Resident individuals are subject to Mexican income tax on their worldwide income, regardless of their nationality. Non-residents, including Mexican citizens who can prove residence for tax purposes in a foreign country, are taxed only on their Mexican-source income.

Non-residents are subject to withholding taxes (WHTs) on Mexican-source interest income at rates varying from 0% to 35%, depending on several factors. Non-residents are subject to Mexican tax on gains arising from sales of real property located in Mexico (including shares of foreign companies holding a significant amount of Mexican real property) as well as the sale of shares of Mexican companies. Generally, when a capital gain is subject to tax, the non-resident investor can elect to pay either a flat rate of 25% of the gross proceeds or 35% of the net gain. Sales of shares in the Mexican stock exchange are subject to a flat 10% tax withholding on the profit from said transaction.

Other types of Mexican-source income (including rents and royalties) are also subject to WHTs when paid to a non-resident. In the case of dividends and other corporate distributions from Mexican companies, since 2014, there is a 10% tax withholding on the dividends from corporate profits generated after 2013

Corporate taxation: Residence – An entity is resident if it is managed and controlled in Mexico. 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 the same as subsidiaries.

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 concepts of revenue and expenses.

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. If dividends are not paid from the “CUFIN account” (i.e. already taxed profits), the payer is required to pay tax (30% on a gross-up amount).

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.