Undoubtedly, the income tax in Mexico is the contribution that raises the country’s income the most. It’s enough to see the revenue laws that the Congress of the Union issues year after year to realize this. Therefore, it is unsurprising that the tax lawyers and accountants association concentrates its courses, talks, articles, and books on this issue.

Due to this importance, as part of the series on Mexican tax law that I started for the firm’s blog at belegalabogados.mx, in subsequent posts, I will study point by point what is related to Income Tax in Mexico. That is, from its general provisions to treating individuals and legal entities. I will group those future entries in this one so the reader goes to the topic needing an answer.

With this, our firm of lawyers and accountants (consider that this entry is just a translation from Spanish of the original one) reaffirms its commitment to not only defend the rights of our clients before the courts and advise them before the administrative authorities but also to promote legal knowledge in the channels at their disposal so that the taxpayer navigates the many, sometimes arid, paths of tax law.

That said, this and subsequent entries group the current tax information on Income Tax Law aimed purely at taxpayers. Therefore, experts in the field, such as accountants or lawyers, will find little information besides the basic information they already know. This is so since a more in-depth and theoretical treatment of both Income Tax Law and Mexican Tax Law will be the subject of a future book I’m drafting. For now, I only want to highlight what laymen should know about the Mexican income tax.

Without further ado, let’s start.

List of Contents

• 1) Regulations
• 2) Mandatory Payment and Tax Residence
• A) Concept of Permanent Establishment
• B) Equation of Permanent Establishment
• C) Permanent Establishment Exemption
• D) Permanent Establishment in Trusts Agreements
• E) Permanent Establishment of Insurance Companies
• F) Permanent Establishment in the Construction Industry
• G) Attribution of Income From a Permanent Establishment
• 3) International Treaties to Avoid Double Taxation
• 4) Foreign Entities
• A) What Is a Foreign Entity?
• B) Obligation of the Mexican Taxpayer to Pay For the Relation With Foreign Entities
• C) Presumption and Crediting
• D) Special Obligations
• 5) Special Definitions
• A) Legal Entity
• B) Stocks
• C) Shareholders
• D) Verified Cost
• E) Financial System
• F) Social Security
• G) Securities Depositories
• H) Interest
• 6) Adjustment or Updating of Asset Values
• 7) Crediting of Income Tax Paid Abroad
• A) Crediting of Legal Entities
• B) Crediting of Individuals
• C) Crediting for Dividends or Profits
• D) Currency Conversion
• E) Excess Creditable Tax
• F) No Right to Credit
• G) Supporting Documentation

Translation

This is a translation of my entry Estudio Práctico de la Ley del Impuesto Sobre la Renta.

Related Content

• Companies and Their Determination of Income Tax in Mexico

1) Regulations

It would seem like a truism to say that to understand the Income Tax in Mexico, only the Mexican Income Tax Law would have to be studied. However, given the diversity of topics and legal hypotheses, it will lead us to confirm that reading only the law will give us an incomplete overview of the matter. This is so because many topics were formulated by mathematicians, accountants, economists, financiers, and other professionals outside the legal area.

Therefore, due to the technicality of the matter, for the taxpayer to understand or at least try to understand the Income Tax in Mexico, it’s necessary to complement their study with various legal provisions of a general nature, such as the Regulations of the Mexican Income Tax Law and Miscellaneous Tax Resolution for Fiscal Year 2024 (which in any case updates every year) The latter provisions together with the law, which will serve as a guide for this and future entries.

2) Mandatory Payment and Tax Residence

Being consistent with the nature of a tax, which I detailed in the entries Contributions Contemplated in Mexico and Constitutional Principles of Taxes in Mexico, the regulations on Income Tax are clear in stating that individuals and legal entities shall be obliged to pay such tax in the following cases:

I.- Residents in Mexico with respect to all their income, regardless of the location of the source of wealth from which it comes.

II.- Residents abroad with a permanent establishment in Mexico, concerning the income attributed to said permanent establishment.

