Taxes in Mexico: How Foreign Companies Are Taxed

Mexico’s headline business tax rates held steady into 2026 while enforcement tightened. Deloitte’s Mexico Highlights 2026 lists the corporate income tax at 30%, and the firm’s analysis of the 2026 Economic Package identified changes concentrated in the Federal Tax Code (Código Fiscal de la Federación) and excise taxes. The standard value-added tax remains 16%.

Taxes in Mexico for a foreign company consist of a 30% corporate income tax, a 16% value-added tax with a 0% rate on exports, and employer social security contributions, plus state payroll and municipal property taxes. The sections below cover how each tax works, who collects it, which incentives reduce it and what a manufacturing operation should budget for.

Mexico taxes businesses at three levels of government, and the federal government levies the main taxes on profits and consumption. Congress sets the federal taxes: income tax (Impuesto sobre la Renta, ISR), value-added tax (Impuesto al Valor Agregado, IVA) and the Special Tax on Production and Services (Impuesto Especial sobre Producción y Servicios, IEPS). States levy a payroll tax (Impuesto sobre Nómina, ISN), and some states also charge a vehicle ownership tax called tenencia. Municipalities tax real estate ownership and property transfers.

The Tax Administration Service (Servicio de Administración Tributaria, SAT) collects federal taxes and reports to the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público). SAT issues the Federal Taxpayer Registry number (Registro Federal de Contribuyentes, RFC), runs the electronic invoicing system, audits taxpayers and processes IVA refunds. State finance offices collect payroll tax, and municipal treasuries collect property taxes.

Federal rates as of 2026. Validate state and municipal rates for the specific city and property before building a budget.

Two of the three levels vary by location, which makes site selection a tax decision as well as an operational one. Federal rates apply nationwide; border municipalities can access stimulus decrees. Payroll and property taxes change from one state and municipality to the next, and both recur every year the plant operates.

Foreign companies in Mexico pay the same 30% income tax and 16% IVA as domestic firms once they operate through a Mexican subsidiary or a permanent establishment (PE). Without either, Mexico taxes their Mexican-source income through withholding at the moment of payment. A subsidiary is a Mexican resident and files on its own profits. A PE pays ISR at 30% on the income attributable to it, according to Deloitte’s Mexico Highlights 2026.

Cross-border payments from the Mexican operation to its foreign parent create a second layer of tax. Each payment type carries its own withholding and deductibility rules:

For US parents, the US–Mexico income tax treaty sets reduced withholding rates, defines what counts as a PE and supports foreign tax credits at home. Mexico’s investment incentives do not override treaty rules. Incentive modeling and treaty planning therefore belong in the same financial model.

Legal structure determines who carries these obligations. A company that incorporates its own Mexican entity holds the RFC, files every return and answers SAT audits directly. Under a shelter program, the provider’s Mexican entity acts as legal entity and employer of record while the foreign company keeps control of production. American Industries Group, which operates a shelter program, has more than five decades of operational experience supporting over 300 foreign manufacturers across 17 industrial parks and 10 operating regions.

Mexico’s income tax applies to both companies and individuals: the corporate tax rate is a flat 30% of taxable profit, and individual rates rise progressively to 35% at the top bracket in 2026. The Income Tax Law (Ley del Impuesto sobre la Renta) sets both scales. Deloitte’s Mexico Highlights 2026 lists the corporate rate at 30%, and PwC’s Worldwide Tax Summaries for the 2026 tax year list the 35% top individual rate.

Profit sharing raises the cost of earning a peso of profit above the statutory rate. Mexican labor law requires employers to distribute 10% of taxable income to employees through profit sharing (Participación de los Trabajadores en las Utilidades, PTU). Profits sent to a foreign parent then face dividend withholding on top of ISR.

Stacked together, the two taxes work like this: on MXN 100 of taxable profit, ISR takes MXN 30, and a 10% withholding on the remaining MXN 70 distributed abroad takes MXN 7 more, a combined 37% before treaty relief or foreign tax credits. PTU is a separate obligation, calculated as 10% of taxable income and paid to employees.

