21 September 2026 Mexico proposes significant 2027 income tax and revenue measures
On 8 September 2026, the Mexican President submitted to Congress the 2027 Economic Package, which includes an initiative to reform the Income Tax Law and the proposed Federal Revenue Law for fiscal year 2027. The proposals contain significant changes that would affect, among other things, corporate deductions, tax losses, cross-border transactions, rules for calculating tax-basis contributed capital and earnings accounts, simplified tax frameworks and investment incentive programs. One key proposal would introduce a new limitation mechanism for authorized deductions and prior-year tax losses. Subject to certain exclusions, the mechanism would apply to Mexican-resident entities with taxable revenue exceeding 50 million Mexican pesos (MXN50m) that report a taxable profit for the relevant fiscal year. Depending on the proportion of a taxpayer's authorized deductions to its taxable income, the proposed mechanism would either reduce authorized deductions by 1% or cap them at 96.67% of taxable income. In addition, the use of prior-year tax losses would be limited to 50% of taxable profit (after application of the deduction limitation). Restricted deductions or tax losses generally could be carried forward for up to 20 years. The proposed changes to the Income Tax Law would also reduce from 30% to 20% the limitation applicable to net-interest deductions of adjusted tax earnings before interest, taxes, depreciation and amortization (EBITDA). In addition, payments to foreign residents generally would become deductible in the year in which the consideration is paid and the corresponding withholding tax is remitted. The withholding obligation would now arise upon (1) accrual, (2) becoming due and payable, or (3) payment, whichever occurs first. Other proposed changes would (1) expand the Simplified Trust Regime (Regimen Simplificado de Confianza or RESICO), (2) modify the timing of deductions for advance payments attributable to services and leases, (3) repeal the Optional Regime for Groups of Companies (Regimen Opcional para Grupos de Sociedades or ROGS), (4) add specific rules to the calculation of the net after-tax profit (UFIN) account, paid-in capital account (CUCA) and tax cost basis of shares, and (5) preserve various investment incentives through transitional provisions. The proposed Federal Revenue Law contains additional measures for 2027, including withholding and collection rules for digital platforms, an optional value-added tax (VAT) method for RESICO taxpayers, incentives for initial public offerings and a program for qualifying resources returned to or brought into Mexico. The Income Tax Law initiative states that its objectives include simplifying compliance for certain taxpayers, supporting investment and strengthening measures addressing false invoices, aggressive tax planning and erosion of the corporate income tax base. The Federal Revenue Law would estimate total federal revenue for 2027 at MXN10.636t, including approximately MXN6.264t of tax revenue. The proposed law generally would enter into force as of 1 January 2027. New proposed Chapter X of Title II of the Income Tax Law would apply to Mexican resident legal entities that:
The mechanism would not apply to, among others things: (1) taxpayers under the Coordinated Transportation regime or the Agricultural, Livestock, Forestry and Fishing Activities regime; (2) qualifying maquila operations (except for income from domestic sales); (3) taxpayers that have declared bankruptcy; (4) certain taxpayers applying designated investment incentives; (5) qualifying businesses with fewer than five fiscal years of registration; or (6) insurance institutions with respect to their core operations. Special continuity rules would address reorganizations or transfers of an existing economic activity to a newly established entity. If a taxpayer's otherwise authorized deductions are less than or equal to 96.67% of its taxable revenue, the deductible amount would equal 99% of those otherwise authorized deductions. If the taxpayer's otherwise authorized deductions exceed 96.67% of taxable income, deductions would be limited to 96.67% of taxable revenue. Deductions restricted by the mechanism could generally be carried forward for 20 fiscal years and would be subject to adjustment for inflation and the limitation applicable in the year of utilization. The right to use the restricted deductions would remain with the taxpayer that generated them and could not be transferred through a merger or spin-off. The proposal would limit the amount of prior-year tax losses that could be applied in a fiscal year to 50% of taxable profit determined after considering the new deduction limitation. Unused losses generally could be carried forward for up to 20 years, subject to the proposed rules. For 2027 provisional tax payments, affected taxpayers would be required to adjust their profit coefficient to take into account these new limitations. The proposal would reduce the net-interest deduction threshold from 30% to 20% of adjusted taxable income — i.e., tax EBITDA. The proposal would amend