Tax planning in Mexico

A resident can be taxed on worldwide income

Article 1 of the Income Tax Law subjects Mexican residents to tax on income regardless of the location of its source. The residence analysis therefore comes before a comparison of foreign company rates.

Under Federal Tax Code article 9, an individual’s home matters. Where there is also a home abroad, the centre-of-vital-interests analysis includes Mexican-source income and the main centre of professional activities. It is unsafe to assume that staying fewer than 183 days settles Mexican residence.

A foreign company may be locally 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.

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.

Build the analysis around each income stream

• Salary or consulting activity carried out while living in Mexico.
• Dividends, interest, gains and retained foreign-company profits.
• Local and foreign employees, customer contracts and service delivery.
• Related-party pricing, withholding and treaty entitlement.
• Entity classification, foreign tax credits and information filings.

Implementation needs coordination

The structure must work commercially and be documented consistently across jurisdictions. We can help analyse the international design and coordinate local implementation and filings. The output should explain why the arrangement fits the facts and identify what must remain true as the business grows.

The corporate rate does not describe the owner’s total burden

Article 9 sets the general corporate income-tax rate at 30% of the fiscal result. A distribution or salary then needs its own treatment, while indirect taxes, employment obligations and withholding may operate separately. The relevant comparison is the combined business-and-owner position for the actual income flows.

A foreign-tax credit or treaty claim requires its own conditions and supporting evidence. A company invoice does not change where the owner physically performs services, and a foreign bank account does not change the source or residence classification of the underlying earnings.

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.