Mexico Tax Rules: IVA, IEPS, and ISR Withholding Guide
Mexico's tax code, administered by the SAT (Servicio de Administracion Tributaria), is one of the most layered systems in Latin America. Multiple taxes can apply to a single transaction depending on the product type, the parties involved, and the geographic location. The Mexico Tax Rules Calculator helps you simulate these overlapping obligations so you can invoice with confidence and avoid costly errors.
IVA: Value-Added Tax and Regional Rates
The standard IVA (Impuesto al Valor Agregado) rate in Mexico is 16% and applies to most goods and services nationwide. However, the frontera norte (northern border zone) benefits from a reduced rate of 8% on qualifying transactions, a stimulus designed to boost economic activity in border cities like Tijuana, Ciudad Juarez, and Monterrey's border-adjacent areas.
Certain essential goods are subject to a tasa 0% (zero rate), meaning the transaction is taxable but at zero percent. This category includes basic unprocessed foods (alimentos basicos) such as fruits, vegetables, grains, meat, and milk. The distinction between zero-rated and exempt matters: zero-rated sellers can still claim IVA credits on their inputs, while exempt sellers cannot.
IEPS: The Special Tax on Production and Services
IEPS (Impuesto Especial sobre Produccion y Servicios) is Mexico's excise tax targeting specific product categories. The rates are substantial and vary widely:
- Alcohol above 20 degrees: 53%
- Beer and wine: 26.5%
- Tobacco products: 160%
- Comida chatarra (junk food with high caloric density): 8%
- Bebidas azucaradas (sugary drinks): a fixed quota per liter rather than a percentage
IEPS is calculated on the production or import value and is embedded in the final consumer price. Manufacturers, importers, and first-sale distributors are responsible for computing and remitting IEPS to the SAT. Because IEPS compounds with IVA (IVA is calculated on the price that already includes IEPS), the effective tax burden on products like tobacco and spirits is extremely high.
ISR Withholding: Income Tax Obligations
ISR (Impuesto Sobre la Renta) withholding applies in several common business scenarios. When a persona moral (legal entity) pays a persona fisica (individual) for professional services or honorarios, it must withhold 10% ISR from the payment. Additionally, the persona moral must withhold two-thirds (2/3) of the IVA charged by the persona fisica, remitting it directly to the SAT on their behalf.
These withholding rules exist to ensure tax collection at the source and reduce evasion among independent professionals. The withheld amounts are credited against the persona fisica's annual tax return, but they significantly affect short-term cash flow for freelancers and consultants.
Digital Platforms and RESICO
Mexico has implemented specific tax rules for digital platform operators (plataformas digitales) such as ride-sharing, delivery, and e-commerce services. These platforms must withhold both ISR and IVA from payments made to their service providers, with rates that vary based on income level and activity type.
The RESICO (Regimen Simplificado de Confianza) is a simplified tax regime for individuals earning up to 3.5 million pesos annually. RESICO offers significantly lower effective ISR rates, ranging from 1% to 2.5% depending on income brackets, making it attractive for small businesses and independent workers. Taxpayers under RESICO must issue CFDIs and file monthly declarations, but the calculation is straightforward compared to the general regime.
CFDI: Mexico's Digital Invoicing Requirement
Every commercial transaction in Mexico must be documented with a CFDI (Comprobante Fiscal Digital por Internet). These electronic invoices are generated through SAT-certified providers and include a digital signature, a unique folio fiscal, and XML metadata that the SAT uses for automated cross-referencing.
CFDIs must reflect the correct IVA, IEPS, and ISR withholding amounts, along with the appropriate product classification codes (claves de producto). Issuing a CFDI with incorrect tax calculations can trigger SAT notifications and potential audits. Businesses must also issue CFDIs for payroll, payments received, and cancellations.
Simulate Your Mexican Tax Obligations
The combination of IVA, IEPS, ISR withholding, and CFDI compliance makes Mexican tax calculations challenging even for experienced accountants. A single invoice for a restaurant buying beer from a distributor involves IVA on the base price, IEPS on the product, and potentially ISR withholding depending on the supplier's tax status. The Mexico Tax Rules Calculator lets you model all of these variables in one place. Enter your transaction details, select the applicable regime, and get an instant breakdown of every tax component. Try it now to take the guesswork out of your next invoice.