1. The income tax of Mexico is imposed by the Federal Government, and, although at the present time it yields less than one-tenth of the federal revenue,2 it is expected that, in the future, its importance will increase. Preparations are being made for an agreement between the Federal Government and the various States concerning the fiscal jurisdiction of each, but it is expected that the income tax will remain exclusively a federal levy, whereas the States will be restricted to taxes primarily on property.

2. The income tax is imposed by the Law of March 31st, 1925, as amended, and has been interpreted by Regulations issued and amended from time to time, and also by circulars.3 The underlying principles of the tax are that Mexicans, wherever domiciled, are taxable on their total profits and income from all sources, whereas foreigners, whether domiciled in Mexico or abroad, are taxable only in respect of income from sources situated or transactions realised in the territory of the Republic. Companies and corporations of all kinds and estates are taxable in accordance with the foregoing principles. For example, a company organised under Mexican law is taxable on its total income from all sources, whereas a company organised under the law of a foreign country, even though it is domiciled through having its real centre of management in Mexico, is taxable only on income from Mexican sources.

3. The application of these principles in Mexico differs from their application in other countries. Mexico holds its citizens and companies organised within its territory fully liable to tax, even though the domicile of the taxpayer is in a foreign country. The State, however, allows its citizens domiciled in a foreign country to deduct from the tax owed to Mexico the tax payable on total income to the country in which he resides. Foreigners, including companies organised in foreign countries, even if domiciled in Mexico, are taxed in accordance with the principle underlying pure schedular taxes — that is to say, only on defined local sources of income.

4. Subject to these fundamental principles, the tax is imposed under seven schedules in the Income-Tax Act which are similar to the schedules in the British Income-Tax Act, in that they contain special rules for taxing income from a specified source. The schedules are described in the Regulations as follows: Schedule 1, Commerce; Schedule 2, Industry; Schedule 3, Agriculture; Schedule 4, Credits (Créditos); Schedule 5, Participations in Concessions; Schedule 6, Wages, Salaries and Emoluments; Schedule 7, Professions. The character of the rate of tax — i.e., whether flat or progressive, varies with the schedule. Thus commerce and agriculture are subject to progressive rates, credits and participations in concessions to flat rates, salaries and professional income to progressive rates (see Annex).

5. The Mexican income tax has been described as being essentially democratic in character, in that the assessments are made by an Assessment Board (Junta calificadora), which is attached to each of the sixty-one tax offices situated in as many districts throughout the territory of the Republic. The Assessment Board in Mexico City is composed of five members, of whom three are permanent officials and the two others are representatives of the taxpayers. Thus two business men serve in assessing taxpayers under the first schedule, two industrialists in making assessments under the second, two agriculturists in making assessments under the third schedule, two bankers in assessing taxpayers subject to the fourth and fifth schedules, and two professional men in assessing tax under the seventh schedule. In the last-mentioned case, the assessment of a man of a given profession is made by other men of the same profession. In the districts outside the capital of Mexico, the assessment board is made up of two permanent officials and one representative of the taxpayers, the last-mentioned being of the same category as the assessee. Similarly, the Board of Revision, to which taxpayers may bring an appeal against their assessment within twenty days, consists of three Government officials and two representatives of the taxpayers, the last-mentioned being named in accordance with the rules applying to the selection of taxpayers as members of the Assessment Board.

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6. Mexican citizens are taxable in accordance with the principle of nationality and are therefore liable, whether domiciled in Mexico or abroad, in respect of their total income from all sources, Mexican or foreign.

7. Aliens, regardless of where they reside, are taxed only on income from sources of wealth situated or transactions realised in Mexican territory (Law, Article 1).


8. A partnership (sociedad in nombre collectivo) is taxed in the same manner as a corporation, and the partners are not taxed in regard to their distributive shares.