III.- Residents abroad regarding income from sources of wealth located in Mexico, when they do not have an establishment there or when having one, said income is not attributable to it.

A) Concept of Permanent Establishment

For tax purposes, a permanent establishment is considered any place of business in which business activities are carried out, partially or totally, or independent personal services are provided. Likewise, a permanent establishment shall be understood as, among others, branches, agencies, offices, factories, workshops, facilities, mines, quarries, or any place of exploration, extraction, or exploitation of natural resources.

B) Equation of Permanent Establishment

According to current regulations, when a foreign resident acts in Mexico through an individual or legal entity other than an independent agent, the foreign resident shall be considered to have a permanent establishment in Mexico about all the activities that said individual or legal entity performs for the foreign resident; even if it does not have a place of business in the national territory whenever if said person habitually concludes contracts or habitually plays the main role that leads to the conclusion of contracts entered into by the foreign resident and these:

I.- They are held in the name or on behalf of the foreign resident.

II.- Provide for the alienation of property rights or the granting of temporary use or enjoyment of an asset that the resident abroad possesses or over which he has the right of temporary use or enjoyment.

III.- Oblige the resident abroad to provide a service.

Likewise, a resident abroad shall be considered to have a permanent establishment in the country when he or she acts in the national territory through an individual or legal entity who is an independent agent if he or she does not act within the ordinary framework of his or her activity. For these purposes, it’s considered that an independent agent does not act in the ordinary framework of its activities, among others, when one of the following cases happens:

1.- Have stocks of goods or merchandise with which he makes deliveries on behalf of the resident abroad.

2.- Assume the risks of the resident abroad.

3.- Act subject to detailed instructions or general control of the resident abroad.

4.- Carry out activities that economically correspond to the resident abroad and not their own activities.

5.- Receive remuneration regardless of the results of their activities.

6.- Carry out operations with the resident abroad using prices or amounts of consideration different from those unrelated parties would have used in comparable operations.

Finally, it’s presumed that an individual or legal entity is not an independent agent when it acts exclusively or almost exclusively on behalf of residents abroad who are its related parties.

C) Permanent Establishment Exemption

For the purposes of the previous paragraph, it shall not be considered that there is a permanent establishment in Mexico in favor of a foreign resident when the activities carried out by an individual or legal entity are limited to auxiliary or preparatory concerning the resident’s business activity abroad.

For these purposes, it is considered that a permanent establishment is not constituted when the following activities are carried out:

I.- The use or maintenance of facilities to store or display goods or merchandise belonging to the resident abroad.

II.- The conservation of stocks of goods or merchandise belonging to the resident abroad for storing or displaying said goods or merchandise or for them to be transformed by another person.

III.- The use of a place of business for the sole purpose of purchasing goods or merchandise for the resident abroad.

IV.- The use of a business place to carry out propaganda activities, provide information, scientific research, prepare for the placement of loans, or other similar activities.

On the other hand, prior or auxiliary activities are not considered equal to the activities of the resident abroad unless said activities also have the nature of prior or auxiliary activities abroad. Management activities shall not be considered auxiliary activities.

V.- The fiscal deposit of goods or merchandise of a resident abroad in a general warehouse or the delivery of these for importation into the country.

The previous paragraph shall not be applicable when the resident abroad performs functions in one or more places of business in Mexico that are complementary as part of a cohesive business operation to those carried out by a permanent establishment that he has in the national territory or to those carried out in one or more places of business in national territory by a related party that is a resident in Mexico or a resident abroad with a permanent establishment in the country.

Nor shall paragraph V apply when the foreign resident or a related party has in national territory a place of business where complementary functions are developed that are part of a cohesive business operation but whose combination of activities results in no preparatory or auxiliary character.

D) Permanent Establishment in Trusts Agreements

In the event that a resident abroad carries out business activities in the country through a trust agreement, the place of business of said resident shall be considered the place in which the trustee carries out such activities and performs on behalf of the resident in the country foreigner with the tax obligations derived from these activities.

