It is important to understand the calculation of the ISR even if we are not accountants, since as professionals or business owners we have to understand the logic to avoid problems with the SAT.

Article 9 of the Income Tax Law (LISR) tells us how companies (legal entities) must calculate Income Tax (ISR) under the General Legal Regime.

How is ISR Calculated?

The ISR for legal entities is calculated by applying a rate of 30% on the fiscal result of the year. This fiscal result is obtained as follows:

1. Calculate the Taxable Income:
   • Subtract from the taxable income the authorized deductions (the expenses that you can subtract) and the employee profit sharing (PTU) paid during the year.
2. Apply Pending Tax Losses:
   • If your company has tax losses from previous years that it has not used, subtract them from the taxable profit.
3. Calculate the Tax:
   • Apply the 30% rate to the tax result to find out how much ISR you must pay.
4. Provisional Payments:
   • During the year, your company has to make provisional ISR payments every month. These are advances of the annual tax and are calculated based on the income and deductions of each period. At the end of the year, these payments are subtracted from the ISR for the year and help you reduce what you have to pay in the annual declaration.

Case study  

Let's say your company has this data at the end of the year:

• Taxable income: $5,000,000
• Authorized deductions: $3,200,000
• PTU paid: $100,000
• Tax losses from previous years: $400,000
• Provisional payments made during the year: $200,000

Step 1: Calculate the Taxable Income

First, we subtract the deductions and PTU from the income:

Fiscal Utility= 5,000,000−3,200,000−100,000=1,700,000

Step 2: Subtract Tax Losses

If you have losses from previous years, subtract them from the profit determined in step 1:

Fiscal Result=1,700,000−400,000=1,300,000

Step 3: Calculate the ISR for the Exercise

We apply the 30% rate to obtain the ISR:

ISR=1,300,000×0.30=390,000

Step 4: Subtract the Provisional Payments

Finally, we subtract the provisional payments you made during the year:

ISR to Pay=390,000−200,000=190,000

Conclusion

In the end, your company has to pay. $190,000 ISR in the annual declaration after applying the provisional payments.

Provisional payments and the provision for ISR are essential to avoid surprises at the end of the year, since the Profit Coefficient may not show a profit consistent with the reality of the current year.

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