9. Companies, including corporations (sociedades anonimas), like individuals are taxable on their total income from all sources if they are organised in Mexico, but are taxable only on income from sources of wealth situated, or from transactions realised, in Mexico if they have been organised under the law of a foreign country. This rule applies regardless of where the company may have its real centre of management or where it may be domiciled or resident in accordance with the law of a foreign country.


10. Income derived from a source of wealth described in one or another of the seven schedules is either national or foreign according to the situation of its source or to the place where a business transaction is realised. In the case of a business enterprise, the income is definitely Mexican if derived through the activities of a permanent establishment in Mexico. Income from transactions which are casual or are not effected through a permanent establishment will, as a general rule, be regarded as taxable if the transaction was realised in Mexico — that is to say, if the contract was carried out in Mexico. If the contract involved the sale of goods, liability would be incurred if delivery of the goods and the payment therefor were effected in Mexico. The place where the contract was concluded is of secondary importance.


11. For the purposes of assessment, the taxpayer must file a declaration, but the requirements as to filing and the computation of the taxable income differ under the various schedules. Although required to file declarations, business men, industrialists and agriculturists are not required to pay income tax if their annual income does not exceed 10,000 pesos.

12. For the purposes of the law, the term “income” (ingreso) means every receipt in cash, in valuables or in credit which, under any of the provisions of the law, modifies the wealth of the taxpayer and is susceptible of being used by him without any obligation to return its value. The term “income” does not include receipts in the form of new acquisitions of capital, provided these acquisitions do not proceed from profits obtained in the year of taxation.

Schedule I. — Commerce

13. This schedule includes taxpayers which habitually or occasionally perform acts of commerce (Law, Articles 6 to 13). To clarify this rule, the administration issued a circular which states that foreign enterprises not maintaining stocks of merchandise in Mexico but effecting, through agents or representatives in Mexico, sales of merchandise situated abroad to be delivered abroad to the purchaser are not subject to tax on income derived from such transactions. The representative or agent in Mexico, however, is taxable on his commission, brokerage or other remuneration under this schedule (Circular No. 14, of August 24th, 1925; JIMENEZ, page 158).

14. The tax is computed on the difference between the items of income received by the taxpayer and the expenses, deductions and allowances for amortisation or depreciation pertaining exclusively to the enterprise authorised by the Regulations.

15. Taxpayers engaged in commerce, deriving an income greater than 100,000 pesos, must present at the tax office of the jurisdiction in which they are domiciled or have their principal establishment in Mexico a final return within three months following the date on which they close their annual accounts. If the annual income is 100,000 pesos or less, they will submit biennial declarations during the month of January of even years (pares). The declaration must be accompanied by the following documents:

16. In the returns, the taxpayers will give assurance that the information contained in the summary corresponds exactly to the entries in their books of account and to the documents used in making up the books, and that they have taken exact note of all the stocks and that all the costs are calculated in accordance with the Regulations.

17. Companies must deliver to the local tax office, once only, a résumé of the data required by paragraphs I to VIII of Article 95 of the Commercial Code. Companies engaged in insurance, bonding or banking, and other companies with a share capital must present a copy of their general balance-sheet and a profit-and-loss statement, as of the close of the period included in the return.

18. Allowable Deductions. — To compute the taxable profit, Article 28 of the Regulations provides that, from the gross income of the period included in the declaration, the following amounts may be deducted:

The agents or representatives of foreign enterprises which are engaged exclusively in the purchase of goods for exportation must declare the total amount of their purchases. Similarly, the travelling salesmen, commission agents or employees of foreign companies must declare the total amount of sales made through them. For this purpose, they must keep a special book of orders in which will be noted in chronological order the operations made through them, a description of the merchandise sold, the sales price, the name and domicile of the purchaser and the number of the invoice, if any. They will keep their correspondence in accordance with the requirements of the Commercial Code.

Schedule 2. — Industry

19. This schedule includes taxpayers engaged in any kind of an industrial enterprise. This schedule also applies if the owner of a mining concession exploits the mine himself (Circular No. 21-11-125 of April 1st, 1929; JIMENEZ, page 267). The taxable income is computed in accordance with the rules applicable to the commercial enterprises under Schedule 1, and the requirements concerning the declaration and supporting documents are the same.