E) Permanent Establishment of Insurance Companies

Likewise, an insurance company resident abroad shall be considered a permanent establishment when it receives income from collecting premiums within the national territory or grants insurance against risks located there through a person other than an independent agent, except for reinsurance.

F) Permanent Establishment in the Construction Industry

In the case of construction, demolition, installation, maintenance, or assembly services in real estate, or for planning, inspection, or supervision activities related to them, it shall be considered that there is a permanent establishment only when they have a duration of more than 183 consecutive calendar days or not, in a period of 12 months.

The calculation of the days of duration of the construction services shall consider all the calendar days included between the beginning and the end of the services.

For the purposes of the previous paragraph, when the resident abroad subcontracts with other companies the services related to the construction of works, demolition, installations, maintenance, or assembly of real estate or for projection, inspection, or supervision activities related to them, the days used by subcontractors in the development of these activities shall be added, where appropriate, to the calculation of the aforementioned period.

On the other hand, to understand this section, the term construction of works includes foundations, structures, houses, and buildings in general, dirt roads, dams, industrial and electrical plants, warehouses, highways, bridges, paths, railways, dams, canals, gas pipelines, oil pipelines, aqueducts, well drilling, urbanization road works, drainage and clearing, ports, airports and similar, as well as the planning or demolition of real estate.

G) Attribution of Income From a Permanent Establishment

Income attributable to a permanent establishment in Mexico shall be considered income from the business activity carried out or income from fees and, in general, from the provision of an independent personal service, as well as income derived from the sale of merchandise or real estate in national territory carried out by the person’s central office, by another establishment of the person or directly by the resident abroad, as the case may be.

Income attributable to a permanent establishment in the country shall also be considered income obtained by the company’s central office or any of its establishments abroad, in the proportion in which said permanent establishment has participated in the expenditures incurred to obtain it.

3) International Treaties to Avoid Double Taxation

The benefits of international treaties to avoid double taxation shall only apply to taxpayers who prove they are residents in the country in question and comply with the treaty’s provisions and the other procedural provisions contained in the Income Tax Law, including presenting information on their tax situation in terms of article 32-H of the Federal Tax Code^[1] or, presenting the opinion of financial statements when you are obliged or have exercised the right to do so under article 32-A of the aforementioned code, and to designate a legal representative.

Furthermore, in the case of operations between related parties, the tax authorities may request the taxpayer residing abroad to prove the existence of legal double taxation through a statement under oath of telling the truth signed by his legal representative in which he expressly indicates that the income subject to taxation in Mexico and concerning which the benefits of the treaty are intended to be applied to avoid double taxation, are also taxed in your country of residence, for which you must indicate the applicable legal provisions, as well as that documentation that the taxpayer considers necessary for such purposes.

On the other hand, in cases where the treaties to avoid double taxation establish withholding rates lower than those indicated in the Income Tax Law, the withholder may apply the rates established in said treaties. If the withholder applies rates higher than those indicated in the treaties, the resident abroad shall have the right to request a refund for the corresponding difference.

Likewise, it’s important to mention that the certificates issued by foreign authorities to prove residency shall take effect without the need for legalization, and the authorized translation shall only be displayed when the tax authorities so require.

Also, taxpayers who wish to prove their tax residence in another country with which Mexico has concluded a treaty to avoid double taxation may do so through proof of previous residence or with documentation issued by the country’s competent authority in question, with which said taxpayers prove that they have submitted the tax return for the last year.

If the deadline for submitting the declaration for the last fiscal year has not expired at the time of proving your residence, the documentation issued by the competent authority of the country in question shall be accepted, which proves that you have submitted the tax declaration for the year. This is the penultimate exercise.

Finally, the aforementioned proofs of residence and documentation shall be valid in Mexico during the calendar year they are issued.

4) Foreign Entities

For the purposes of the Income Tax Law, transparent foreign tax entities and foreign legal entities, regardless of whether all or part of their members, partners, shareholders, or beneficiaries accumulate income in their country or jurisdiction of residence, shall be taxed as legal entities and shall be required to pay income tax under Title II, III, V or VI of the Income Tax Law.

