Corporate Taxes in Mexico: Key Information for Businesses

Mexico continues to strengthen its position as a key destination for foreign direct investment, thanks to its strategic location, extensive network of trade agreements, and favorable environment for manufacturing and export activities. However, business operations in Mexico require compliance with a complex and constantly evolving tax system.

In this guide, we explore the main corporate taxes in Mexico, the applicable rates for 2025, and the tax obligations that both local and foreign companies must meet to remain compliant.

Content

1. Income Tax
2. Special tax on production and services
3. Payroll tax
4. Employee profit sharing
5. Tax returns and electronic accounting
6. Tax incentives 2025
7. Transfer pricing
8. International treaties of Mexico
9. Additional taxes

Income Tax (ISR)

In 2025, the general corporate income tax (ISR) rate for domestic companies in Mexico remains at 30%. This rate is applied to the company’s taxable income, which is calculated by subtracting authorized deductions from the total taxable revenue.

For foreign companies with permanent establishments in Mexico, the ISR is levied on the income attributable to those establishments. In addition, profits distributed to non-resident shareholders are subject to a 10% withholding tax, unless a double taxation treaty applies a reduced rate.

Value-Added Tax (VAT)

The Value-Added Tax (IVA, for its acronym in Spanish) is an indirect tax levied on consumer goods and services in Mexico. The standard VAT rate is 16%. However, certain goods and services are subject to reduced rates or exemptions:

• 0% VAT rate: Applies to exports, basic food items, prescription medicines, and books.

• Exempt services: Include education, healthcare, public ground transportation of passengers, and residential property rentals.

Businesses are required to file monthly VAT returns, determining whether tax is payable or recoverable. Proper control of creditable and transferred VAT is essential to remain compliant and avoid potential tax risks.

Excise Tax (IEPS)

Impuesto Especial a Productos y Servicios (IEPS - Spanish) is a federal tax imposed on the production, sale, and importation of certain goods and services considered non-essential or harmful to public health or the environment. The following products and services are subject to IEPS in Mexico:

• Alcoholic beverages and beer

• Tobacco products and cigarettes

• Fossil fuels, such as gasoline and diesel

• Sugar-sweetened beverages

• Gambling activities and raffles

IEPS rates vary depending on the product or service, and may be either specific (per unit) or ad valorem (percentage of the price). Businesses subject to IEPS must file monthly tax returns and comply with specific documentation and control requirements.

Payroll Tax 

The Payroll Tax  is a state-level tax imposed on compensation paid for subordinate personal services. Each Mexican state sets its own rate and regulations. In 2025, payroll tax rates range from 1% to 4%, depending on the state.

For example:

• Mexico City: 3%

• Jalisco: 2%

• Nuevo León: 3%

Companies are required to calculate and pay the ISN on a monthly basis, taking into account all compensation paid to employees, including wages, salaries, year-end bonuses (aguinaldos), premiums, and other benefits.

Employee profit sharing (PTU)

Employee profit sharing (PTU) is a constitutional right that grants workers 10% of the taxable profits generated by the company in the previous fiscal year. Legal entities are required to calculate and distribute PTU among their employees within 60 days of filing the annual income tax return, i.e., no later than May 30 of each year.

It is important to note that there are limits on the amount of PTU each employee can receive, established in labor legislation, to avoid distortions and ensure equitable distribution. 

Tax Filings and Electronic Accounting

Legal entities operating in Mexico must comply with several tax obligations, including the following:

• Monthly tax returns: Provisional payments for ISR, VAT, and IEPS (as applicable) must be filed no later than the 17th day of the month following the reporting period.

• Annual income tax return: The annual ISR return must be filed by March 31 of the year following the end of the fiscal year.

• Electronic accounting: Companies must maintain their accounting records electronically and submit them monthly to the Mexican Tax Administration Service (SAT). This includes the chart of accounts, trial balances, and accounting entries, when required.

