Taxation in Guadalajara, Mexico
What are the tax rates in Guadalajara, Mexico? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Guadalajara, Mexico.
Personal taxation in Guadalajara
Effective personal income tax rate
| Annual income | $25,000 | $40,000 | $80,000 | $125,000 | $200,000 |
|---|---|---|---|---|---|
| Rate | 18% | 20% | 26% | 28% | 30% |
Teleport city rankings for personal income tax
Personal taxation puts Guadalajara in position 73 of all Teleport Cities.
Basis
Mexican nationals are taxed on their worldwide income. Nonresidents are taxed only on Mexico-source income.
Residence
An individual is considered resident if he/she has a permanent home in Mexico. If an individual has a home in two countries, the key factor in determining residence is the location of the individual’s center of vital interests. Mexican nationals are, in principle, considered tax residents, subject to the permanent home and/or the center-of-vital-interests test.
Filing status
Tax returns are filed individually, regardless of marital status.
Rates
Rates are progressive up to 35%.
Deductions and allowances
Subject to certain restrictions and caps (the lower of MXN 130,000 or 15% of taxable income), deductions are granted for medical expenses and medical insurance, retirement annuities, mortgage interest, etc. Medical, dental and hospital expenses (among others) are deductible with no restrictions when they derive from an “inability” or disability under the terms of the corresponding laws.
Taxable income
Income is taxed, in part, under a scheduler system, although some categories of income can be mixed to determine taxable income. Profits derived from the carrying on by an individual of a trade or profession generally are taxed in the same way as profits derived by companies. A separate regime applies to interest earned by individuals.
Capital gains
Capital gains arising from an individual’s sale of publicly traded shares, including financial derivatives, are subject to a 10% tax on the gains.
Other taxes on individuals
Real property tax
The municipal authorities levy “rates” on the ownership of real property. Rates are deductible in calculating the individual’s taxable income related to leasing of real property.
Social security
Employed individuals are required to make social security contributions, with the amount based on the individual’s salary.
Compliance for individuals
Filing and payment
VAT filing is due monthly, within the first 17 days of the following month.
Penalties
Penalties apply for noncompliance with the tax rules. Value added tax:
Rates
The general VAT rate is 16% and a 0% rate applies to food, medicine and certain other items (with some exceptions).
Taxable transactions
VAT is levied on the sale of goods, leasing and the provision of services, as well as on imports.
Registration
All persons must be registered to be able to credit the VAT paid to vendors, suppliers or at the border. Nonresidents supplying goods or services in Mexico must register.
Corporate taxation in Guadalajara
Teleport city rankings for corporate income tax
Corporate taxation puts Guadalajara in position 224 of all Teleport Cities.
Basis
Residents are taxed on worldwide income; nonresidents are taxed only on Mexican-source income. Foreign-source income derived by residents is subject to tax in the same way as Mexican- source income. Branches are taxed in the same way as subsidiaries.
Taxation of dividends
Dividends received by a Mexican resident company from another Mexican resident company are exempt from corporate tax. Dividends received from a foreign company are subject to corporate tax in the period the dividends are payable, but a credit for underlying corporate and withholding tax generally is available for foreign tax paid.
Residence
An entity is resident if it is managed and controlled in Mexico.
Losses
Losses may be carried forward for 10 years, subject to applicable inflation adjustments. The carryback of losses is not permitted.
Incentives
Special rules apply to maquiladoras. Incentives are granted for national cinematographic and theatrical production, as well as for innovation (CONACYT), the FIBRAS (real estate investment trust) regime and investments in risk capital.
Foreign tax credit
Foreign tax paid may be credited against Mexican tax on the same profits, but the credit is limited to the amount of Mexican tax payable on the foreign income.
Taxable income
Corporate tax is imposed on a company’s profits, which consist of business/trading income, passive income and capital gains. Normal business expenses may be deducted in computing taxable income. Inflationary accounting for tax purposes is applicable to certain types of revenue and expenses.
Capital gains
Mexican entities are not subject to special tax treatment on capital gains, and the use of capital losses is restricted in some cases.