A) What Is a Foreign Entity?

According to the Mexican Income Tax Law, foreign entities are companies and other entities created or established under foreign law, provided that they have their own legal personality and legal entities established under Mexican law that are resident abroad.

On the other hand, trusts, associations, investment funds, and any other similar legal entity under foreign law are considered to be foreign legal entities, provided that they do not have their own legal personality.

In addition, foreign entities and foreign legal entities are considered tax transparent when they are not tax residents for income tax purposes in the country or jurisdiction where they are established or where they have their principal business administration or effective management headquarters, and their income is attributed to their members, partners, shareholders, or beneficiaries. However, when they are considered tax residents in Mexico, they shall no longer be considered tax transparent for the purposes of the Income Tax Law.

The above provisions shall not apply to treaties to avoid double taxation, in which case the provisions contained in the same international treaties shall apply.

B) Obligation of the Mexican Taxpayer to Pay For the Relation With Foreign Entities

Residents in Mexico and residents abroad with a permanent establishment in the country for the income attributable to it are obliged to pay the tax under the Income Tax Law for the income they obtain through tax-transparent foreign entities in the proportion corresponding to them for their participation in them.

However, in cases where the foreign entity is partially transparent, taxpayers shall only accumulate the income attributed to them. To determine the amount of the indicated income, the fiscal profit of the foreign entity’s calendar year calculated in terms of Title II of the Income Tax Law shall be considered.

Similarly, residents in Mexico and abroad with a permanent establishment in the country for the income attributable to it must also pay Income Tax on the income they obtain through foreign legal entities in the proportion that corresponds to them, regardless of their tax treatment abroad.

On the other hand, if foreign legal entities are fiscally transparent, the income shall be accumulated pursuant to the Income Tax law title corresponding to the taxpayer and shall be taxable in the same calendar year in which they are generated. In these cases, taxpayers may make the deduction for the expenses and investments made by the legal entity provided that they are deductible in accordance with the title of the Income Tax Law that corresponds to them and provided that it’s made in the same proportion as the income accumulated.

Likewise, in the event that foreign legal entities are considered tax residents in a country or jurisdiction abroad or in Mexico, the amount of the income shall be the tax profit of the calendar year of said legal entity calculated in terms of Title II of the Income Tax Law and must be accumulated by the taxpayer on December 31 of the calendar year in which they were generated.

Finally, the provisions of the preceding paragraphs shall only apply when the resident in Mexico has a direct participation in the tax-transparent foreign entity or foreign legal entity or when they have an indirect participation that involves other tax-transparent foreign entities or foreign legal entities. If their indirect participation involves at least one foreign entity that is not tax-transparent, the income obtained through the tax-transparent foreign entity or the foreign legal entity in which the foreign entity that is not tax-transparent has participation shall be subject to the provisions of Chapter I of Title IV of the Income Tax Law, if applicable.

C) Presumption and Crediting

The income obtained following the provisions of the preceding paragraphs shall be presumed to be generated directly by the taxpayer. The taxes paid by or through transparent foreign entities or foreign legal entities shall be considered to be paid directly by the taxpayer in the same proportion in which they have accumulated the income of said entity or entity.

On the other hand, if the income of the fiscally transparent foreign entity or foreign legal entity is subject to a tax established in the Income Tax Law and this has been effectively paid, it may be credited by the taxpayer following the terms of section VII of this entry. In these cases, it shall be creditable in its entirety, considering the same proportion in which the income of said entity or entity has been accumulated.

D) Special Obligations

Taxpayers involved with foreign entities must keep an account for each fiscally transparent foreign entity and foreign legal entity in the same terms as in article 177 of the Income Tax Law to avoid duplicating the accumulation of income when said entity effectively distributes a dividend or profit or when the legal entity delivers said income or makes it available to the taxpayer.

