Taxes in Mexico: What Businesses Need to Know
Taxes in Mexico directly impact a company’s financial stability and profitability. Choosing the right tax regime and properly accounting for expenses determine how much funding remains for development. Below, we’ll examine the main taxes and introduce a preferential regime that helps reduce the tax burden for entrepreneurs.
1. Income Tax (ISR)
Rates and Specifics for Companies
Sole Proprietors
2. Simplified Regime RESICO (since 2022)
What Is It?
RESICO (Régimen Simplificado de Confianza) is a special regime designed to simplify tax calculations for small and medium-sized entrepreneurs, and whose rates are significantly lower than standard ones.
RESICO Is Suitable For:
Tax Rates
Restrictions on Applying RESICO:
3. Value Added Tax (IVA)
Summary and Recommendations
1. Determine the Scale of Your Operations
2. Keep Your Documentation
3. Check RESICO Criteria
4. Factor in IVA
5. Consult Specialists
While Mexican tax legislation may seem complex, it offers ample opportunities for optimization. The key is to navigate the available tax regimes properly and maintain accurate records. In the long run, this approach will help lower costs and allow you to focus on growing your business.
Taxes in Mexico directly impact a company’s financial stability and profitability. Choosing the right tax regime and properly accounting for expenses determine how much funding remains for development. Below, we’ll examine the main taxes and introduce a preferential regime that helps reduce the tax burden for entrepreneurs.
1. Income Tax (ISR)
Rates and Specifics for Companies
- The basic rate for companies is 30%.
- A wide range of expenses can be deducted from the taxable base, but they must all be supported by official invoices (facturas).
- In the first five years of operation, a company can report low or zero profit without breaking the law.
Sole Proprietors
- Rates increase as income grows: from around 20% for moderate incomes to 35% for the highest incomes.
- The list of deductions for sole proprietors is narrower than that for companies, but with proper accounting, it’s still possible to reduce the tax base.
2. Simplified Regime RESICO (since 2022)
What Is It?
RESICO (Régimen Simplificado de Confianza) is a special regime designed to simplify tax calculations for small and medium-sized entrepreneurs, and whose rates are significantly lower than standard ones.
RESICO Is Suitable For:
- Sole proprietors with an annual income of up to 3.5 million pesos (approximately USD 180,000).
- Companies with an annual income of up to 35 million pesos (approximately USD 1.8 million).
Tax Rates
- Range from 1% to 2.5%, significantly lower than standard rates.
Restrictions on Applying RESICO:
- Sole proprietors must not be shareholders of other companies.
- For companies, all participants must be individuals (no legal entities).
- Sole proprietors under RESICO cannot deduct expenses.
3. Value Added Tax (IVA)
- The rate is 16% on most goods and services within Mexico.
- Exceptions: Some categories of goods (e.g., basic food items) may be taxed at a reduced rate or be entirely exempt from IVA.
- Exports: Goods and services sent abroad are taxed at 0%.
Summary and Recommendations
1. Determine the Scale of Your Operations
- For high turnover and significant investments, the standard regime with deductions may be more advantageous.
- For moderate income or for sole proprietors, the simplified RESICO regime may be suitable.
2. Keep Your Documentation
- Official facturas are necessary to justify any expenses you want to deduct.
3. Check RESICO Criteria
- Ensure you meet the requirements for business structure and income level.
4. Factor in IVA
- The VAT rate for exported goods and services is 0%.
- Check if your industry qualifies for any preferential conditions.
5. Consult Specialists
- Errors in calculations can lead to fines and audits, so it’s important to involve an accountant and a lawyer in a timely manner.
While Mexican tax legislation may seem complex, it offers ample opportunities for optimization. The key is to navigate the available tax regimes properly and maintain accurate records. In the long run, this approach will help lower costs and allow you to focus on growing your business.