In Mexico, employers have the responsibility of withholding and remitting various tax contributions on behalf of their employees to the Mexican Institute of Social Security (IMSS) and the Mexican Tax Administration Service (SAT).

Social Security Contributions (IMSS)

Employers make a significant contribution to social security, which covers a large portion of an employee's social security benefits. These benefits include healthcare, disability, retirement, and unemployment insurance. The contribution rate is calculated as a percentage of the employee's salary, typically ranging from 34% to 50%, depending on the company's risk category. Additionally, employers contribute an extra 1% of the employee's salary towards daycare services.

Housing and Services Contribution (INFONACOT)

Employers also contribute 0.5% of an employee's salary to the National Workers' Housing Fund Institute (INFONACOT). This contribution aids in funding employee housing programs and benefits.

Income Tax Withholding (ISR)

Employers are obligated to withhold income tax (ISR) from employee salaries and remit it to the SAT on their behalf. The withholding rate is determined by a progressive tax table based on the employee's income level.

Additional Employer Obligations

Employers must register with the IMSS and SAT and submit regular electronic reports on employee payroll and contributions. Furthermore, employer contributions and withheld taxes must be paid by specific deadlines set by the IMSS and SAT.

Employees in Mexico are subject to various taxes and contributions deducted from their salaries. These deductions are primarily for income tax, social security, housing fund, and additional deductions such as private pension plans.

Income Tax Withholding (ISR)

Mexico operates a progressive income tax system, which means that employees with higher salaries pay a higher percentage of income tax. Employers withhold income tax (ISR) from employee salaries based on a tax table established by the Mexican Tax Administration Service (SAT). This table takes into account factors such as salary level and any applicable deductions or exemptions.

Social Security Contributions

Employees contribute a portion of their salary towards social security benefits. These benefits include healthcare, disability, retirement, and unemployment insurance. The contribution rate is a fixed percentage of their salary, typically 6.5%.

Housing Fund Contribution (INFONACOT)

Employees contribute 0.5% of their salary to the National Workers' Housing Fund Institute (INFONACOT). This contribution is used to fund employee housing programs and benefits.

Additional Deductions

Voluntary contributions to private pension plans may be tax-deductible in certain cases. It is advisable to consult a tax advisor for details.

Value-Added Tax (VAT), known as Impuesto al Valor Agregado (IVA) in Mexico, applies to most goods and services bought and sold within the country.

VAT Rates

The general VAT rate in Mexico is 16%. This rate applies to most taxable services rendered within the country. A reduced VAT rate of 8% applies to specific border regions to promote competitiveness with neighboring countries.

VAT Registration

Businesses providing taxable services with an annual income exceeding $400,000 MXN (approximately $20,000 USD) must register for VAT. Voluntary registration is also an option.

When to Charge VAT on Services

VAT must be charged on most services rendered within Mexico, unless specifically exempt. Examples of taxable services include professional services (legal, accounting, consulting), telecommunication services, transportation services (excluding public transportation), and restaurant and hospitality services.

VAT Exemptions

Certain services are exempt from VAT, meaning no VAT is charged. These include educational services, public transportation services, healthcare services, and financial services (banking, insurance).

VAT Invoicing

VAT-registered businesses must issue VAT invoices, also known as Comprobantes Fiscales Digitales por Internet (CFDI), for all taxable services provided. These invoices must include details like VAT amount charged.

VAT Return Filing and Payment

VAT returns must be filed electronically with the Mexican Tax Administration Service (SAT) on a monthly or quarterly basis, depending on the business's income level. VAT payments are due along with the filing of returns.

Importing and Exporting Services

VAT on imported services might be subject to the reverse charge mechanism. This means the recipient of the service in Mexico is responsible for accounting for the VAT due, rather than the foreign service provider. In most cases, VAT is not charged on services exported from Mexico.

Mexico provides a variety of tax incentives to stimulate investment and economic activity in specific sectors and regions. These incentives are designed to attract businesses and boost the economy.

Income Tax Incentives

Businesses operating in certain sectors, such as manufacturing for export or tourism, may qualify for a reduced income tax rate. Companies can also deduct the full cost of certain qualifying new investments in fixed assets in the year they are acquired, instead of spreading the deduction over several years. This accelerates tax benefits and boosts cash flow. Additionally, businesses conducting research and development activities may be eligible for a tax credit against their income tax liability.

Special Economic Zones (SEZs)

Businesses operating within designated Special Economic Zones (SEZs) may benefit from reduced or even eliminated income tax rates for a certain period. SEZs may offer simplified tax regimes with streamlined administration and reporting requirements. Furthermore, businesses in SEZs may enjoy duty-free or reduced-duty imports on machinery, equipment, and raw materials.

Maquiladora Program

The Maquiladora program allows companies to import raw materials and semi-finished goods duty-free for assembly or processing in Mexico and subsequent export. This program benefits export-oriented manufacturing companies.

Sector-Specific Incentives

Specific tax breaks and benefits may be available for companies involved in hydrocarbon exploration and production. The tourism sector may benefit from tax breaks on investments in infrastructure development and hotel construction. Tax incentives might also be available to encourage investment and growth in the agriculture and manufacturing sectors.