Taxable entities include different types of corporations, such as limited liability companies, Mexican partnerships and organizations. Under certain circumstances nonresident corporations may be considered to have a permanent establishment in Mexico for income tax purposes, including branches of foreign corporations duly registered to operate in Mexico.

Foreign residents will not have permanent establishment for their legal and economic relationship with Maquiladoras if they are residents of a country which has in place a Tax Treaty with Mexico and if the Maquiladora complies with the following options:

1. Advanced Price Agreement (APA)
2. Safe Harbor
3. Self Assessment

The rate to be apply to the taxable profit corresponding to the fiscal year of 2005 is 30%

1. 29 % for fiscal year 2006
2. 28 % for fiscal year 2007

Presidential Decree - Income Tax Exemption
Since the publication in the Mexican Gazette of the presidential decree October 30, 2003, Maquiladora companies will receive a partial exemption in income tax. Such exemption will be calculated based on the difference between the percentages established for safe harbor option (6.9% on assets and 6.5% on operating costs and expenses) and 3% for both cases, as long as the transfer pricing rules are fulfilled.

For purposes of computing the average of assets, taxpayers are allowed to exclude the inventories used in their Maquiladora operation.

Note should be taken that this incentive reduces the income tax to be paid and not the taxable income for profit sharing purposes.

The federal value-added tax represents a one-time charge tax, payable by the ultimate consumer of all types of products and services. Exports are zero rated, and consequently VAT is not payable on exports, including exports of in-bond processing companies.

Even though the exporter does not collect VAT on export sales, it has a right to recover VAT charges on its purchases of goods and services by means of a refund.

A minimum tax on assets to supplement the federal income tax is payable by corporations, unincorporated businesses, branches, as well as by other entities or individuals carrying out business activities or whose assets are used for a business activity by persons subject to the tax.

Taxpayers shall determine the tax for fiscal years by applying the rate of 1.8% to the value of their assets in the fiscal year.

Social Security provides medical attention for employees and their dependents. The Social Security contributions are incurred by both the employer and the employee (through withholding) and remitted to the Social Security authorities every month.

If the particular company is making the payments, it is very probable that for fiscal year 2004 it will be mandatory to submit a tax report for Social Security purposes.