Fiscal Policy

The Mexican tax system has recently undergone a comprehensive inspection. New
legislation enacted in recent years has dramatically changed the tax system, making it
competitive with those of Mexico's major trading and investment partners.
Mexico's tax legislation includes specific taxes on income, capital, commercial transactions
and contracts or agreements. Since 1986, tax legislation has been revised in order to place it
on the same footing as that of most industrialized nations. As of 1991, corporate income tax
is down to 34.0%. Taxpayers must apply for a federal registration number. Both,
subsidiaries or branches of foreign corporations are subject to taxes the same way as
Mexican owned corporations, and no further tax is imposed on income already subjected to
corporate income tax.
1. Corporate Income Tax: Under the Mexican Income Tax Law (LISR), a Mexican
corporation is subject to corporate tax in Mexico on its worldwide net income at a rate of
34%.
2. Withholding Tax Dividends: Dividends distributed to a foreign corporation are not
subject to withholding tax if distributed from the company's 'net after-tax profit account'.
The 'net after-tax profit account' is comprised of the company's net after tax profit for each
fiscal year, plus the dividends received by the company from other companies resident in
Mexico, minus the dividends distributed in cash or in-kind from that account. The net aftertax profit for a fiscal year is the amount that results from subtracting the company's taxable
income for the year: (i) the worker's participation in the profits of the company, (ii) the
company's income tax liability, and (iii) its nondeductible expenses.
3. Other Withholding Taxes: Royalties, license fees or other compensation paid by a
Mexican licensee to a nonresident for unpatented technology of trademarks are subject to a
withholding tax at a rate of 35%. When royalties arising under the same contract are paid
for both patented and unpatented technology, the withholding tax rate will be 15%
Mexico enjoys low inflation (2.5% in 2013) and macro-economic stability but its real GDP
growth rate, which has averaged about 2.75% a year for the past 20 years, has been
sluggish. Economic growth rebounded in the post-financial crisis (annual average growth
was at 4.3 percent between 2010 and 2012) and reached 1.1% in 2013. The budget deficit
is projected to rise to 1.5% of GDP in 2014 and total public borrowing, (which includes
investment in Pemex, the state oil company) could reach 4.1%, which is considered high
for a non-crisis year. Since a new administration came into power in December 2012, the
government has been implementing overall structural reforms, particularly in the energy
sector, which are expected to boost growth.
A Fiscal Responsibility Law has provided the overall framework for fiscal policy in Mexico
since 2006. It was amended in 2011 to require the government to commit to limit the

growth in public spending and keep within a target for the Public Sector Borrowing
Requirement (PSBR) in order to keep public debt manageable. In October 2013, Congress
approved a tax reform to boost tax revenues by 2.0 percent of GDP by 2018.
http://www.greenfiscalpolicy.org/countries/mexico/
http://www.economiasnci.gob.mx/sic_php/pages/canada/invierte/doing_business/fiscal_policy.htm