Control Interno

The Mexican taxation system cannot obviously be dealt with in great detail here. We will limit ourselves to presenting major features of Mexican taxation. Given frequent changes to tax rules and their complexity, it is very important that foreign investors have recourse to local tax specialists in order to discuss the consequences of certain investment decisions on their tax burden. Prior to the decision on how to enter the Mexican market, the fiscal implications should be considered carefully.

Roughly speaking, tax obligations in Mexico increase with a firm’s presence on the Mexican market. While exporters do barely need to bother about tax obligations in the case of indirect exports (see Subsection 5.1.2), they are major considerations if FDI is planned in Mexico (see Subsections 5.1.5, 5.1.6 and Chapter 7).

All companies with operations in Mexico need to register a fiscal domicile – regardless of whether they plan to open a no-income office only or whether outright manufacturing operations are planned (see Section 7.7 for options). They will then receive the Taxpayer’s Federal Registration Number (RFC number; Registro Federal de Contribuyentes). If a no-income representative office is established, the only obligation is to report the earnings of its employees. By contrast, permanent businesses will pay taxes just as any other Mexican company.

8.3.1 Direct Taxes

Permanent businesses must pay a federal income tax of 35%. According to the Fiscal Reform 2002, the corporate tax rate will decrease to 34% in 2003, 33% in 2004 and 32% in 2005. Losses may be carried forward for 10 years. In order to avoid the loss of this benefit through inflation, the amount of the losses shall be updated by a factor calculated considering the National Consumer Price Index established by the Mexican Central Bank (Banco de México; http://www.banxico.org.mx;
11.4).

The federal income tax is supplemented by a minimum asset tax which is payable if and to the extent that it exceeds the taxpayer’s income tax. It is payable at a rate of 1.8% on the corporate taxpayer’s assets.

Mexican residents are subject to Mexican income tax regardless of their nationality. Non-residents are taxed only on income which is derived from a source of wealth located in Mexico. Personal income tax rates are levied at graduated rates and reach up to 35%. No personal asset or wealth taxes are levied, except where individuals operate a sole proprietorship which is also subject to the 1.8% tax on firm assets and in case of an individual leasing assets to a payer of said asset tax. In addition to federal income tax, the fiscal reform 2002 has introduced a right for states to establish an

income tax applicable to individuals who perform business and professional activities. Swiss firms investing in Mexico should keep in mind that a double taxation treaty is in force between Mexico and Switzerland (see Box 8.1).

Box 8.1: Double Taxation Treaty Mexico-Switzerland

A Double Taxation Treaty is in force between Mexico and Switzerland and applicable since January 1995. It aims at avoiding double taxation and contains rules for specific types of income such as income from assets, business profits, interests, dividends, royalties, gains realised by the sale of capital, pensions and income from self-dependent work and salaries. The Double Taxation Treaty provides for the application of the national treatment principle. It has largely been designed according to the OECD model of 1977, while some clauses had to be adapted to the specific interests of the parties involved.

The text of the Mexican-Swiss Double Taxation Treaty is available in all three Swiss national languages from the website of the Swiss Federal Government at http://www.admin.ch, Systematic Compendium of Swiss Federal Law No. 0.672.956.31.

8.3.2 Indirect Taxes

The most important indirect tax is the Value Added Tax (VAT; Impuesto al Valor Agregado; IVA). It is levied at a general rate of 15% (10% in border regions) on sales of most goods and services. The rate is 0% on some transactions, while other transactions are exempt. The latter include education services, certain insurance services, certain types of public entertainment, certain medical services and certain transportation services. In the case of imported goods, VAT is levied on the value declared for import duties plus the amount of the duties. Some specific government programmes may exempt importation from VAT (see Section 7.6). Exports of goods and services as well as port services for export shipments are zero rated. Almost all food products and medicines are taxed at the zero rate. Government proposals in the context of the fiscal reform 2002 to levy VAT on these items had met with massive resistance and had to be abandoned.

On 1 January 2002, a new tax of 5% was introduced on ”luxury products” such as perfumes, cars worth more than 250’000 MXP, clothing made of silk or leather, electronic articles or computer equipment worth more than 25’000 MXP.

Federal taxes are also levied on the ownership of motor vehicles. Moreover, new cars are subject to a specific tax (Impuesto Sobre Automóviles Nuevos; ISAN).

In addition to these federal taxes, a number of state and municipal taxes are levied. The former include taxes on the proceeds of capital, on earned income and on certain types of production. With the Fiscal Reform 2002, states may now establish a maximum 3% sales tax on goods and services to the general public. Municipal taxes consist mainly on those levied annually on real property (which have substantially increased in recent years) and those levied on transfers of real estate.

Abundant information on all issues of taxation may be found in the book ”Doing Business and Investing in Mexico” by PWC PriceWaterhouseCoopers (2001). Chapters 13 through 24 are dedicated to taxation issues. Along with the book, readers should make sure to obtain an update on the modifications brought by the fiscal reform 2002 (and any further reforms) which are not yet included in the aforementioned publication. With regard to the fiscal reform of 2002, PWC has also published an executive summary in English (Mexican Tax Reforms 2002) which may be downloaded from the internet at http://www.pwcglobal.com/images/mx/eng/ins-sol/publications/tax2002.pdf. A more detailed overview in Spanish (”Reformas Fiscales 2002”) is available at http://www.pwcglobal.com/images/mx/spa/ins-sol/publications/reformas2002.pdf.