Mexican residents are taxed on worldwide income; non-residents are taxed only on Mexican- source income. Foreign nationals permanently residing in Mexico enjoy the same rights as citizens (absent the right to vote) and they incur the same responsibilities. Resident status may be obtained after residing in Mexico for five years. Non-residents on temporary assignment working for firms or subsidiaries based in Mexico are exempt from income tax on the first Ps125,900 of annual income; they are taxed at 15% on income of Ps125,901-Ps1 million. All income exceeding Ps1 million is taxed at 30%, with no deductions allowed. Non-residents on temporary assignment and that are paid by non-resident foreign firms are exempt from income tax. Tax rates may differ under tax treaties.
Taxable Income and Rates
Taxable income includes the following: remuneration for personal services, including salary, bonuses and special allowances (e.g. housing); benefits rents received; and interest and corporate dividends paid out of gross income. Pension benefits are tax-exempt up to nine times the legal minimum salary for the region. Severance payment benefits are exempt up to 90 times the daily base salary of the region multiplied by the number of years employed.
Taxpayers engaged in business activities are required to file information on transactions worth more than Ps50,000 on their 50 largest clients, and the information must be available if there is an audit. Accounts of donations granted, payments made to Mexican banks abroad and joint operating agreements also must be kept on record.
Personal deductions include medical and dental fees and hospital expenses incurred by the taxpayer and by the taxpayer’s spouse or other dependents with income no higher than the annual minimum salary. Additionally, health insurance premiums and charitable donations are deductible from income. Mortgage interest payments and personal pension account contributions up to five minimum annual salaries are also deductible. Payments made to parties in low-tax jurisdictions are non-deductible unless it can be demonstrated that they were set at market value.
Taxpayers whose income consists of professional fees may deduct normal and documented expenses, similar to those deductible by businesses. A simplified tax system for individual taxpayers that engage in business activities is available.
In calculating capital gains for tax purposes, individuals increase the historical cost by a factor to adjust for inflation and reduce the cost by accumulated depreciation at a rate varying with the type of asset. The difference between the result and the selling price constitutes the net gain. Based on the number of years the asset was held, a certain proportion of the net gain is added to other taxable income to determine the top tax rate payable. Capital gains resulting from an individual’s sale of publicly traded shares are tax-exempt in certain circumstances.
The income tax rates are progressive up to 28%. The employer withholds provisional tax payments. Taxpayers must file personal income tax returns for the preceding year by the end of April.
Special Expatriate Tax Regime
Foreign business personnel who do not reside in Mexico, but are present for more than 183 days a year, have a special tax schedule. Otherwise, Mexico offers no special concessions to foreign business personnel. Some states and the Federal District impose separate taxes on wages and salaries, which are usually an employer tax liability.
There are no capital taxes.