the deduction requirements for payments to foreign residents (related and unrelated). These payments generally could be deducted only in the fiscal year in which the payment of the expenditure is made and the withholding tax paid. All other requirements for the relevant expense would also have to be met. Additional changes would cause withholding tax to be triggered when the expenditure accrues, becomes due and payable, or is paid, whichever occurs first. Currently, the withholding tax is due at the earlier of when the payment becomes due and payable or is paid. For foreign-currency consideration, conversion into Mexican pesos would occur when the withholding is made. Advance payments for services and for the temporary use or enjoyment of property would become deductible only in the fiscal year in which the service is performed or the relevant use or enjoyment period occurs. If the arrangement spans more than one fiscal year, the deduction would be limited to the portion effectively received or provided in each fiscal year. The proposal would apply to advances made from the effective date of the reform. Amounts already deducted under prior rules would retain their treatment and could not be deducted again. The proposal would repeal the ROGS. This regime has not been commonly used because it is a form of consolidation governed by complicated recapture rules and several restrictions. Taxpayers participating in the ROGS as of 31 December 2026 would be required to discontinue participation in the regime on 1 January 2027. Deferred income tax generally would have to be paid by 31 December 2027, adjusted by inflation from the month in which the tax would have been due absent the ROGS through the month of payment. Tax deferred corresponding to the third immediately preceding fiscal year would be payable by 31 March 2027. For individuals, the proposal would increase the annual RESICO income threshold from MXN3.5m to MXN5m. It would also provide rules to allow qualified individuals to return to the regime after failing to qualify. The maximum exempt income for individuals exclusively engaged in agricultural, livestock, forestry or fishing activities would increase from MXN900,000 to MXN1m. For qualifying legal entities, the RESICO threshold would increase from MXN35m to MXN50m and participation would become optional. The proposal would also permit certain entities that previously had left the regime to elect it again in a later year if they met the applicable requirements. For CUCAs, the proposal would exclude unpaid accrued interest and VAT associated with capitalized liabilities. Contributions of receivables, assigned collection rights or debt instruments would increase a CUCA only when realized and only to the extent collected in cash. Related changes would also apply when calculating the tax basis of shares. The proposal would also clarify that the calculation of net after-tax profits to be added to an after-tax profits account must reflect reductions for both items expressly treated as nondeductible under Article 28 and items that fail to satisfy applicable deductibility requirements. The proposal would reintroduce and strengthen a preferential 10% income tax rate on gains that Mexican-resident individuals realize from the sale of shares in connection with an initial public offering (IPO), provided the transaction is conducted through an authorized stock exchange and meets specific transparency, disclosure, public float, beneficial ownership and related-party requirements.
The proposed limitations on authorized deductions and tax-loss could significantly change the timing of corporate income tax liabilities for affected Mexican entities, even if their expenses remain deductible over time. Affected taxpayers should model the combined effect of the 99% deduction factor, 96.67% deduction cap, 50% tax-loss utilization limit and proposed provisional tax payment adjustments. Multinational groups should also review accrued cross-border arrangements and payment terms. The proposed linkage between payment, withholding remittance and deductibility may create cash-tax and compliance consequences if intercompany liabilities remain unpaid or contractual enforceability and accounting accrual occur before cash settlement. In addition to the issues related to withholding tax, financing structures may require particular attention because the proposed 20% net-interest limitation could apply in addition to the new general deduction mechanism. Taxpayers should consider modeling the interaction between the proposed 20% interest limitation, the new general deduction mechanism and other financing-related restrictions. In addition, businesses should evaluate the potential impact on tax forecasts, intragroup financing structures, third-party debt, covenant calculations and deferred tax accounting. The initiatives remain proposals and may change during the legislative process. Taxpayers should continue monitoring congressional developments and any subsequent administrative rules, particularly those addressing calculation mechanics, transitional balances, provisional payments and documentation.
Document ID: 2026-2009 | ||||||
