Legal entities in Mexico are required to make monthly provisional payments towards the Income Tax (ISR) that will be due for the fiscal year. This process is regulated by the Income Tax Law (LISR) in Article 14.

In this article, I will outline the key aspects for calculating these provisional payments.

What Are Provisional Payments?

Provisional payments are monthly advances that companies must make toward the ISR, which will be determined at the end of the fiscal year. These advances help distribute the tax payment throughout the year, preventing a significant amount from accumulating at the end of the fiscal period, and ensuring the tax authorities receive payment sooner.

When Should Provisional Payments Be Made?

According to the law, provisional payments must be made no later than the 17th of the month following the month to which the payment corresponds. For example, the provisional payment for January must be made no later than February 17.

How Is the Provisional Payment Calculated?

To calculate the provisional payment amount, follow these steps:

1. Determine the Utility Coefficient: The utility coefficient is obtained by dividing the taxable income 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 year up to the month for which the payment is being made.
   • Example: If your company had a taxable income of $1,000,000 and nominal income of $5,000,000, the utility coefficient would be 0.20 (1,000,000 / 5,000,000). If that coefficient was determined using 2024 data, it will be used starting in March 2025.
2. Apply the Coefficient to Nominal Income: Multiply the utility coefficient by the nominal income accumulated through the month for which you are making the payment.
   • Example: If the accumulated nominal income from January to March is $1,200,000 and your utility coefficient is 0.20, the taxable income for the provisional payment would be $240,000 (1,200,000 x 0.20).
3. Subtract Permissible Deductions: Certain items can be subtracted from the taxable income, such as the employee profit-sharing (PTU), which must be proportionally deducted in the provisional payments from May to December. Additionally, if the company distributes advances or profits to members of Civil Associations or Societies, these can also be deducted from the taxable income.
4. Apply the ISR Rate: Once the taxable income for the period has been determined, apply the rate established in Article 9 of the Income Tax Law, which is 30% for legal entities.

Adjustments and Special Considerations

There are some special situations to keep in mind:

• 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 utility coefficient used will be from the first fiscal year, even if it was not a full 12 months.
• Tax Losses: If your company has tax losses from previous years, these can be subtracted from the taxable income calculated for provisional payments.
• Revising the Utility Coefficient: If during the fiscal year you believe the utility coefficient is overestimating your provisional payments, you can request authorization to use a lower coefficient starting from the second half of the year.

What Happens to Provisional Payments at the End of the Fiscal Year?

According to Article 9 of the Income Tax Law, the provisional payments made throughout the year will be deducted from the final tax liability for the fiscal year. This means that if you have already made sufficient payments, you may not need to pay additional ISR at the end of the year, and you could even end up with a tax credit.

Conclusion

Remember that provisional payments are advances on the tax liability for the fiscal year, so it is essential to calculate them correctly to avoid excessive or insufficient payments that may result in penalties.

If you need assistance with determining your provisional payments or preparing the necessary working papers, feel free to contact us. At TAX ID Mexico, we help you meet all your tax obligations efficiently and professionally.

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