Mexico

Mexico has listed the majority of its double tax treaties (DTTs) as Covered Tax Agreements (CTAs) under the OECD’s Multilateral Instrument (MLI), intended to implement Base Erosion and Profit Shifting (BEPS) related treaty measures. However, notable exceptions include the United States, which did not  sign the MLI, Germany which opted to agree with Mexico to incorporate changes to the Double Tax Treaty via a Protocol and Indonesia, which, while a signatory, did not list its treaty with Mexico as a CTA, thereby excluding it from MLI modifications. The MLI entered into force for Mexico on July 1, 2023, following Senate ratification and deposit of the instrument with the OECD. As a result, MLI provisions are generally effective for withholding taxes as of January 1, 2024, and for other taxes for fiscal years beginning on or after that date, subject to each treaty partner’s matching positions.

In general terms, the 2020 and 2021 Mexican Tax Reforms represented a significant effort to align domestic rules with the OECD’s BEPS framework. These reforms introduced enhanced anti-avoidance rules aimed at preventing treaty abuse, stricter requirements around substance and economic benefit, and more robust documentation requirements for transfer pricing matters. In addition, the reforms formally introduced mandatory disclosure obligations for  tax  schemes updating certain characteristics, following BEPS Action 12.

A major development in 2021 was the enactment of a comprehensive labour and tax reform which included amendments to the Federal Labour Law, the Mexican Income Tax Law, the Mexican Federal Tax Code and the VAT Law, among others. The reform introduced a general prohibition on personnel subcontracting (outsourcing), defined as a legal entity or individual putting its employees at the disposition of another for its benefit, while permitting only the subcontracting of “specialised services” that are not part of the recipient entity’s corporate purpose or main business activity, if the service provider is registered to as a specialised service provider with the Mexican Ministry of Labour. As a result, payments for prohibited subcontracting are now non-deductible for income tax purposes and non-creditable for VAT purposes. Moreover, individuals or legal entities that deduct for  tax purposes illegal subcontracting expenses would be considered to commit tax fraud.

Furthermore, Mexico has also modernised its rules for digital taxation. Since 2020, a withholding tax regime has applied to foreign digital platforms obliging them to collect and remit Income Tax (in certain cases, such as intermediation) and VAT on services in Mexico including streaming, intermediation, among others.

Another area of reform relates to beneficial ownership transparency. Since 2022, Mexican legal entities and trusts have been required to maintain detailed information in records on their ultimate beneficial owners which must be provided to the Mexican Tax Authorities upon request. This obligation supports Mexico’s anti-money laundering framework and aligns with international standards on tax transparency.