46. For the purposes of this report a foreign enterprise may be defined as one belonging to a company organised under the law of a foreign country, to a partnership organised in a foreign country, or to an alien individual domiciled in a foreign country.1 The concept of the real centre of management is unknown in Mexican law. Consequently, if a company organised under the law of a foreign country had, in fact, its real centre of management in Mexico, it would nevertheless be treated as a foreign enterprise.


47. A foreign enterprise is taxable on income from sources of wealth situated in Mexico, and on income from transactions realised in Mexico. The liability is incurred if the foreign enterprise has a permanent establishment in Mexico, or even if it realises casual transactions in Mexico. For casual transactions, the law authorises a flat rate of tax applicable to each transaction. The question as to whether a foreign enterprise has a permanent establishment in Mexico is important in connection with the method of collecting tax under the fourth schedule. If the foreign enterprise receives directly interest of any kind, for example on bonds or unsecured loans, the debtor is required to withhold the tax. On the other hand, if such income is payable to the local establishment of the foreign enterprise, and if such establishment declares the income and pays the tax, the debtor is not required to deduct the tax.


(a) Dividends

48. The profits of a Mexican company being taxed as such, no tax is imposed on dividends when distributed, and the foreign enterprise receiving them is not liable to any tax in their respect.

(b) Interest

49. Interest on bonds and loans, secured or unsecured, is taxable under the fourth schedule, the tax being withheld by the debtor when paid to the foreign enterprise which has no permanent establishment in Mexico. If the interest is paid to a local establishment of the foreign enterprise, tax is not withheld, provided the local establishment declares the income and pays the tax.

(c) Directors’ Percentages (Tantièmes)

50. The allotment of profits to directors is not taxed as such, but is included in the taxable income of the company.

(d) Royalties for Use of Patents, Copyrights, Trade-marks, Secret Processes and Formulæ, and Similar Income

51. Such income is taxable under the fourth schedule, in the same manner as interest.

(e) Rents from Real Estate, Mining Royalties and Similar Income

52. Rents from real estate are not subject to the income tax, the real estate itself being subject to local property taxes imposed by the States and municipalities.

53. Mining royalties are taxable under the fifth schedule, the tax being withheld by the debtor.

(f) Gain derived from the Purchase and Sale of Real Estate, Securities and Personal Property

54. If a foreign enterprise is engaged in the business of dealing in real estate, securities, or other kinds of property, it is liable to tax even on a single transaction, provided it is an act of commerce as defined in the Commercial Code. In practice, however, the foreign enterprise which bought and sold in Mexico real estate or securities would probably not be assessed to tax unless it did so through a local establishment. The purchase and sale of personal property in Mexico is subject to Article 12 of the Law, which states that the taxable profits obtained from even an occasional act of commerce are subject to a flat rate (see Schedule 1). No tax is levied if it is not an act of commerce — i.e., if the sale is not made for the purpose of gain.

(g) Salaries, Wages, Commissions and Other Remunerations for Services

55. Such income is taxable under Schedule 6. If the foreign enterprise sends employees or officials to Mexico, they are taxable on their remuneration from the time of their arrival. A local establishment of the foreign enterprise is required to deduct wages or salaries paid to employees or workers, declaring the same and remitting the withheld amount monthly to the tax office. Salaries paid in foreign money are reduced to Mexican money for tax purposes at the official rate of exchange in force on the date of payment.

(h) Income from a Trust

56. The trust as known in Anglo-Saxon law does not exist in Mexico.

(i) Income from carrying on a Business or Industry

57. A foreign enterprise is taxable on income from transactions realised in Mexico, whether the transactions are occasional or are carried out regularly through an agent or Mexican establishment belonging to the foreign enterprise. The test of liability is therefore whether or not the transaction has been realised in Mexico. In the practice of the administration and in the unpublished jurisprudence of the Board of Revision, the realisation of a transaction is generally interpreted as meaning the delivery of the merchandise and the payment of the price, rather than the conclusion of the contract regarding such sale and payment. In consonance with this theory, if the foreign enterprise, in pursuance of a contract for the sale of goods to a Mexican customer, makes delivery abroad, for example, ships f.o.b. foreign port, and receives payment abroad, the foreign enterprise would not incur liability, even though the sales contract were closed by a travelling representative in Mexico, or even by an agent in Mexico whose power is limited to forwarding orders for merchandise, or even closing contracts for the sale thereof.

58. The attitude of the administration has been explained in a circular which states that, if a foreign enterprise has in Mexico a representative or agent but maintains no stock of merchandise in Mexico and only sells from merchandise kept abroad and which will be delivered abroad to the customer, the foreign enterprise will not be taxable on the profits from the sale brought about through the medium of the agent or representative. The latter is, however, taxable on his commissions or other income (see paragraph 13).

59. In the light of these principles, as a general rule, a foreign enterprise will not be held liable to the Mexican income tax if it markets its products through:

60. On the other hand, liability will be encountered if a foreign enterprise markets its products through:


61. For the purposes of this report, a national enterprise may be defined as one belonging to a company or partnership organised in Mexico or belonging to Mexican citizens.

62. A national enterprise is taxable in respect of income from all sources, domestic and foreign. If a Mexican enterprise has a branch in a foreign country, the tax paid on its income derived therein may be deducted from the gross income of the Mexican enterprise.

63. The general principle enunciated above, which is contained in Article 1 of the Law, may be supplemented by Article 20 (VIII), regarding the fourth schedular tax, which holds taxable income from shares and participations of any kind in companies or partnerships, as well as interest on bonds or any other investments in foreign enterprises which are not themselves subject to the Mexican law. National enterprises which, beside their principal business, invest in bonds, shares or other securities, must make, not only the usual declaration of profits, but also a special declaration of income from transactions in such securities (Reg., Article 38).