Doing Business

Doing Business in Mexico 2015

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129 Doing Business in Mexico 2015 Territoriality Domestic taxpayers (both corporations and individuals) are taxed on worldwide income from all sources unless specifically exempt, with a limited foreign tax credit for foreign taxes paid on foreign-source income. Permanent establishments of foreign entities are generally subject to tax only on income attributable to such establishments in Mexico. Gross income Accounting period Taxpayers are required to use the calendar year for income tax purposes. Newly formed corporations will have a short taxable year from the date of incorporation to December 31 of that year. Similarly, existing corporations will have a short taxable year in the year in which liquidation procedures commence. Accounting methods A modified accrual basis of accounting is required of all business taxpayers for income tax purposes. In the case of sales of goods or services, revenues should be recognized for income tax purposes in their entirety in any of the following situations (whichever occurs first). • When a document (invoice, receipt, etc.) is issued that supports the agreed price or remuneration. • When the goods are physically shipped or delivered, or when the services are rendered. • When the price or payment becomes legally due or payable, or is received in whole or in part, even if it is considered an advance. The revenues of civil entities rendering professional services (e.g., legal, accounting, medical, engineering, or architectural firms) are not recognized until collected. A special system is available to determine taxable income for taxpayers in certain industries (among others, farming, fishing, livestock breeding, or timber activities. Financial leases Financial or capital lease contracts are considered as a sale by the lessor. Consequently, the lessor is not entitled to depreciate assets covered by these contracts. For income tax purposes, a financial lease exists when a person is obligated to provide to another the temporary use of tangible goods on a fixed term and the latter is obligated to pay several instalments as the price of the good, which amount covers the acquisition cost of the goods, the financial charges and other payments and to elect at the end of the lease term, one of the following options, as stated in the General Law on Auxiliary Credit Organizations and Activities: • The purchase of the goods at a price lower than the acquisition value. • Extend the financial lease contract at a lower price. • Participate with the lessor in the sale of the goods to a third party. • A written contract must exist specifying the value of the asset and the interest rate or the method for determining such interest rate. 15

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