Understand Mexico: Corporate Taxes in Mexico

Mexican Taxation

6.9% or 6.5% corporate tax rate, which to choose from? How does a company deduct this from its US Corporate Tax rates?
Maquiladora operations are generally exempt from Mexican Corporate income tax (28%) so long as the Maquiladora is in compliance with Mexican laws governing transfer pricing. A maquiladora has two options when it comes to Mexican taxation

Safe Harbor

Under the Safe Harbor arrangement a maquiladora operation is responsible for paying either:

• 6.9 percent of the value of the assets owned by the maquiladora and the foreign principal used in the maquila activity

• 6.5 percent of the operating costs and expenses incurred in Mexico in the maquiladora operation, including certain costs and expenses of the foreign principal.

Transfer Pricing Study

Alternatively a maquiladora may create a transfer pricing aggrement under the guidelines of The Organization of Economic Co-Operation and Development (OECD) which must consider either:

• The maquiladora operation in Mexico, plus 1% of the net book value of the foreign owned machinery and equipment located in Mexico and used in the activity

• The return of investment expected from the maquiladora operation in Mexico in comparable transactions, considering in addition to the assets owned by the Mexican company, any foreign-owned assets.

It should be noted that any taxes paid in Mexico can be used as credits against the US Corporate taxes a company pays.

See also: Mexico - Shelter Services