The provisions set forth above shall apply even when the transparent foreign entity or foreign legal entity does not distribute or deliver the income regulated in this section. To determine the proportion of income that corresponds to taxpayers on fiscally transparent foreign entities and foreign legal entities, the provisions of the fourth and fifth paragraphs of article 177 of the Income Tax Law shall be considered, regardless of whether the obligated persons do not have control over said entities or entities.

Additionally, the tax authorities must have access to the accounting of the fiscally transparent foreign entity or foreign legal entity or the documentation that allows them to verify its expenses and investments. In the event of failure to comply with this obligation, the deduction of expenses and investments made by said entity or legal entity shall not be permitted.

5) Special Definitions

Throughout the Income Tax Law, federal lawmakers mention a series of concepts apparently known from other areas of law. However, tax law is so specialized that even well-established concepts with a legal history are redefined. Therefore, it is important to know them in the context of tax. That’s why I’ll put the most commonly misunderstood concepts in Mexican tax law.

A) Legal Entity

When the Income Tax Law mentions a legal entity, it’s understood to include, among others, commercial companies, decentralized organizations that predominantly carry out business activities, credit institutions, civil societies and associations, and joint venture agreements when business activities are carried out through them in Mexico.

B) Stocks

Regarding stocks, this includes certificates of equity contribution issued by national credit companies, shares, participations in civil associations, and ordinary participation certificates issued based on trusts on shares that are authorized per the applicable legislation on foreign investment.

C) Shareholders

When the term shareholder is used, it includes the holders of the certificates referred to in the previous section of the stocks and the indicated participations.

D) Verified Cost

In the case of companies whose capital is represented by shares, when the Income Tax Law refers to the verified cost for the acquisition of shares, the aliquot part that the shares represent in the company’s share capital must be considered.

E) Financial System

For the Mexican Income Tax Law, the financial system is made up of the Bank of Mexico, credit, insurance and surety institutions, financial group holding companies, general deposit warehouses, retirement fund managers, financial leasing companies, credit unions, popular financial companies, variable-income investment funds, debt instrument investment funds, financial factoring companies, brokerage firms and exchange houses that are residents in Mexico or abroad.

Likewise, financial companies with multiple purposes, as referred to in the General Law of Auxiliary Credit Organizations and Activities, that have accounts and documents receivable derived from the activities that must constitute their primary corporate purpose per the provisions of the Income Tax Law and that represent at least 70% of their total assets, or that have income derived from said activities and the sale or administration of the credits granted by them, that represent at least 70% of their total revenue, shall be considered members of the financial system. To determine the 70% percentage assets or income derived from the sale of goods or services of the companies themselves on credit, sales made using credit cards or financing granted by third parties shall not be considered.

F) Social Security

Social security is considered to be expenditures made to meet present or future contingencies or needs, as well as the granting of benefits to workers or partners or members of cooperative societies, aimed at the physical, social, economic, or cultural improvement that allows them to improve their quality of life and that of their family. However, in no case shall expenditures made to persons who are not workers or partners or members of cooperative societies be considered social security.

G) Securities Depositories

Credit institutions, investment fund operating companies, investment fund stock distribution companies, brokerage firms, and institutions for depositing securities in the country licensed by the Federal Government that provide the service of custody and administration of securities shall be considered securities depositories.

H) Interest

Interest shall be considered, whatever the name they are designated, to be the returns on credits of any kind (yields). It is understood that, among others, the following are the returns on public debt, bonds, or obligations, including discounts; premiums and prizes; the prizes on repurchase agreements or securities loans; the amount of the commissions corresponding to the opening or guarantee of credits; the amount of the consideration corresponding to the acceptance of a guarantee; the granting of a liability guarantee of any kind, except when said consideration must be made to surety insurance institutions; the gain on the sale of bonds, securities, and other credit instruments, provided that they are placed with the general investing public.

In financial factoring operations, the gain derived from credit rights acquired by factoring companies and multiple-purpose financial companies shall be considered interest.

In financial leasing contracts, the difference between the total payments and the original amount of the investment shall be considered interest.

