Mexico’s 2027 tax initiative seeks to strengthen tax collection without creating new taxes or increasing the general rates of existing taxes. However, it introduces new measures aimed at broadening and protecting the tax base, limiting aggressive tax planning schemes, and facilitating compliance with tax obligations.
Additionally, some of the proposed amendments could be particularly relevant for multinational groups, investors, and companies engaged in cross-border transactions, especially in connection with financing, payments to foreign residents, and investment structuring. Therefore, it’s important to timely assess the potential impact of these measures on taxpayers’ domestic and international operations.
The proposed reform contemplates several amendments that could result in higher tax and financing costs for taxpayers. Limitations on the use of deductions and tax losses, the reduction in the deductible percentage of net interest, and adjustments to estimated tax payments could accelerate or increase income tax payments, directly affecting companies’ cash flow even if nominal tax rates remain unchanged. If approved during the next two months, the reform would become effective as of Jan. 1, 2027.
New limit on authorized deductions and tax losses
For 2027, a new mechanism is proposed that would generally apply to legal entities with taxable income exceeding MX$50 million that determines taxable profit. Where authorized deductions are less than or equal to 96.67% of taxable income, only 99% of such deductions may be applied; where deductions exceed that percentage, the deduction limit would be equal to 96.67% of taxable income. In addition, tax losses pending carryforward may only be offset up to 50% of the taxable profit for the year, and the carryforward period for prior year tax losses is proposed to be extended from 10 to 20 years.
The proposal provides exceptions to the new mechanism for certain taxpayers, including those taxed under the coordinated transportation regime or the primary sector regime, certain maquila operations, insurance institutions, newly incorporated companies, and taxpayers applying certain tax incentives.
2027 estimated tax payments: Adjustment to the profit ratio and application of tax losses
As part of the new control mechanism, it’s proposed to modify the calculation of 2027 estimated tax payments for certain legal entities with income exceeding MX$50 million. For this purpose, the profit ratio would be adjusted using factors of 1.0658 or 2.6162, depending on the proportion of deductions to income, and the use of tax losses in estimated tax payments would be limited to 50% of the taxable profit determined for such payments.
Deduction and timing of withholding for payments to foreign residents
It’s proposed to amend the rules applicable to payments made to foreign residents by establishing that the corresponding deduction would be allowed in the fiscal year in which the related withholding tax is remitted. Income tax withholding would be required at the time the payment becomes due, is accrued, or is paid, whichever occurs first.
The purpose of this measure is to limit tax planning schemes through which the due date or payment of transactions with foreign residents was deferred. One example of this type of structure could be balloon loans, under which interest accrues during the term of the financing, while its due date and payment are deferred until maturity, allowing the deduction to be recognized under the current framework before the corresponding withholding is made.
Reduction of the net interest limit
It’s proposed to reduce the limit for the deduction of net interest for the year from 30 to 20% of adjusted taxable profit. The explanatory statement links this measure to the recommendations under Action 4 of the OECD BEPS Project and to the objective of strengthening restrictions intended to prevent tax base erosion through financing structures.
CUCA: Limits on the capitalization of liabilities
The reform initiative proposes limiting the capitalization of liabilities, as tax authorities have detected that, through this practice, taxpayers include in their capital stock not only the liability principal but also accrued interest and the corresponding VAT. Since this practice distorts the tax base in cases of capital repayments or the sale of shares, it’s proposed to amend Article 78 (and related provisions) so that such items aren’t included in the capital contribution account, or the CUCA (Cuenta de Capital de Aportación) balance. In the case of contributions in kind consisting of accounts receivable, the assignment of collection rights, or credit instruments, these will be added only when they’re realized and only up to the amount collected in cash.
CUFIN: Items that don’t meet tax deductibility requirements
The proposal seeks to clarify the mechanics of the Net Tax Profit Account (CUFIN) by expressly stating that, when determining net tax profit (UFIN), taxpayers must take into account not only the nondeductible items provided for under Article 28 of the Mexican Income Tax Law, but also expenditures that don’t meet the tax requirements established for their deduction. This would result in a reduction of the CUFIN balance for taxpayers whose current position is to reduce UFIN only by the nondeductible items expressly listed in Article 28 of the Mexican Income Tax Law.
Option to pay VAT at a 7% rate for RESICO taxpayers
It’s proposed to allow certain taxpayers subject to the Simplified Trust Regime (RESICO) to elect to calculate monthly VAT by applying a 7% rate to taxable consideration actually collected. Taxpayers making this election wouldn’t be entitled to credit VAT transferred to them or VAT paid on imports, and the election couldn’t be changed during the fiscal year.
2027 tax regularization program
The Federal Revenue Law proposes continuing during 2027 a regularization program for individuals and legal entities whose 2025 income didn’t exceed MX$300 million. In certain cases, the incentive would allow a reduction of up to 100% of fines, surcharges, and enforcement expenses, including cases of self-correction during tax audit proceedings and final tax assessments, subject to compliance with the applicable requirements and deadlines.
Capital repatriation: 7.5% tax rate
A temporary regime is proposed for individuals and legal entities resident in Mexico, as well as foreign residents with a permanent establishment in Mexico, that repatriate funds of lawful origin held abroad. The benefit would consist of applying a 7.5% income tax rate without any deductions, provided that the funds are brought into Mexico within the established period and remain invested in the country for at least three years in authorized investments, including fixed assets, real estate, research and development, certain liabilities, and productive investments.
Elimination of the Optional Regime for Groups of Companies
The initiative proposes repealing the Optional Regime for Groups of Companies (Régimen Opcional para Grupo de Sociedades), on the grounds that the income tax deferral benefit has already fulfilled the purpose for which it was established.
U.S. federal income tax implications
The changes in timing of deductions and imposition of tax under the proposal could result in corresponding changes to U.S. taxpayers’ foreign tax credits in the United States. Mexico’s corporate income tax rate is significantly higher than the U.S. corporate tax rate. U.S. taxpayers with heavy exposure to Mexican income tax likely suffer from chronic excess foreign tax credits already. In the case of CFCs where the U.S. shareholder is taxed under GILTI/NCTI regimes, these excess credits don’t carry forward.
These changes will exacerbate those issues to the extent that Mexican income tax is accelerated without a corresponding increase the U.S. foreign tax credit limitation. What would be a “temporary” difference on its face could in effect result in a permanent loss of ability to claim U.S. foreign tax credits. This may not only affect U.S. taxpayer cash flow but could result in a change in valuation allowance for any related deferred tax assets.
For certain U.S. taxpayers using the cash method of accounting, the acceleration of withholding taxes in Mexico to a time prior to actual payment will also result in a mismatch between the income inclusion and the availability of foreign tax credits, creating uncertainty with respect to the usability of the credits.
Key takeaways
- Model tax scenarios before the 2026 year-end.
- Identify potential impacts on liquidity, effective tax rate, and provisional tax payments.
- Review financing arrangements and transactions with foreign-related parties.
- Prioritize the use of available tax losses and deductions.
- Validate the supporting documentation for relevant transactions.
- Adjust budgets and structures in anticipation of potential tax changes.
- Monitor the legislative approval process and the final rules of the reform.
- From a financial reporting perspective, update the calculation of deferred income tax and employee profit sharing (PTU) to identify the impact on temporary, permanent differences, and effective tax rate.
