RSM Resources

The Mexican government enacted sweeping tax changes in the Tax Reform Act, which went into effect Jan. 1, 2008. This reform created a new tax called the “flat rate business tax” (impuesto empresarial a tasa unica) or “IETU.”

If your company does business in Mexico, be aware that this legislation could affect your organization. For example, the IETU: 

• Operates much like an “alternative minimum tax”
  
  
• Affects all business taxpayers, corporate and noncorporate, including individuals with business activities on their worldwide income and foreign residents with a permanent establishment in Mexico
  
  
• Generally affects all business revenue including independent personal services and the rental of property
  
  
• Allows limited deductions (excluding compensation) to compute the tax base, although a direct tax credit is allowed for most of the compensation expense
  
  
• Is calculated as an alternative tax and the greater of the IETU or the regular income tax becomes the liability
  
  
• Has a statutory rate of 16.5 percent for 2008, 17 percent for 2009 and 17.5 percent for 2010 and thereafter
  
  
• Permits companies, operating under the IMMEX program (known as maquiladoras), a tax incentive in the form of a tax credit that will reduce their IETU liability

Note: The assets tax was repealed on Jan. 1, 2008.

Strongly consider meeting with your advisor to discuss your company’s specific situation and the tax implications of the IETU influencing your Mexican operations.