The transfer of rights over the income from granting the temporary use or enjoyment of real estate shall be considered a financing operation; the amount obtained from the transfer shall be treated as a loan, and the income accrued in accordance with the contract shall be accumulated, even when the purchaser of the rights collects these. The consideration paid for the transfer shall be treated as a credit or debt, as the case may be, and the difference with the income shall be treated as interest.

Finally, the treatment established by the Mexican Income Tax Law for interest shall be given to exchange gains or losses accrued by the fluctuation of foreign currency, including those corresponding to the principal and the interest itself. The exchange gain and loss may not be less than or exceed, respectively, that which would result from considering the exchange rate to settle obligations denominated in foreign currency payable in the Mexican Republic established by the Bank of Mexico, which is published for this purpose in the Official Gazette of the Federation, corresponding to the day on which the gain is perceived or the corresponding loss is suffered.

6) Adjustment or Updating of Asset Values

When the Income Tax Law provides for the adjustment or updating of the values ​​of goods or operations that have varied over time and due to price changes in the country, the following shall apply:

I.- To calculate the change in the value of goods or operations in a period, the corresponding adjustment factor shall be used according to the following:

A) When the period is one month, the monthly adjustment factor obtained by subtracting the unit of the quotient resulting from dividing the National Consumer Price Index of the month in question by the aforementioned index of the immediately preceding month shall be used.

B) When the period is longer than one month, the adjustment factor obtained by subtracting the unit of the quotient resulting from dividing the National Consumer Price Index of the most recent month of the period by the aforementioned index corresponding to the oldest month of said period shall be used.

II.- To determine the value of a good or transaction at the end of a period, the update factor obtained by dividing the National Consumer Price Index for the most recent month of the period by the aforementioned index corresponding to the oldest month of said period shall be used.

7) Crediting of Income Tax Paid Abroad

Mexican residents may credit, against the tax they are required to pay under the Income Tax Law, the income tax they have paid abroad on income from sources located abroad, provided that the income is for which the tax is payable under the law. The credit referred to in this section shall only apply provided the accumulated, received, or accrued income includes the income tax paid abroad.

A tax paid abroad shall be considered to be in the nature of an income tax when it complies with the provisions of the general rules issued by the Tax Administration Service. A tax paid abroad shall be considered to be in the nature of an income tax when it is expressly indicated as a tax included in a treaty to avoid double taxation in force to which Mexico is a party.

A) Crediting of Legal Entities

In the case of legal entities, the amount of the creditable tax shall not exceed the amount resulting from applying the rate referred to in article 9 of the Income Tax Law—30% rate—to the taxable profit resulting from income received in the year from a source of wealth located abroad. For these purposes, deductions that are attributable exclusively to income from a source of wealth located abroad shall be considered at one hundred percent; deductions that are attributable exclusively to income from a source of wealth located in national territory should not be considered, and deductions that are partially attributable to income from a source of wealth in national territory and partially to income from a source of wealth abroad shall be considered in the same proportion that the income from abroad in question represents, with respect to the total income of the taxpayer in the year. The crediting limit calculation shall be made for each country or territory in question.

B) Crediting of Individuals

In the case of natural persons, the amount of the creditable tax shall not exceed the amount resulting from applying the provisions of Chapter XI of Title IV of the Income Tax Law—annual declaration—to the income received in the year from a source of wealth located abroad, once the deductions authorized for said income have been made.

Natural persons resident in Mexico who are subject to paying tax abroad by virtue of their nationality or citizenship may make the credit referred to in this section up to an amount equivalent to the tax they would have paid abroad had they not had such status. When the creditable tax is within the limits referred to in the preceding paragraphs and cannot be credited in whole or part, the credit may be made in the following ten years until it’s exhausted. For the purposes of this credit, the provisions on losses in Chapter V of Title II of the Income Tax Law shall apply as appropriate.

C) Crediting for Dividends or Profits

In the case of income from dividends or profits distributed by companies resident abroad to legal entities resident in Mexico, the proportional amount of income tax paid by said companies corresponding to the dividend or profit received by the resident in Mexico may also be credited. Whoever makes the credit referred to in this paragraph shall consider as accruable income, in addition to the dividend or profit received, without reducing the withholding or payment of income tax that may have been made for its distribution, the proportional amount of corporate income tax paid by the company, corresponding to the dividend or profit received by the resident in Mexico.

