MexicoTax Obligations Detailed

Mexican employers face several tax obligations in 2025, encompassing federal and state taxes, social security contributions, and specific local taxes like those in Mexico City.

Federal Taxes

• Income Tax (ISR): Employers withhold income tax from employee salaries based on a progressive scale ranging from 1.92% to 35%. Tax returns are due by March 31st for the previous tax year. Late filing penalties range from MXN 471 to MXN 5,888, plus interest.
• Value Added Tax (VAT): While not directly an employer obligation, businesses must collect VAT on sales of goods and services. No changes to the VAT rate are expected for 2025.

State Taxes

• State Payroll Tax (ISN): This tax, levied on total payroll expenses, varies by state. Some states have increased their rates to 4% in 2025. Mexico City specifically offers a 1% reduction for businesses that increase their workforce by 33% annually or for new businesses. Micro and small enterprises in Mexico City receive discounts of 1% and 0.5%, respectively, for 2025.

Social Security Contributions

• Employers and employees contribute to social security, covering healthcare, pensions, and other benefits. The employer's portion ranges from 36.1% to 44.73% of the employee's salary, while the employee contributes approximately 2.78%. As of February 1, 2024, the daily maximum contribution base is 25 times the daily UMA value of Mex$108.57, totaling Mex$2,714.25. This is valid until January 31, 2025.

Mexico City Specific Taxes

• Payroll Tax Increase: The payroll tax in Mexico City has been raised from 3% to 4% as of January 1, 2025.
• Ecological Tax: A new ecological tax applies to emissions of polluting gases (CO2, CH4, N₂O) exceeding one ton of carbon dioxide equivalent per month, at a rate of $58.00 pesos per ton.

Other Obligations

• Annual Tax Return Submission to INM: Employers registered with the National Immigration Institute (INM) must submit annual tax returns by April 30, 2025, to maintain their Corporate Registration Certificate, which is essential for sponsoring foreign nationals' visas.
• Profit-Sharing: Employers must distribute a portion of their profits to employees, due by May 31st of the following year.
• Informative Returns: Due February 15th each year, detailing various transactions like loans from non-residents, donations, and dividend payments.

General Economic Outlook

Mexico's projected economic growth for 2025 is between 2% and 3%, with inflation at 3.9% and an exchange rate of 18.7 pesos per US dollar. No major changes in federal tax laws are expected. The government is focusing on digitalization of tax administration, including online audits and pre-calculated taxes based on electronic invoices.

In Mexico, employers are responsible for withholding and remitting various taxes from employee salaries, encompassing income tax, social security contributions, and state payroll taxes.

Income Tax (ISR)

Employee income tax, known as Impuesto Sobre la Renta (ISR), is calculated based on a progressive table with rates ranging from 1.92% to 35%. For 2025, the rates applicable to resident individuals are:

• 1.92% for monthly income up to 8,952.49 MXN
• 6.40% for monthly income between 8,952.50 MXN and 75,984.55 MXN
• 10.88% for monthly income between 75,984.56 MXN and 133,536.07 MXN
• ...
• 35% for monthly income exceeding 4,511,707.38 MXN.

Non-residents are subject to different rates, typically between 15% and 30%. A tax exemption exists for the first 125,900 MXN of employment income within a 12-month period. Employers withhold ISR based on the employee's projected annual income and remit it monthly to the Tax Administration Service (SAT) by the 17th of the following month.

Social Security Contributions (IMSS)

Employers also deduct social security contributions (Instituto Mexicano del Seguro Social - IMSS) from employee salaries. These contributions cover various benefits including healthcare, pensions, and work-related injury insurance. The total contribution varies between 10% and 31.125% of the employee's salary depending on factors such as:

• Minimum wage
• UMA (Unidad de Medida y Actualización) - a unit of measure used to calculate social security contributions and other obligations. The UMA value for 2025 is 113.14 MXN daily or 3,445.40 MXN monthly.
• Employee's age
• Industry
• Number of working days per month
• Fringe benefits
• Employer/employee location.

State Payroll Tax

Most Mexican states levy a payroll tax, payable by the employer, which is calculated on the employee's salary. The rate varies by state but is generally low. For example, Mexico City has a 3% payroll tax. Employers are responsible for remitting state payroll taxes monthly.

Deductions

Employees can claim certain deductions to reduce their taxable income. Deductible expenses may include:

• Medical, hospital, and dental expenses
• Medical insurance premiums (limited)
• Retirement annuities (limited)
• Mortgage interest payments
• Charitable donations
• Funeral expenses
• Education expenses.

A general limit applies to most deductions, capped at the lesser of 15% of the employee's annual income or five times the annual UMA. However, deductions for retirement accounts and education expenses have separate limits. Medical expenses, supported by a certificate from a government health institution, are not subject to this general limit. For 2025, the five-times-UMA limit is 206,368 MXN.

Year-End Obligations and Deadlines

Employers must prepare and submit an annual declaration of withheld income tax to the SAT. Employees also receive an annual information return detailing payments and withholdings. Individuals whose income exceeds certain thresholds must file an annual tax return by April 30th of the following year.

