Mexico

Value-added tax (VAT)

VAT is payable at the general rate of 16% on sales of goods and services, as well as on lease payments and imports of goods and services. The principal VAT-exempt transactions are the sale of land, credit instruments (including equity shares), residential construction, interest paid by banks, medical services, education, salaries and wages, rentals of residential property, and the sale of non-amortisable participation certificates on real estate investment trusts (REITs), provided specific requirements are satisfied.

Temporary imports under IMMEX and similar programs are subject to the general 16% VAT rate. Such imports may qualify for VAT relief when obtaining special certification from the tax authorities related to the adequate control of such imports. The relief is applied in the form of an immediate VAT credit when clearing customs, which means that the temporary import is done on a cashless basis for VAT. Companies not covered by the certification may apply the same cashless treatment if they post a bond as payment guarantee.

The VAT law also taxes sales in Mexico of temporarily imported goods by non-residents to (i) other non-residents, (ii) Maquiladoras, or (iii) companies in the automotive industry.

The 0% VAT rate, which generally means that no VAT is payable, is applicable to a substantial number of transactions, including the sale of books, magazines, and newspapers published by the taxpayer, the exportation of goods and certain services (including some Maquiladora activities intended for exportation), the sale of certain basic foodstuffs, the sale of medicines, agricultural goods and services, sales and rentals of farm M&E, and other specified transactions.

VAT paid by business enterprises on their purchases and expenses related to VATable activities (including activities subject to the 0% VAT rate) may usually be credited against their liability for VAT they collect from customers on their own sales, services rendered, etc. The input VAT credit on goods or services of a general nature, or those not specially identified with either taxable, not subject to the tax, or exempt activities for VAT purposes, is computed based on a VAT ratio proportional to the VATable versus VAT activities (taxable, not taxed, and exempt) carried out by the taxpayer. Creditable VAT paid on purchases and expenses in excess of VAT collected from customers is recoverable via either a refund or a credit against subsequent VAT liabilities.

VAT is a ‘cash basis’ tax, with few exceptions (e.g. VAT on some types of interest must be paid on an accrued basis); consequently, only the receipt of payment for goods or services triggers the output VAT liability, and an input VAT credit may be claimed only when the taxpayer pays VAT to its providers of goods and services. VAT is calculated for each calendar month as a final tax. 

VAT must generally be withheld by Mexican residents acquiring or leasing tangible goods from non-residents if such foreign residents do not have a PE in the country to which income is attributed. Mexican business entities are required to withhold VAT on payments to individuals or entities for services consisting of ground transportation of goods. Mexican corporations must also withhold VAT on commissions paid to individuals, as well as on independent services rendered by Mexican individuals, and on tangible goods leased from individuals.

An information return related to the VATable activities carried out by the taxpayer must be filed on a monthly basis. Definitive monthly VAT payments are required by the 17th day of the immediately following month.

Subcontracting

VAT paid for subcontracted labour will be creditable to the extent the service is considered a specialised service for purposes of the outsourcing reform (please refer to Outsourcing reform in the Other issues section). 

Pre-operating expenses

Under current VAT law, a VAT credit is granted in the pre-operating period (i.e. the period prior to the start of the taxable activities) based on an estimate of expected future activities subject to VAT. However, there is no adjustment mechanism if the actual activities subject to VAT differ from the estimated activities.

The provision provides that VAT credits from expenses and certain investments in the pre-operating period can be used on the first VAT return for the month in which the company actually carries out activities subject to VAT, or in the month in which the company incurs the expense or makes the disbursement (in which case it can request a refund), provided that, in the latter case, the taxpayer provides information related to the VATable activities to be performed. In both cases, there will be a mandatory adjustment to the VAT credited once a 12-month period has elapsed from the date on which the credit was applied.

In addition, if the taxpayer does not perform taxable activities once the pre-operating period has ended, a reimbursement of any refund should be remitted to the tax authorities. This rule will not apply to taxpayers engaged in extraction activities, such as mining and oil.

Digital services

Foreign residents, regardless of whether they have a PE, that are providers of digital services to recipients located in Mexico must register with the Mexican tax authorities to calculate and collect the VAT associated with those digital services from the Mexican users and remit it on a monthly basis to the Mexican tax authorities. A digital service is defined as any service provided through digital applications or format, over the Internet or other network, and which is fundamentally automated. It specifically includes the following:

• Downloading or access to images, film, text, information, audio, video, music, games, gambling, multimedia content, multi-player environments, mobile tones, online visualisations, traffic information, and weather forecasts. Excluded from this definition are access to electronic books, newspapers, or other periodicals.
• Mediation among third parties for the offer of goods or services.
• Online clubs, online dating, and online learning.

