation. The framework can reach undistributed income. Its low-tax comparison refers to tax below 75 percent of the corresponding Mexican tax, but the detailed calculation and exceptions matter.

Control is broader than a simple shareholding label. Voting and veto rights, rights to assets or profits, consolidated accounts and factual decision power can all be relevant. Foreign transparent entities also have distinct provisions, so a US LLC should not be assumed tax-neutral.

The active-business exception has important limits

Article 176 generally excludes business-activity income from its chapter unless passive income exceeds 20% of the foreign entity’s total income. That exception is unavailable where more than 50% of income has a Mexican source or represents a Mexican deduction, directly or indirectly. These percentages concern different tests.

The statutory passive category is wider than interest and dividends. It includes specified royalties, gains, commissions, transactions involving goods outside the entity’s residence jurisdiction and certain services outside that jurisdiction or to nonresidents. An e-commerce or service company can therefore need detailed classification even where it employs staff.

Retained earnings and control need evidence each year

The regime expressly reaches qualifying income even if it has not been paid to the Mexican taxpayer. It also considers related and linked persons’ rights when determining effective control. Splitting shares among relatives or inserting an intermediate entity does not establish that the rules no longer apply.

Keep entity accounts, tax computations, proof of foreign taxes and a documented ownership-and-control analysis. Separately classify transparent foreign entities under the relevant provisions. When activities, owners or tax concessions change, the original conclusion should be revisited rather than carried forward without review.

Corporate departure can trigger a deemed liquidation

Income Tax Law article 12 treats a Mexican-resident legal entity as liquidated when it ceases residence under the code or an applicable treaty. Its Mexican and foreign assets are treated as disposed of at market value. Moving the owner and migrating the company therefore need separate calculations.

Keep the company migration decision separate

Article 12 treats a legal entity as liquidated when it stops being Mexican-resident under the code or a treaty, and applies market values to assets in Mexico and abroad. An entity that owns valuable goodwill, intellectual property or investments can therefore need valuations and a substantial migration calculation.

The founder may be able to move while leaving a genuinely Mexican company resident and compliant, or may establish separate foreign operations without migrating it. The choice depends on commercial authority, employees, contracts and tax consequences. Document the selected arrangement and continuing Mexican filings rather than assume every component must leave together.

Why two foreign loans can have different withholding

Article 166 treats interest as Mexican-source where the capital is placed or invested in Mexico or the interest is paid by a Mexican resident or a foreign resident’s Mexican permanent establishment. Its interest concept extends beyond the coupon to specified financing returns and charges. The tax is ordinarily calculated on the gross receipt without deductions, so the contractual gross-up and who bears the tax can materially affect the cost of capital.

The residual category refers to the highest individual Article 152 rate, currently 35%. The separate statutory categories include 4.9% for qualifying public-market or financial-system instruments, 10% for specified financial recipients or arrangements, 15% for specified reinsurance and finance-lease categories, and 21% for qualifying supplier or other financing of specified machinery, equipment and activities. These rates are not a menu that a borrower can choose: the instrument, use of funds, lender status, beneficial recipient and information requirements establish the category.

Reduced 10% and 4.9% treatment has restrictions where a beneficial recipient receives more than 5% of the interest and has the specified relationship with the debtor, including more-than-10% voting ownership of the debtor or more-than-20% ownership by the debtor. Check the exact statutory limb and aggregate ownership before assuming an apparently independent bank or intermediary establishes the reduced rate. Annual revenue-law provisions can also affect qualifying foreign-bank interest, separately from the permanent-law categories.

Before the first payment, assemble the executed loan, lender and beneficial-recipient information, ownership chart, use-of-funds evidence, instrument placement and regulatory documentation, interest schedule and treaty-residence evidence. The treaty question follows the domestic classification. A country-level headline cannot determine the rate on a shareholder loan, a listed bond and an equipment-finance contract without these facts.

Classifying software, trademarks and technical assistance

Article 167 considers both where the rights are used and whether the payer is a Mexican resident or Mexican permanent establishment. Ordinary covered royalties and technical assistance attract 25% of gross income; patents, specified invention rights, trademarks and trade names, together with advertising, fall under the highest Article 152 rate of 35%. Special transport-equipment rentals have narrower 5% or 1% provisions. Calling an invoice a service does not settle which provision applies.

For a hypothetical MXN 100,000 gross payment, an in-scope general royalty at 25% produces MXN 25,000 withholding, while an in-scope trademark royalty at 35% produces MXN 35,000, before relief. These examples assume no treaty reduction, exemption or gross-up. A bundled software, support and brand agreement needs a defensible allocation to the actual rights and services; Article 167 contains a separate mixed-contract rule when the consideration cannot be identified.

Keep the licence scope, countries of exploitation, reproduction or modification rights, contract allocation and recipient documentation alongside the payment calculation. A copyright licence, a patent licence, mere access to a product and technical assistance should not automatically be treated as the same transaction. The statutory source consulted is the Chamber’s current consolidated Income Tax Law with amendments through 1 April 2024; payment-year revenue-law rules remain an additional check.

Foreign companies and income attribution

REFIPRE can tax undistributed income of effectively controlled foreign entities; low-tax, control, active-income and transparent-entity rules require detailed assessment.

Departure, migration and continuing obligations

Income Tax Law article 12 treats a departing resident company as liquidated with market-value asset disposals. For individuals, article 9 continuing-residence rules are a separate issue, not a general deemed-sale exit charge.