Mexico's tax reform for 2027 doesn't raise tax rates. The corporate income tax rate stays at 30%. But it changes something that matters just as much for many companies: how much they can deduct and when.
For foreign groups with Mexican subsidiaries, the biggest changes are a new cap on deductions for larger companies, a limit on the use of tax losses, a tighter limit on interest deductions and new timing rules for payments abroad. Here's what's changing and how to prepare.
The reform to the Income Tax Law (Ley del Impuesto sobre la Renta, or LISR) is part of the 2027 Economic Package that the federal government presented on September 8, 2026.
According to the government, the reform doesn't create new taxes or raise existing rates. Its goal is to limit what it considers aggressive tax planning and to increase income tax collection in 2027.
The most significant change is a new mechanism to control deductions. According to EY's analysis, it applies to companies with gross income (ingresos acumulables) above MXN 50 million a year that report a tax profit.
Deductions that can't be applied aren't lost. They can be used over the following 20 years, starting with the oldest amounts, but only by the company that generated them, even after a merger or spin-off.
A simple example: a company with MXN 100 million in income and MXN 98 million in deductions could only deduct MXN 96.67 million. It would pay tax on MXN 3.33 million instead of MXN 2 million.
Who should pay special attention: subsidiaries that operate on thin margins. Examples include service companies, distributors and shared-service centers that charge their parent company cost plus a small markup. If their deductions exceed 96.67% of their income, they'll be taxed on at least 3.33% of their income, regardless of their actual margin.
Some taxpayers are excluded, including maquiladoras that don't sell in Mexico, insurance companies, companies in bankruptcy and companies with fewer than five years since their tax registration. In the final version, the Senate also excluded vehicle manufacturers that assemble and produce vehicles under bonded warehouse authorization (except for their domestic sales) and businesses that sell or distribute gasoline and diesel with the required permits.
Today, companies in Mexico can use tax losses from previous years to fully offset their taxable profit for up to 10 years. The reform changes that:
For companies that are coming out of a loss-making period, this means they'll start paying income tax sooner, even if they still have losses to apply.
The limit on net interest deductions falls from 30% to 20% of adjusted taxable profit, in line with the OECD's BEPS standards, as KPMG notes. For groups that finance their Mexican subsidiaries with intercompany loans, this can significantly increase the taxable base.
Payments to foreign residents, such as royalties, technical assistance fees, interest or services charged by the parent company, will only be deductible in the year in which they are actually paid and the corresponding withholding tax is remitted to the tax authority.
The reform also states that the obligation to withhold tax arises on the earliest of the date the payment is due, the date it accrues or the date it's paid. Groups that accrue intercompany charges but pay them later will have to review their timing to avoid losing the deduction in the year they expected.
Advance payments for services or leases will only be deductible when the service is provided or the lease period passes, not when the advance is paid.
The reform eliminates the Optional Regime for Groups of Companies (Régimen Opcional para Grupos de Sociedades), which allowed groups to defer part of their income tax. Groups will dissolve from January 1, 2027, and the deferred tax must be paid according to a transition schedule that runs through 2027.
JJ Associates helps foreign companies set up and run their operations in Mexico, from company formation to tax structuring and compliance. We can help you assess how the 2027 reform affects your Mexican subsidiary and adjust your structure before the new rules apply.
Book a free 30-minute call with our team, and we'll help you understand your options and map out the right path forward.
No. The corporate income tax rate stays at 30%. The reform changes how much companies can deduct and when, through limits on deductions, tax losses and interest.
Companies with gross income (ingresos acumulables) above MXN 50 million a year that report a tax profit. Some taxpayers are excluded, such as maquiladoras that don't sell in Mexico, insurance companies, companies with fewer than five years since their tax registration, and, after the Senate's changes, vehicle manufacturers operating under bonded warehouse authorization and gasoline and diesel retailers and distributors.
If a company's deductions exceed 96.67% of its income, they're capped at that level. If they're at or below 96.67%, the company can apply 99% of them. Deductions that can't be applied can be used over the following 20 years.
Tax losses from previous years can only offset up to 50% of the year's taxable profit, but the period to use them is extended from 10 to 20 years.
Net interest will be deductible up to 20% of adjusted taxable profit, down from 30%.
Only in the year in which they're actually paid and the corresponding withholding tax is remitted to the tax authority.
From fiscal year 2027. Congress completed the approval process on November 3, 2026, and the reform is pending publication in the Official Gazette of the Federation (DOF).
This article is for general information and is not legal or tax advice.
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