The recipient will be considered a 'Mexican user' in any of the following circumstances: (i) a Mexican has registered with the service provider, (ii) the payment was made through a Mexican financial intermediary, (iii) the IP address used by the electronic device is in Mexico, or (iv) when the recipient provides a Mexican telephone number.

In this regard, such foreign residents must comply with certain specific requirements including, as earlier mentioned, obtaining a Mexican tax ID, registering a Mexican legal representative and a tax address, obtaining an electronic tax signature, and issuing invoices that meet the Mexican requirements to be established by the Mexican tax authorities, among others.

As part of the 2026 tax reform to the Mexican Federal Tax Code (CFF), the Mexican tax authorities have a new power to require foreign digital platforms to provide online and real-time access to their tax information. This new obligation enters into force on April 1, 2026, and its implementation will be governed by general rules to be issued by the tax authorities.

Non-residents providing digital services subject to VAT that do not comply with certain tax obligations will have their access to the Internet in Mexico temporarily blocked. The Internet blockage would be carried out by regulated telecommunication networks pursuant to a government request. Prior to disabling the non-resident's Internet access, the tax authorities would consider all of the case’s facts and circumstances and follow certain procedural requirements intended to ensure the affected entity has the proper information to comply with tax obligations. The process must be documented through specific administrative steps and written notifications. Once the tax authorities proceed with blocking Internet access, the block can continue until the non-compliance is cured.

In addition, as of April 1, 2026, failure to grant the tax authorities online and real-time access to tax information may result in the blocking of the digital services offered by the foreign platform within Mexican territory, without prejudice to other applicable penalties.

Failure to comply with the following tax obligations, among others, can result in Internet blockage:

• Registration with the tax authorities.
• Designation of a legal representative for tax purposes.
• Designation of a tax domicile in Mexico
• Obtaining an electronic tax signature.
• Informing the tax authorities of the number of services or transactions performed in Mexico, as well as informing the recipients of said services.

Moreover, based on 2026 changes, new income tax and VAT withholding obligations applicable to operators of digital platforms, in addition to the obligations described above.

A. Income tax withholding for individuals and legal entities

The income tax withholding rate applicable to individuals carrying out business activities through digital platforms increases from 1% to 2.5% on the gross income derived from the sale of goods or the provision of services, except for land transportation services, delivery of goods, or accommodation services.

In addition, a new income tax withholding obligation was introduced for legal entities that obtain income through digital platforms. In these cases, the platform operator must withhold 2.5% of the gross income obtained by the legal entity, without allowing any deductions. If the legal entity does not provide its Mexican tax ID (RFC), the applicable withholding rate increases to 20%. The income tax withheld may be credited against the income tax payable by the legal entity.

B. Value added tax withholding obligations

Digital platforms acting as intermediaries, when they collect the consideration and the corresponding VAT on behalf of sellers or service providers, must withhold:

• 50% of the VAT from Mexican resident legal entities selling goods or providing services (or 100% if the RFC is not provided).
• 100% of the VAT collected on behalf of non-resident entities without a permanent establishment in Mexico that sell goods within Mexican territory.
• 100% of the VAT when the consideration for the transactions is deposited into bank accounts located abroad.

Customs duties/import tariffs

Mexico’s commercial conditions provide an excellent business and investment opportunity. Mexico is a member of the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation Mechanism (APEC), and the Organisation for Economic Co-operation and Development (OECD).

Mexico lies in a strategic geographical location for international trade, sharing borders with the United States (US) and representing an easy entry to the rest of Latin America, while also facing Europe and Asia.

Mexico has signed multiple Free Trade Agreements (FTAs), which provide for preferential duty rates on foreign trade operations with many more countries. FTAs signed by Mexico include the new United States-Mexico-Canada Agreement (USMCA) in force as of 1 July 2020, and agreements with the European Union (EU), the European Free Trade Association (EFTA), and Japan, among many other countries. Most FTAs provide 0% duty rates for almost 90% of the goods to be imported into Mexico.

General Import Duty rates range from 0% to 35%. However, following the most recent tariff adjustments published in the Official Gazette, certain sectors (particularly textiles, footwear, steel, automotive components, and plastics) may face higher duties when sourced from countries without a Free Trade Agreement).  

In general, temporary imports are exempt from customs duties (except for fixed assets in certain transactions). For VAT payments on temporary imports, see above.

Excise tax

The excise tax law (Impuesto Especial Sobre Producción y Servicios or IEPS) levies substantial federal excise rates on the importation and/or sale of certain taxable items, such as gasoline quota-based); beer, wine, spirits (26.5%/ 30%/ 53% depending on alcohol content), and cigarettes and other tobacco products (200% plus an additional quota per cigarette and is subject to a transitory schedule), and on certain services related to these activities, such as commission, mediation, and distribution of excise taxable items, as well as services for raffles and gambling (50%). Excise tax is also applicable to certain telecommunications services (3%).

