Foreign Investors in Mexican Businesses Should Consult an Accountant

MexTax Accounting Services

Mexican corporations can be 100% owned by foreigner investors enabling them to operate businesses in Mexico. Mexico’s legal system and tax laws for corporations do not discriminate between foreign business operators and Mexican National owned businesses.

Foreigners starting a business in Mexico should know the importance of hiring an experienced Mexican accounting adviser. It is well known that small companies, as well as the largest corporations, need an experienced accountant who can provide them with adequate advice regarding their financial, administrative and fiscal needs, to ensure they make the correct decisions concerning their financial and tax obligations in Mexico.

Many foreign entrepreneurs migrate to Mexico and operate a successful business. Mexico’s tax system is often complicated and different than other countries, and without professional advice, the business can run significant risks and therefore fail.

Failure to comply with legal and tax requirements may result in the closing of a business or the imposition of significant fines that affect the operation of the company. Such penalties can be avoided with a proper tax treatment and financial organization.

A professional accountant helps the entrepreneur plan and control the resources of the business, as well as finding the right tools for the fulfillment of his activities, to help minimize the risks, thus providing the possibility to grow and direct the company to greater success.

The main taxes that are payable in Mexico are those levied by the Federal Government, state, and municipal governments.

The principal tax obligations in business are as follows:

• Income tax (IT)
• Value-Added-Tax (VAT)
• IEPS is the special tax on products and services
• Social Security tax
• Property tax
• Payroll taxes

Paying less tax is achieved by understanding and claiming expenses which are considered deductible by the authorities. It is possible you are missing out on deductibles due to lack of information.

Requirements for an expense to be considered a deductible:

• Expenses which are strictly indispensable for the activity
• Expenditure which is intended to deduct must have a proper receipt (invoice).
• Invoices must have the necessary requirements (RFC, name, and address)
• Expense must be paid by the company or taxpayer’s bank account   
• If an invoice was paid in cash, it should not be more than 2,000.00 pesos.

Other expenses which are considered acceptable deductions depending on the activity of the company and the proper invoices, these expenses may be deductible.

• Furniture
• Office supplies, electronics, and computers.
• Predial:  property tax
• Maintenance and Repairs
• Business cards and marketing.
• Vehicle is deductible up to 175 thousand pesos and will depreciate 25% each year.  You may also deduct the expenses, such as fuel, spare parts, maintenance, and accessories.
• Domains, hosting and web advertising
• Software licensing
• Advisory tax and accounting service: MexTax will provide an invoice which is 100% deductible for accounting or consulting services.
• Legal Advice: Legal advice is imperative to a business owner. These fees are also 100% deductible.
• Tuition fees
• Payroll: provided it complies with the additional fees of IMSS, INFONAVIT, and retention.
• Employee expenses: deductibles include employee expenses, such as uniforms, dining, transport service, and additional benefits.
• Employee training
• Interest on loans and bank fees
• Travel expenses
• Shipping costs, depending on the activity of the company
• Utilities,  including phone service and cellular
• Rental: If you rent a commercial space for the business, it is 100% deductible.
• Insurance: Insurance premiums of all movable and immovable property (car, home, business, building, etc.) are detectable.
• Tax contributions: Must not exceed 7% of the tax revenue. If your activity is based on the income of rental properties, as an individual, you have the option to deduct 35% of the total revenue, without any proof.

Be aware these types of expenditures can NOT be declared as company expenses:

• Personal expenses, groceries, entertainment, and clothing.
• Any payments made through the company bank account without an invoice
• Payments made in cash by over 2.000,00 pesos
• Invoice with incorrect tax information (name, RFC, and address)

Contact us to set up your Mexican corporation.

Contact the accounting team at MexTax to find out how we can help your business save money and comply with Mexico’s tax regulations.