Plan Mexico Incentives

The "Plan México" initiative introduced new tax incentives effective January 22, 2025, lasting until September 30, 2030:

• Accelerated Depreciation: Businesses can immediately deduct investments in new fixed assets at rates ranging from 35% to 91% depending on the asset type.
• Training and Innovation Expenses: An additional 25% deduction is available for the increase in training or innovation expenses compared to the average of the previous three fiscal years.

It's important to consult a tax advisor for specific guidance on Mexican tax regulations as they apply to your unique circumstances. As of today, February 5, 2025, regulations for some aspects of Plan Mexico are still pending and are expected by March 23, 2025. This information is current as of today's date and may be subject to change.

In Mexico, the Value Added Tax (VAT), known as Impuesto al Valor Agregado (IVA), is a consumption tax applied to goods and services at each production and distribution stage.

VAT Rates and Exemptions

• Standard Rate: 16% applies to most goods and services.
• Reduced Rate: 8% applies to the northern and southern border regions.
• Zero Rate: 0% applies to exports, certain basic foodstuffs (e.g., milk, wheat, meat, corn), medicine, and some agricultural services.
• Exempt Goods and Services: These include residential land and buildings, construction services for residential use (subject to reporting requirements), publications (books, newspapers, magazines), lottery and gambling tickets, securities transactions, goods produced by charitable organizations, public and private educational services, public land transportation (excluding digital platform services), services by charitable entities, certain insurance types, and certain interest payments.

VAT Registration

All businesses supplying taxable goods or services in Mexico, including foreign companies with a permanent establishment, must register for VAT. There is no registration threshold. Foreign companies without a permanent establishment cannot register as non-resident traders and cannot reclaim Mexican VAT. Foreign residents providing digital services in Mexico must register, collect VAT, and remit it monthly, regardless of having a physical presence.

VAT Filing and Payment

• Returns: Monthly VAT returns, detailing sales and purchases, are due by the 17th of the following month.
• Filing Method: Electronic filing is mandatory.
• Payment: VAT due must be paid by the filing deadline.
• VAT Credits: These can be rolled over to future months or credited back.
• Additional Filing: Annual returns and monthly purchase listings (Declaración Informativa de Operaciones con terceros) are also required.
• Penalties: Fines apply for late filing or non-registration. These can range from MXN 3,870 to MXN 11,600 for registration issues and MXN 1,560 to MXN 38,700 for late filing.

Digital Services and 2025 Updates

As of June 1, 2020, non-resident digital service providers are responsible for collecting, filing, and remitting VAT, even without a physical presence in Mexico. The 2025 tax rules introduce changes to VAT refunds (particularly for food producers), the cancellation of electronic invoices, and amendments to the VAT Law concerning refunds for fixed asset investments, diplomatic missions, and international organizations. The platform for filing monthly VAT returns has also been updated (as of February 2024), pre-filling data from e-invoices.

This information is current as of February 5, 2025, and may be subject to change. It is essential to stay updated on the latest regulations and consult with a tax professional for specific guidance.

Mexico's "Plan Mexico" initiative offers tax incentives to attract investment, boost local training, and drive innovation across various industries.

Accelerated Depreciation for New Fixed Assets

This incentive allows for the immediate deduction of investments in qualifying new fixed assets acquired between January 22, 2025, and September 30, 2030. These assets must be used for productive economic activities for at least two years following the deduction year. The deduction percentages vary based on the asset type and industry, ranging from 35% to 91%. Examples include:

• Power: Up to 56% for 2025-2026 and up to 49% for 2027-2030 on equipment for electricity generation, transmission, transformation, and distribution.
• Hydrocarbons: Up to 72% for 2025-2026 and up to 67% for 2027-2030 on fixed assets related to transportation, storage, processing, drilling rigs, and floating vessels.
• Construction: Up to 86% depending on the specific activity.

Office furniture, internal combustion engine vehicles, and vehicle armoring equipment are excluded.

Additional Deduction for Training and Innovation Expenses

An additional 25% deduction is available on the increase in expenses for:

• Employee training: This incentive applies to the increase in training expenses compared to the average of the previous three years or to training related to technical or scientific knowledge for the taxpayer's activity, applicable from 2025 through 2030.
• Innovation: This covers investment projects for developing inventions leading to patent acquisition and those for obtaining initial certifications for integration into supply chains.

This deduction cannot exceed the annual income, preventing the creation of a tax loss.

Eligibility and Application

The incentives are available to legal entities and individuals with Mexican Tax Identification Numbers (RFC) who are compliant with tax obligations. An Evaluation Committee oversees the process. General requirements include:

• Registration with the Federal Taxpayers Registry (RFC) and an active Tax Mailbox (Buzón Tributario).
• A positive opinion of compliance with tax obligations.
• Submission of relevant documentation such as investment projects or collaboration agreements depending on the incentive sought.
• Obtaining a compliance certificate from the Evaluation Committee.

A total of MXN 30 billion has been allocated for these incentives, with MXN 28.5 billion designated for new fixed assets and MXN 1.5 billion for training and innovation deductions. While the program is designed to benefit all businesses, it places particular emphasis on Small and Medium-sized Enterprises (SMEs). "Plan Mexico" aims to position Mexico among the top 10 global economies by encouraging nearshoring and promoting local development. This information is current as of February 5, 2025, and may be subject to change.