Tax payers can reduce their taxable income by using deductions of legitimate expenses. However, it is important to clarify that not all expenses are deductible.
Below is a list of approved deductible expenses in Mexico:
- Refunds, discounts or bonuses made during the fiscal year.
- The cost of goods sold (refers to all expenses necessary to produce or market a product or provide a service that contribute to the financial activity of the entity or company).
- The net expenses of discounts, bonuses or refunds (Expenses the company absorbs to be able to offer these benefits to its customers).
- Investments (fixed assets, expenses and deferred charges and disbursements made in pre-operating periods).
- Bad debts and losses due to acts of God (an event of nature that is unpredictable), force majeure (which implies an event caused by man) or disposal of assets other than those referred to in the 2nd bullet.
- All “employer contribution” payments made to the Mexican Social Security Institute (IMSS).
- Interest accrued during the year.
- The annual adjustment for inflation (obtained from the calculation made on the annual tax return).
- Advances and yields paid by production cooperative societies, as well as advances given by civil societies and associations to their members, when distributed under the terms of Section II of Article 94 of the tax law.
- Contributions made for the creation or increase of reserves for personnel pension or retirement funds, complementary to those established by the Social Security Law, and seniority premiums established under the terms of this Law.
It is important to mention that in order to apply these deductions, it is necessary to comply with a series of requirements expressly indicated in Article 27 of the Income Tax Law, if any of these requirements are not met, the deduction cannot be made.
Among the main requirements the deductions must be strictly indispensable for the purposes of the taxpayer’s activity, be duly recorded in the accounting records, and be deducted only once.
Tax laws and deduction requirements are complicated. If you need assistance with filing your taxes in Mexico, please contact the tax professionals at Mextax. Our qualified and experienced team can ensure you meet your tax obligations in Mexico.