20. Allowable Deductions. — From the total gross income received during the period for which the declaration is made, the following items are deductible:

Schedule 3. — Agriculture

21. This schedule applies to taxpayers engaged in any kind of agriculture. The net income is computed in accordance with the rules applicable to commerce in Schedule 1.

Schedule 4. — Credits

22. The taxpayers included in this schedule are those who normally or occasionally receive the following items of income:

23. Exemptions. — The following, however, are excluded from liability:

24. Allowable Deductions. — The tax is imposed on the gross amount of the income included under this schedule except that, in the case of leasing commercial, industrial or agricultural enterprises, the taxpayer may deduct from the leasing value the allowable deductions for amortisation or depreciation for the leasing of real or personal property.

25. Payment of Tax. — The tax must be paid by the creditor, and any agreement to the contrary is void. The creditor who receives interest on a loan, represented by a public instrument, or which is payable at a fixed period greater than one year must give a stamped receipt in duplicate of the amount received, and must file, in the months of January and July, a statement of the interest obtained in the preceding half-year, together with a copy of each of the contracts and of the receipts given.

26. If the loan is for a year or less, and is represented by a private document, the tax is paid by cancelling stamps on the same document. If the creditor extends the term of the loan for a year or less, the tax is paid by cancelling stamps on the same document. If the loan is for an indefinite time, the creditor will stamp the document for an amount equal to the tax corresponding to the interest of a half-year, and if the loan continues beyond this time without a new document being made, the tax is payable by stamping within the first fifteen days from the beginning of each new half-year.

27. If the document representing a loan does not specify the rate of interest payable, or indicates a rate lower than 6 per cent or states that the creditor will receive no interest, the tax will be computed at the rate of 6 per cent annually on the capital. Exceptions to this rule include deposits made to guarantee contracts, provided no interest is payable thereon, deposits made in courts and those made in the Treasury of the Federal Government, of the States and of the municipalities. In the case of Mexican and foreign bonds, and bonds issued by banks and by public service enterprises and bearer bonds issued in conformity with the law on companies, the agreed interest serves as basis for the tax.

28. In the case of current accounts, the tax is calculated on the interest due half-yearly, or for the period of less than a half-year that the account has run. If the debtor credits interest to the account of the creditor, he must send him a notice and cancel affixed stamps to the value of the tax. This rule applies in the case of interest on current accounts, the tax being retained by the debtor.

29. When the taxpayer resides abroad, the debtor will retain the amount of the tax and deliver it to the Public Treasury, except that public service enterprises and those whose debts are guaranteed by the Federal Government may obtain an exemption from this obligation if they prove to the Finance Department that, in accordance with contracts concluded abroad and because of their economic situation or other reasons of this character, they are not in a position to effect the withholding; in this case, however, such interest may not be deducted in computing the taxable profits (Reg., Article 52).

30. Credit institutions, banking companies, exchange and stock brokers who make payments for the account of others or receive, on commission for collection, coupons, dividends, bonds or any other instrument of credit, are required to retain the tax and are jointly liable with the recipient for the payment.

Schedule 5. — Participations in Concessions

31. This schedule applies to the following taxpayers (Law, Articles 26 and 27):

32. The tax is levied on the gross income at the rate of 10 per cent. Taxpayers included in paragraphs (b) and (c) above pay the tax rate of 10 per cent on the excess of the transfer price over the price of the concession or the rights of exploitation.