Other taxes on corporations
Real property tax
The municipal authorities levy “rates” on the ownership of real property. Rates are deductible in calculating the corporation tax liability.
Social security
Employer contributions for social security and other related contributions (e.g. housing and retirement) are mandatory, with rates ranging from 15% to 25%, depending on the salary structure of the group of employees.
Other
While not a tax, mandatory profit sharing rules imply that an entity is obliged to actually distribute 10% of taxed profits to its employees no later than May of the year following the year in which the profits were generated.
Payroll tax
Payroll taxes apply at the state level.
Compliance for corporations
Consolidated returns
Mexico’s tax consolidation system has been abolished and replaced by a new tax integration regime. The regime allows a group to defer income tax for up to three years, taking into account only the profits and losses of entities in the group.
Filing requirements
Under the self-assessment regime, advance corporate tax is payable in 12 installments. The annual tax return must be filed within the first three months of the following year (no extensions are available).
Other taxation in Guadalajara
Anti-avoidance rules
Other
An optional tax audit report may be filed for taxpayers with more than 300 employees, gross income exceeding MXN 100 million or assets exceeding MXN 79 million.
Transfer pricing
Rules following the OECD guidelines apply to cross-border and domestic transactions. Acceptable transfer pricing methods are as follows: the comparable uncontrolled price (CUP) method is considered the preferred method, followed by the cost plus and resale price methods. Profit-based methods are to be applied if the CUP, cost plus and resale price methods are not applicable. The profit split and residual profit split methods, and the transactional operating margin method are not applicable in specific circumstances. Documentation rules apply. Advance pricing agreements are available.
Disclosure requirements
External tax auditors are required to disclose on the tax audit report when a taxpayer has entered into a transaction that is not considered viable by the Mexican tax authorities.
Controlled foreign companies
Income is attributed to Mexican tax residents (including resident foreigners) from “controlled” entities where more than 20% of their income is passive income (broadly defined) that is taxed locally at a rate less than 75% of Mexico’s statutory rate. Reporting rules may apply.
Thin capitalization
Interest payments made by a Mexican resident company on a loan from a nonresident related party are nondeductible for income tax purposes to the extent that the debt-to- equity ratio of the payer company exceeds 3:1.
Investment basics
Foreign exchange control
None, and no restrictions are imposed on the import or export of capital. Repatriation payments may be made in any currency. Both residents and nonresidents may hold bank accounts in any currency in any part of the world; however, for some accounts located in Mexico but kept in a foreign currency, the currency must be the US dollar.
Accounting principles/financial statements
Mexican GAAP (with increasing conformity to international standards) applies. Financial statements must be prepared annually.
Principal business entities
These are the per se corporation (SA), limited liability company (SRL) and branch of a foreign corporation.
Withholding tax
Royalties
Royalties paid to a nonresident are subject to a withholding tax of 35% (patents and trademarks) or 25% (other kinds of royalties), unless the rate is reduced under a tax treaty. A 40% rate applies where royalties are paid to a related party located in a tax haven. The leasing of machinery and equipment generally is considered a royalty.
Dividends
A company that distributes dividends (including distributions derived from investments in renewable sources of energy and made from the CUFIER account) to a nonresident or to a resident individual must withhold a 10% tax, which is considered a final tax. For nonresidents, the 10% rate may be reduced under an applicable tax treaty.
Branch remittance tax
Rules similar to the CUFIN rules for dividends apply. Permanent establishments distributing dividends or gains to their head office are subject to an additional tax of 10% on such dividends or gains.
Other
There are certain other circumstances under which withholding tax may apply to nonresidents, such as payments relating to immovable property, salaries, fees, capital gains, etc.
Interest
Interest paid to a nonresident is subject to withholding tax at rates ranging from 4.9% (interest paid to a bank) to 35%. A 40% rate applies where interest payments are made to a related party located in a tax haven.
Technical service fees
Fees paid for technical assistance are subject to a 25% withholding tax, unless the rate is reduced under a tax treaty.
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