The most significant taxes in Mexico for corporations and individuals, measured in the amount of pesos collected, are the business flat tax (IETU), income tax (ISR), value added tax (IVA) and tax on cash deposits (IDE). The following is a brief description of each major type of Mexican tax:
Business Flat Tax (Impuesto Empresarial de Tarifa Única – IETU)
This tax is paid by resident Mexican business entities, such as corporations and partnerships, as well as individuals on their worldwide income received as compensation for the sale of goods, for independent services rendered and for leased goods.
The tax is calculated and paid monthly on a cash-flow basis at a rate of 17% for 2009 and 17.5% for 2010. For example, if August is the current month, taxpayers apply the tax rate to the difference between sales (from January to July) minus expenses (from January to July). From this result, payments from prior months can be deducted.
Income Tax (Impuesto Sobre la Renta – ISR)
All revenues for entities and individuals, including those obtained abroad, are taxed according to the income tax law. The rate for corporations is 28%. Individuals pay this tax using a progressive table from 0% to 28%. The tax is calculated on an annual basis, with monthly payments in advance. Expenses are not counted as deductions on the monthly payments. Deductions are applied only when the annual tax calculation is prepared.
IMPORTANT NOTE: Taxpayers do not pay the total of both IETU and ISR. The amount of ISR and IETU tax due is calculated each month and the taxes due are compared. Taxpayers only pay the highest amount in the following way: If the highest amount is ISR then the taxpayer only pays the ISR tax, but if the highest amount is IETU, then the taxpayer pays the ISR amount plus any IETU over that amount.
According to the income tax law in Mexico, a corporation also has taxable income when they issue an invoice to collect money from a client. In other words, if a corporation issues an invoice in May but does not collect until July, the corporation is compelled to pay taxes in May.