Small Business Tax in Mexico

Mexico's federal tax authority, the Servicio de Administracion Tributaria (SAT), administers income tax (ISR) and value-added tax (IVA) for businesses of all sizes. Since 2022, the Regimen Simplificado de Confianza (RESICO) has been the primary simplified regime for eligible small businesses, replacing the abolished Regimen de Incorporacion Fiscal (RIF). The appropriate regime depends on legal form, annual revenue, and the composition of shareholders.

For a detailed country overview see the Mexico country overview.

What is RESICO for individuals, and what are the ISR rates?

RESICO for individuals (personas fisicas) applies to self-employed professionals, sole traders, landlords, and primary-sector operators whose annual income does not exceed MXN 3.5 million. ISR is assessed at progressive rates applied directly to gross collected income -- no deductions for business expenses are permitted. Monthly ISR payments are due by the 17th of the following month and are treated as final; a voluntary annual return may generate refunds for qualifying personal expenditures such as medical expenses. The five monthly income brackets and corresponding rates confirmed by the SAT for 2026 are shown in the table below. [1]

The annual revenue ceiling of MXN 3.5 million is assessed on the prior fiscal year. Taxpayers exceeding this threshold during a calendar year must transition to the standard ISR regime mid-year. The SAT may also remove a RESICO registrant whose e.firma digital certificate has lapsed or whose tax mailbox (buzon tributario) is inactive. [1]

How does RESICO apply to legal entities?

RESICO for legal entities (personas morales) is available to Mexican-resident companies -- including Sociedad Anonima de Capital Variable (SA de CV) and Sociedad de Responsabilidad Limitada (S de RL) structures -- whose annual income does not exceed MXN 35 million and whose shareholders are exclusively natural persons. The corporate ISR rate under this regime remains 30% on taxable profit, the same flat rate as the standard corporate regime. [2, 3]

The advantage of RESICO for legal entities lies in simplified accounting mechanics rather than a reduced rate. Income is recognised on a cash basis when actually received, and deductions are taken when payments are actually made. This contrasts with standard accrual-basis accounting under the general ISR framework and can improve cash-flow predictability for small operators. Monthly provisional ISR payments are calculated cumulatively from 1 January and filed by the 17th of the following month; the annual return is due by 31 March. [3]

Companies whose shareholders include any corporate entity or foreign investor are ineligible for RESICO and must use the standard regime.

What is the standard corporate ISR rate for companies above RESICO thresholds?

Mexican companies not qualifying for RESICO -- either because revenue exceeds MXN 35 million or because shareholders include non-natural persons -- pay ISR at a flat rate of 30% on net taxable income under the general regime. [2] This rate applies to worldwide income for Mexican-resident corporations. No federal reduced rate exists for SMEs under the standard corporate framework; the 30% flat rate applies regardless of profit level. Additionally, companies distributing dividends to shareholders must withhold 10% ISR on the distributed amount.

Mandatory profit-sharing (Participacion de los Trabajadores en las Utilidades, PTU) requires most employers to distribute 10% of annual pre-tax profits to employees. Post-2021 reform capped the individual employee share at the higher of three months' salary or the average of the preceding three years. PTU is an employer labour obligation separate from -- but reducing taxable income in -- the corporate ISR calculation.

Does IVA apply under RESICO?

Yes. Impuesto al Valor Agregado (IVA), Mexico's value-added tax, applies to RESICO registrants at the standard rate of 16% on sales of goods, services, leases, and imports throughout Mexico. [4] A reduced rate of 8% applies in certain northern border municipalities. RESICO's simplified ISR mechanics do not create any IVA exemption or reduction. Registrants must collect IVA from customers, claim credits on qualifying inputs, and remit the net amount to the SAT by the 17th of the following month through a separate monthly IVA return. Unlike the ISR rate benefit under individual RESICO, there is no IVA concession -- a key difference from the abolished RIF, under which eligible taxpayers enjoyed certain IVA reliefs on sales to the general public.

What is the RIF and why was it abolished?

The Regimen de Incorporacion Fiscal (RIF) was introduced in 2014 to formalise micro-enterprises and sole traders. It offered a degressive ISR subsidy schedule over ten years, reducing to zero in the early years and rising as the period expired, and provided limited IVA relief on consumer sales. [5] The RIF was repealed effective 1 January 2022 when RESICO replaced it. Taxpayers already enrolled in the RIF by 31 August 2021 were permitted to complete their ten-year transition period if they filed an election notice with the SAT before 31 January 2022; those who did not file the notice were transferred automatically to RESICO. By 2026 the RIF is fully closed to new entrants and is not a current option for small businesses.

What are CFDI 4.0 e-invoicing obligations?

All Mexican taxpayers -- regardless of size, regime, or revenue -- must issue Comprobantes Fiscales Digitales por Internet (CFDI) for every taxable transaction. [6] CFDI version 4.0, the current mandatory standard, requires each invoice to contain the recipient's full legal name, active RFC tax-identification number, postal code, tax regime, and declared CFDI purpose. Invoices must be validated and digitally stamped in real time by an Autorizado de Certificacion (PAC) -- an SAT-authorised certification provider -- before the document becomes legally valid.

Under 2026 SAT reforms, authorities may require photographic, video, or audio evidence that transactions reflected in CFDIs actually occurred, with a 24-business-day verification window and a 5-business-day response period for the taxpayer. CFDI records must be retained for a minimum of five years. Failure to issue CFDI or issuing CFDIs that do not reflect genuine transactions can result in fines equivalent to 5-10% of the invoice value, suspension of the digital certificate, and increased audit exposure. [6, 7]

Selecting the correct regime requires assessing annual revenue, legal structure, and shareholder composition before the fiscal year begins. Regime changes are made through a formal SAT notice, and involuntary exits (for exceeding income limits or compliance failures) carry automatic effect. A qualified tax professional registered with the SAT can perform a formal regime-suitability analysis, prepare CFDI-compliant records, and handle monthly and annual returns for both RESICO and standard-regime taxpayers.