The excise tax law applies to soft drinks (“bebidas saborizadas”) the quotas applicable are MXN 3.0818 per litre when sugars are added and MXN 1.5000 per litre when sweeteners are added; and to ‘junk’ food at an 8% rate. In both cases, the excise tax is payable by the producer or importer.

In general terms, goods are exempt from IEPS when exported. The input IEPS paid by exporters on their purchases is not creditable, and that tax becomes an additional cost.

IEPS is payable (output tax) and creditable (input tax) on a cash basis. It is payable on the date that the charge invoiced is collected from the client and can be credited when the respective payment is made to the supplier. On imports, IEPS is creditable when paid at the customs offices.

Input IEPS resulting from the activities of one month will be creditable only with the output IEPS of the following months and for the alienation of the same goods. In certain cases, the IEPS legislation allows taxpayers that are not subject to this tax to credit IEPS paid on the acquisition and/or the importation of certain goods.

There is a specific procedure to calculate the tax for beer producers, bottlers, and importers; however, the tax can never be lower than 26.5%.

Among other obligations, IEPS taxpayers must file information returns before the Mexican Tax Administration periodically.

In addition, the 2026 Tax Reform introduced an 8% IEPS tax on the sale of video games, whether in physical or digital format, classified as not suitable for minors. For digital formats, the taxable event covers services that provide access to or downloads of such content, including when offered through service providers or technological platforms.

Notwithstanding the foregoing, pursuant to a Presidential Decree effective January 1, 2026, a 100% tax stimulus (credit) is granted against the IEPS caused by these activities, provided that the IEPS is not passed on to the end user. The decree states that the stimulus does not generate a refund or offset.

For taxpayers that apply the stimulus, the Decree also releases digital service providers (including foreign residents without a permanent establishment in Mexico and digital intermediation platforms) from the specific IEPS compliance obligations applicable to digital services (e.g., withholding, remittance, and related invoicing requirements), and consequently the IEPS-related temporary blocking of access to the digital service in Mexico would not apply. VAT obligations applicable to digital services remain unchanged.

The Mexican tax authorities may issue general administrative rules for the proper application of these rules.

Property taxes

Annual taxes on real property are levied by Mexico City and all the states at widely varying rates applied to values shown in the property tax records. Assessed values have increased substantially recently in Mexico City and some other areas.

Title transfer taxes

The transfer of real estate is, almost without exception, subject to a variable transfer tax at rates averaging 2% to 5% on the highest of the value of the transaction, fair market value, or registered municipality value. The tax is levied by most states and Mexico City.

Stamp taxes

There are no stamp taxes in Mexico.

Payroll taxes

Most Mexican states levy a relatively low tax on salaries and other income earned by employees, which is payable by the employer (e.g. Mexico City imposes a 3% payroll tax payable by the employer).

Social security contributions

Employers and employees are required to make contributions to the social security system. These contributions are based on the daily salary plus any other compensation paid to the employee. There are various different rates that the employers are compelled to pay to the Mexican Social Security Ministry and or Housing Ministry that may vary in proportion of the so-called base salary of their Mexican employees and the type of concepts for which the compensation is given to the employee. For example, 2% on the base salary of the employee is paid by the employer for the concept of retirement, 5% on the employee base housing contribution salary for the concept of housing must be paid by the employer, among others.

Compulsory profit sharing

Although not a tax, every business unit with employees (irrespective of the type of organisation) is required to distribute a portion of its annual profits among all employees, except general directors and managers. The amount distributable to the employees is 10% of an adjusted taxable income. The main difference between the taxable income and the profit-sharing base is that the tax losses cannot be applied against the profit-sharing base. As of 2021 (please refer to Outsourcing reform in the Other issues section), the profit distribution to each employee will be capped to the highest of either (i) three months of its regular salary or (ii) the average of profit sharing received by the employee in the past three fiscal years (i.e. should the profit allocated to an employee be below these thresholds, the employer will only pay the corresponding regular distribution based on 10%).

No profit sharing is paid during the first year of operations. Also, special rules apply for personal service entities and for entities deriving their income from rental activities, both of which can limit their profit-sharing payment to the equivalent of one month of regular salary.

The profit-sharing amount paid out is a deductible item for CIT purposes, provided certain requirements are met.

Vehicle taxes

There is no federal tax on the ownership of vehicles; however, the states may impose a similar tax.

Tax is still levied on the acquisition of new vehicles. This tax is payable in addition to the VAT on the purchase. Note that some vehicles considered as ‘hybrid’ (e.g. battery assisted vehicles) are not subject to the new vehicle acquisition tax.