The credit referred to in this section shall only apply when the legal entity resident in Mexico owns at least 10% of the share capital of the company resident abroad, at least during the 6 months prior to the date on which the dividend or profit in question is paid.

In addition to the above, the proportional amount of income tax paid by the company resident abroad may be credited if the latter, in turn, distributes said dividends to the legal entity resident in Mexico. However, whoever makes the credit by the latter must consider it as accruable income, in addition to the dividend or profit received directly by the legal entity resident in Mexico, without reducing the withholding or payment of income tax that may have been made for its distribution, the proportional amount of corporate income tax corresponding to the dividend or profit received indirectly for which the credit is to be made.

On the other hand, the credit shall only proceed provided that the company resident abroad that has paid the income tax to be credited is at a second corporate level. To make said credit, the legal entity resident in Mexico must directly participate in the share capital of the company resident abroad that distributes dividends of at least 10%. Also, the latter company must own at least 10% of the share capital of the company resident abroad in which the Mexican resident has an indirect participation, and this latter participation must be at least 5% of its share capital.

Also, to make the aforementioned accreditation, the company resident abroad in which the Mexican resident legal entity has indirect participation must be resident in a country with which Mexico has a broad information exchange agreement.

D) Currency Conversion

To determine the amount of tax paid abroad that can be credited in the terms set forth, the respective currency conversion must be made, considering the last exchange rate published in the Official Gazette of the Federation, prior to the last day of the fiscal year to which the profit from which the dividend or profit received by the Mexican resident is paid corresponds.

To determine the amount of tax paid abroad that can be credited, the exchange rate conversion shall be carried out considering the monthly average of the daily exchange rates published in the Official Gazette of the Federation in the calendar month when the tax is paid abroad by withholding or in full.

E) Excess Creditable Tax

Taxpayers who have paid income tax abroad in an amount that exceeds that provided for in the treaty to avoid double taxation that, where applicable, applies to the income in question may only credit the excess under the terms of the aforementioned once the dispute resolution procedure contained in that same treaty has been exhausted.

F) No Right to Credit

There shall be no right to credit for tax paid abroad when its withholding or payment is conditioned on its crediting under the terms of the Income Tax Law.

G) Supporting Documentation

Taxpayers must have supporting documentation for the tax payment in all cases. Proof of withholding shall suffice for taxes withheld in countries with which Mexico has signed broad information exchange agreements.

By Omar Gómez

Mexican Tax, Administrative and Constitutional Attorney

Partner

Contact and inquiries [email protected]

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^[1] Article 32-H.- The taxpayers indicated below must present to the tax authorities, as part of the tax return, information on their tax situation, using the means and formats established by the Tax Service Administration through general rules.

I. Those who pay taxes in terms of Title II of the Income Tax Law, who in the last immediately preceding fiscal year declared have recorded in their normal declarations cumulative income for income tax purposes equal to or greater than an amount equivalent to $1,016,759,000.00, as well as those that at the close of the immediately preceding fiscal year have shares placed among the general investing public, on the stock exchange and that are not in any other case indicated in this article.

The amount established in the previous paragraph shall be updated in the month of January

of each year, with the update factor corresponding to the period from the month of December of the penultimate year to the month of December of the last year immediately preceding the one for which the calculation is made, in accordance with the procedure referred to in the article 17-A of this Code.

II. Commercial companies that belong to the optional tax regime for groups of companies under the terms of Chapter VI, Title II of the Income Tax Law.

III. The parastatal entities of the federal public administration.

IV. Legal entities residing abroad that have a permanent establishment in the country, solely for the activities they carry out in said establishments.

V. Any legal entity resident in Mexico, regarding the operations carried out with residents abroad.

VI. Taxpayers who are related parties of the subjects established in article 32-A, second paragraph of this Code.