Deductions reduce taxable profit, and documentation decides which deductions survive an audit. Article 27 of the Income Tax Law requires every deductible expense to be backed by a fiscal receipt, the electronic invoice known as CFDI (Comprobante Fiscal Digital por Internet). The same article allows salaries to be deducted only when payroll is supported by CFDIs, the employer withholds its employees’ ISR and the workers are registered with the social security institute (IMSS). PwC’s Worldwide Tax Summaries (2026) describe two more limits that matter to a new plant: interest is deductible within thin capitalization rules based on a 3:1 debt-to-equity ratio, with a further cap at 30% of adjusted taxable profit for companies whose interest exceeds MXN 20 million, and operating losses can be carried forward for ten years. Related-party charges also need arm’s length support.

Deloitte’s analysis of the 2026 Economic Package identified reforms to the Federal Tax Code alongside IEPS changes. EY’s 2025 review of the package pointed to stronger audit powers for the tax authorities and measures against invoice-mill schemes. A foreign subsidiary can respond by putting intercompany charges, royalties and IVA credits through the same internal review SAT would apply.

Mexico offers tax incentives to manufacturers through three national programs: the Plan México investment decree, the IMMEX (Industria Manufacturera, Maquiladora y de Servicios de Exportación) program for temporary imports used in export production and the Sectoral Promotion Programs (Programas de Promoción Sectorial, PROSEC). These programs stack. A plant can combine customs advantages with income tax deductions when its structure and activity qualify.

According to the US Department of State’s 2025 Investment Climate Statement, Plan México’s investment decree took effect on 22 January 2025 and runs through 30 September 2030. It grants an immediate deduction for qualifying new fixed assets and, as EY’s 2025 tax alert on the decree details, an additional deduction equal to 25% of the increase in training or innovation spending. Immediate deduction rates vary by asset type and step down for investments made from 2027 through 2030.

Each benefit requires an application and proof that the asset qualifies. A 2025 analysis by the law firm Covington places the decree’s total fiscal cap at MXN 30 billion, with MXN 28.5 billion of it reserved for fixed-asset investment. Companies planning equipment purchases should treat application timing as part of the capital budget.

IMMEX remains the operating base for export manufacturing. According to the National Institute of Statistics and Geography (INEGI), IMMEX establishments employed 2,814,352 people in July 2026. Foreign capital keeps flowing in: the Ministry of Economy recorded USD 34.97 billion in foreign direct investment (FDI) in January–June 2026, after USD 40.87 billion in 2025.

Mexico’s IVA is a 16% value-added tax on most domestic sales of goods and services, with a 0% rate on exports and, in 2026, an effective 8% rate for eligible businesses in border municipalities. Each month, businesses charge IVA on sales, credit the IVA paid on purchases and remit the difference to SAT. The final consumer bears the tax, and the business acts as collector.

Exporters sit on the other side of that equation. Export sales carry 0% IVA while local purchases carry 16%, so an export plant tends to accumulate IVA credit balances. Recovering them requires a refund request backed by invoices, customs records and proof of payment. SAT reviews these files closely, and gaps in the file give it grounds to request more information before releasing cash.

Temporary imports under IMMEX raise the same issue at the border. PwC’s Worldwide Tax Summaries (2026) note that these imports are subject to the general 16% IVA rate, and IEPS also applies when the goods fall into an IEPS category. Under Article 28-A of the Value Added Tax Law and Article 15-A of the IEPS Law, companies holding SAT’s VAT/IEPS certification apply a tax credit equal to 100% of that tax, so the import clears customs without a cash outlay. To obtain the certification, a company must show SAT that it keeps adequate control of its temporary-import operations, and it must renew the certification every year; companies without it can post a bond instead.

For an export manufacturer, IVA’s main impact falls on working capital. Uncredited IVA on temporary imports or slow refunds on credit balances can tie up as much as 16% of the value of every input purchased.

IEPS is an excise tax on specific products, including fuel, alcohol, tobacco and sugary drinks. Deloitte’s analysis identified IEPS changes in the 2026 Economic Package. For most manufacturers, the effect is indirect, through inputs, packaging or services that fall into IEPS categories. Food and beverage producers face it directly in their pricing.

