Legal entities in Mexico must make monthly provisional payments on account of the Income Tax (ISR) corresponding to the fiscal year.
This process is regulated in the Income Tax Law (LISR) in its Article 14In this article, I will detail the key aspects for calculating these provisional payments.
What are provisional payments?
Provisional payments are monthly advances that companies must make on account of the ISR that will be determined at the end of the fiscal year. These advances help to distribute the tax payment throughout the year, avoiding a significant amount to be paid accumulating at the end of the year and allowing the authorities to receive the tax as soon as possible.
When should provisional payments be made?
According to the law, provisional payments must be made no later than the 17th day of the immediately following month to which the payment is due. That is, the provisional payment for January, for example, must be made no later than 17 February.
How is the provisional payment calculated?
To calculate the amount of the provisional payment, the following steps must be followed:
- Determining the profit coefficient: The profit coefficient is obtained by dividing the taxable profit by the nominal income of the last 12-month fiscal year.
This coefficient will be applied to the nominal income accumulated from the beginning of the fiscal year until the month corresponding to the payment.
- Example: If your company obtained a fiscal profit of $1,000,000 and the nominal income was $5,000,000, the profit coefficient would be 0.20 (1,000,000 / 5,000,000). If that coefficient was determined with the 2024 information, it will be used starting in March 2025.
- Apply the coefficient to nominal income: Multiply the utility coefficient by the nominal income accumulated up to the month for which the payment is being made.
- Example: If the accumulated nominal income from January to March is $1,200,000 and your profit coefficient is 0.20, the tax profit for the provisional payment will be $240,000 (1,200,000 x 0.20).
- Decrease allowed concepts: Certain concepts can be subtracted from the calculated tax profit, such as: Employee profit sharing (PTU), which should be reduced proportionally in the provisional payments from May to December.
In addition, if the company distributes advances or returns to members of Associations or Civil Societies, these may also be reduced from taxable income.
- Apply the ISR rate: Once the taxable profit for the period has been determined, the rate established in the Article 9 of the Income Tax Law, which for legal entities is 30%.
Special Considerations and Adjustments
There are some special situations that need to be taken into account:
- Second fiscal year: If your company is in its second fiscal year, the first provisional payment must cover the first three months of the year, and the profit coefficient used will be that of the first fiscal year, even if it was not 12 full months.
- Tax losses: If your company has tax losses from previous years, these may reduce the taxable profit calculated for provisional payments.
- Review of the profit coefficient: If during the fiscal year you consider that the profit coefficient used is overestimating your provisional payments, you can request authorization to use a lower coefficient starting in the second half of the year.
What happens to provisional payments at the end of the financial year?
According to the Article 9 of the ISR Law, the provisional payments that have been made throughout the year will be subtracted from the final tax for the yearThis means that if you have already made sufficient payments, you may not have to pay additional ISR at the end of the year, and you may even end up with a balance in your favor.
Conclusion
Please note that provisional payments are payments on account of the tax for the year, so it is essential to make the correct calculation to avoid overpayments or underpayments that may result in surcharges.
If you need support in determining your provisional payments or in preparing the necessary working papers, do not hesitate to contact us. TAX ID MexicoWe help you meet all your tax obligations efficiently and professionally.
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