• Digital tax receipts (CFDI): All transactions must be invoiced using Comprobantes Fiscales Digitales por Internet (CFDI), which must comply with the technical and legal requirements established by the SAT.

Tax Incentives for 2025

The updated "Northern Border Region Tax Incentive Decree" will remain in effect starting January 1, 2025, covering 45 municipalities located along Mexico’s northern border. Notably, Baja California is the only state where all municipalities are included in the designated border region.

Under this decree, the Mexican federal government has extended the tax benefits through December 31, 2025. Businesses operating in the eligible region may benefit from:

• A reduced Value-Added Tax (VAT) rate of 8%, which is half the standard rate

• A reduced Income Tax (ISR) rate of 20%

In the southern region, the government has also extended a separate decree granting fuel-related tax incentives. This includes a stimulus on the Excise Tax (IEPS) for automotive fuels sold at service stations.

While it remains uncertain whether these incentives will be extended beyond 2025, our experts at H&CO are ready to assist you in determining whether your company qualifies and how to take full advantage of these benefits

Transfer Pricing

The OECD guidelines on transfer pricing provide the framework for applying the arm's length principle, internationally recognized as the standard for determining the fiscal value of transactions between related companies in cross-border contexts.

In 2025, companies in Mexico will face significant challenges related to transfer pricing, influenced by both the national and international economic environment.

In the latest version of the General Foreign Trade Rules for 2025, the Mexican Tax Administration Service (SAT) has implemented changes that increase administrative obligations for taxpayers, particularly regarding transactions between related parties within the country.

Mexico's International Treaties

Mexico offers various tax incentives and international treaties that can benefit companies:

• Maquiladora Program (IMMEX): This program allows businesses to temporarily import goods for transformation or manufacturing, with fiscal and customs benefits.

• Double Taxation Agreements: Mexico has a network of 14 Free Trade Agreements (FTAs) with 52 countries, 30 Bilateral Investment Promotion and Protection Agreements (APPRIs) with 31 countries or administrative regions, and 9 limited-scope agreements (Economic Complementation Agreements and Partial Scope Agreements) under the Latin American Integration Association (ALADI).

It is advisable for companies to analyze and leverage these instruments to optimize their tax burden and facilitate their international operations.

Additional Taxes

In addition to the Income Tax (ISR), Value-Added Tax (VAT), and Payroll Tax (ISN), there are other tax contributions that legal entities must consider when doing business in Mexico.

Real Estate Acquisition Tax (ISAI)

Companies acquiring property in Mexico are subject to the Real Estate Acquisition Tax (ISAI), which is calculated based on the value of the transaction. This tax is collected by local governments when the public deed is formalized before a notary.

Non-Resident Income Tax (IRNR)

When a Mexican company makes payments to foreign individuals or entities without tax residency in Mexico, for example, for services provided from abroad, the Non-Resident Income Tax (IRNR) may apply.

This tax is a key fiscal obligation for foreign companies operating or investing in Mexico, and must be paid according to the Income Tax Law (LISR) and current regulations from the Mexican Tax Administration Service (SAT).

Taxes Applicable to Real Estate Sales in Mexico

In Mexico, the sale of real estate by legal entities is subject to various taxes that must be evaluated based on the property’s characteristics and the seller’s profile. The most relevant taxes are:

• Income Tax (ISR): This tax is applied to the capital gain obtained from the real estate transaction.

• Value-Added Tax (VAT): This applies in specific cases, such as the sale of commercial real estate or land, but does not apply to the sale of used residential properties.

• State or Municipal Taxes: These taxes can vary depending on the location of the property and may include charges like the Real Estate Acquisition Tax (ISAI) or other local contributions related to registration and notarization.

Understanding the tax burden associated with corporate real estate transactions in Mexico is essential for efficient financial planning and to avoid future tax contingencies.

How We Can Assist You

At H&CO, we provide specialized advisory services for investors and entrepreneurs looking to expand their operations in Mexico, offering comprehensive solutions in tax, accounting, staffing, and payroll services tailored to the specific needs of each business.