Businesses in designated northern and southern border municipalities can apply an effective 8% IVA rate, half the 16% standard rate, under a fiscal stimulus decree extended through 31 December 2026. The extension was published in the Diario Oficial de la Federación (DOF) on 31 December 2025. The statutory rate remains 16%; the decree grants a stimulus that cuts the effective rate in half. It applies only to taxpayers established in qualifying municipalities who register in SAT’s border registry and meet the decree’s conditions.

Eligibility under the IVA decree does not extend automatically to any other border tax treatment. A company should review each benefit separately, with its own eligibility tests and registration.

For an export manufacturer, the 8% rate matters less on sales, since exports already carry 0% IVA. Its effect appears on purchases from border suppliers and on any sales to the domestic market. Companies comparing border and interior sites should model both IVA scenarios against their actual mix of local purchases and domestic sales. For budgeting, the decree in force through 31 December 2026 is the reference point.

Payroll taxes in Mexico combine federal social security contributions, a state payroll tax and mandatory profit sharing. Under 2026 statutory parameters, an employer’s mandatory cost reaches 31.9% of the contribution base salary (salario base de cotización, SBC) for a worker earning about four times the UMA (Unidad de Medida y Actualización, the reference unit for social security contributions) in risk Class III. That total combines contributions to the Mexican Social Security Institute (IMSS), retirement accounts and the National Workers’ Housing Fund Institute (INFONAVIT), which alone takes 5 points, plus the amortized year-end bonus (aguinaldo, 15 days of salary) and the vacation premium (25% of vacation pay), as set by the Social Security, Federal Labor and INFONAVIT laws.

Figures reflect statutory parameters. Actual burden depends on wage level, risk classification and state, and should be validated with plant-level payroll data.

Occupational risk classification can materially raise IMSS costs for manufacturers. Two plants paying identical wages can carry different employer burdens when their risk premiums differ. Employers determine the premium each year based on their incident record and classification.

State payroll tax adds a location-specific layer, since each state sets its own rate on gross payroll. Under each state’s 2026 rules, the rate is 1.8% in Baja California, 3.0% in Guanajuato, Nuevo León, Querétaro and San Luis Potosí, and 4.0% in Chihuahua. Employers also withhold ISR from employee wages and remit it monthly. According to the National Minimum Wage Commission (CONASAMI), the general minimum wage is MXN 315.04 per day in 2026. At Banxico’s FIX rate of 17.1012 pesos per dollar for August 2026, that equals about $18.42.

Registration with SAT comes first: a Mexican entity needs an RFC before it can invoice, hire, import or open a bank account. Most foreign manufacturers follow this sequence:

Companies pay through SAT’s online platform and authorized banks, and nearly all filings are electronic. The practical workload lies in keeping accounting, electronic invoices and customs records for temporary imports consistent with one another. Discrepancies among them trigger IVA refund delays and audit questions. Late or inaccurate filings carry penalties, and IMMEX companies must renew their VAT/IEPS certification every year by showing SAT that they still meet its control requirements.

Mexico’s income tax and IVA rates are unchanged in 2026, so the decisions that change a company’s tax outcome sit in structure, incentives and documentation. The 30% rate is only the first line of the calculation. Effective cost depends on PTU, withholding, IVA cash flow, payroll charges and the incentives a plant can document.

Companies already operating in Mexico should review two items before year-end. First, confirm whether planned capital spending qualifies for Plan México’s accelerated deduction rates of 41%–91%, which step down to 35%–89% from 2027. Second, audit the IVA position: certification status for temporary imports, age of credit balances and the documentation behind pending refunds.

Companies evaluating Mexico should model taxes at the site level. Compare payroll and property taxes across candidate states and municipalities, and test border eligibility where it applies. Decide early between an own entity and a shelter program, since that choice determines who files and who answers audits. US parents should run the treaty analysis on dividends, interest and royalties alongside the incentive model.

Operations whose records already support every deduction, credit and refund they claim enter each audit cycle with less exposure. Building that discipline into the operating model from the first day costs less than reconstructing it during an audit.