Schedule 6. — Wages and Salaries

33. This schedule applies to taxpayers who, regularly or occasionally, receive wages, salaries or any other form of compensation for their personal services (Law, Articles 28 to 30). Salaries paid by foreign Governments to diplomats, consuls and other official representatives are exempt. The tax is levied on total monthly income less certain allowances for dependents: taxpayers resident in the Republic are allowed to deduct for one dependent, 20 pesos; for two, 25 pesos; for three, 30 pesos; for four or more, 35 pesos. Taxpayers residing in the Federal District, in the cities near the United States, in Tampico, Vera Cruz, Tuxpan, Progreso, Merida and certain other neighbouring places, as well as those residing abroad are granted higher allowances for dependents, as follows: for one, 40 pesos; for two, 50 pesos; for three, 60 pesos; for four, 70 pesos.

Schedule 7. — Professions

34. This schedule applies to the following:

Allowable Deductions. — The net income is computed by deducting from gross income the following:



35. The tax is assessed directly against the taxpayer who is engaged in commerce, industry, agriculture or a profession (Schedules 1, 2, 3 and 7). Likewise taxpayers receiving at their domicile or establishment in Mexico interest (Schedule 4), royalties or other income from the exploitation of the subsoil or concessions granted by the Federal Government, the States or the municipalities (Schedule 5) must pay the tax direct. The payment of tax is effected, to a certain extent, at the same time as the return is made.

36. Taxpayers engaged in commerce, industry or agriculture (Schedules 1, 2 and 3) must make a provisional return of their probable taxable profits and pay tax on this amount within the seventh month from the beginning of the accounting period which will serve as a basis in making their final return. The tax on the provisionally declared income is computed by first calculating the percentage of taxable profit according to the previous definitive return to the total gross income in said return, and applying this percentage to the total gross income of the first six months covered in the provisional return.

37. From the amount of the tax payable on the basis of the definitive return, there is deducted the amount paid on the provisional return. If the provisional tax exceeds the amount of definitive tax owed, the excess will be reimbursed to the taxpayer.

Definitive returns are made by taxpayers to the local tax offices in the districts where they have their domicile or principal establishment in Mexico, as follows:

38. The returns are signed by the taxpayer or his authorised representative. Taxpayers engaged in commerce, industry or agriculture receiving income from two or more businesses included in the same schedule will make respective returns comprising the total of the income received through said businesses. If an enterprise has various branches, it must declare the total income of the enterprise at the tax office situated in the district of the head office of the enterprise.

39. When several companies have a distinct legal entity but carry on business relations in such a way that they merge their accounting, their management, and carry out their transactions in common, they may make, provided previous notice is given to the Finance Department, returns of the total income received from such companies; but, once this form of return has been adopted, they cannot modify it without the previous permission of the Finance Department.

40. No final return may include a period greater than twelve months. Taxpayers must notify the local tax office within ten days when they begin business, change the purpose of their business, their name, company name, domicile, or alter the capital of the company.

41. The tax is paid by cancelling stamps affixed to the declarations, receipts or pertinent documents. The tax may also be paid in cash or drafts or certified cheques.


42. Tax is paid by withholding at the source under Schedule 4 when interest is paid to a creditor who does not himself acquit the tax, and, in any event, when the creditor is outside Mexico; under Schedule 5, when the recipient of mining royalties or similar income is outside Mexico; and under Schedule 5, whenever an employer in Mexico pays wages, salaries, etc. The taxpayers who retain any amount of tax must make a monthly return of the amounts withheld, indicating the schedule under which it was withheld, and will pay the tax as previously described.

43. The following are required to withhold the tax, and are jointly liable with the taxpayers for its payment:


44. The return of income submitted to the local tax office1 is referred to a Board of Assessment (Junta calificadora) attached to the tax office (see paragraph 5). The Board of Assessment may require of the taxpayer whatever data it may consider necessary in making the assessment, and it must make the assessment within one year after the taxpayer has submitted his return.


45. If the taxpayer wishes to contest the assessment, he may, within twenty days, appeal to the Board of Revision. On the other hand, the Income-Tax Department of the Finance Ministry may appeal against the assessment fixed by the Board of Assessment to the Board of Revision (see paragraph 5). The decision of the Board of Revision is final.