Article

Understanding ISN in Mexico

décembre 17, 2024

The ISN (Impuesto Sobre Nómina), or Payroll Tax, is a state-level tax in Mexico that employers must pay based on the total payroll expenses they incur. Rates and regulations vary depending on the state, making compliance essential for businesses operating in Mexico. This guide covers everything you need to know about ISN, including its definition, calculation, payment processes, and best practices for compliance.

✔️ ISN (Impuesto Sobre Nómina) is a state-level payroll tax in Mexico that employers must pay based on total payroll costs.

✔️ Failure to comply with ISN regulations can result in fines, interest charges, and audits by state tax authorities.

What is ISN in Mexico?

In Mexico, ISN (Impuesto Sobre Nómina) refers to the Payroll Tax that employers are required to pay to state governments. Unlike federal taxes, ISN is administered at the state level, and each state determines its own rate and specific rules. The tax is calculated based on the total amount paid to employees, including salaries, bonuses, and benefits.

For businesses operating in Mexico, understanding ISN is critical to maintaining tax compliance and avoiding penalties. This article will provide a complete breakdown of how ISN works, who it applies to, and how businesses can navigate it efficiently.

How Does ISN Work in Mexico?

ISN is a direct tax imposed on employers based on their payroll expenses. It is not deducted from employees’ wages but rather paid directly by the employer. The tax funds various state-level programs, including education, infrastructure, and social initiatives.

Key Points About ISN:

State Tax: Each state in Mexico determines its own tax rate and regulations.
Tax Base: The tax applies to all payroll-related expenses, including salaries, commissions, bonuses, and benefits.
Non-Deductible for Employees: ISN is paid exclusively by the employer and does not affect employees’ net income.

The employer is responsible for calculating, declaring, and paying the ISN to the relevant state tax authority on a monthly basis.

ISN Rates by State in Mexico

The ISN rates in Mexico typically range between 2% and 3% of the total payroll cost, depending on the state. Below is a table summarizing the ISN rates in key Mexican states:

State	ISN Rate (%)	Notes
Aguascalientes	2.0	No changes for 2025.
Baja California	2.0	Rate remains stable to encourage border growth.
Baja California Sur	2.5	Adjusted for inflation, remains competitive.
Campeche	2.5	No significant updates announced.
Chiapas	2.0	Stable rate with no new developments.
Chihuahua	3.0	Increment supports public safety initiatives.
Coahuila	2.0	Increase aligns with regional development goals.
Colima	2.0	No changes for 2025.
Durango	2.0	Remains consistent to attract investments.
Guanajuato	2.3	No new announcements.
Guerrero	2.0	Slight decrease to promote economic growth.
Hidalgo	2.0	Adjusted to match inflation.
Jalisco	2.0	Updated to support local infrastructure projects.
Mexico City	4.0	Increased from 3% to 4% starting January 2025.
Mexico City	4.0	Mexico ISN tax 2025
Michoacán	2.0	No new updates announced.
Morelos	2.0	Increase supports regional projects.
Nayarit	2.0	Stable rate for compliance.
Nuevo León	3.0	Consistent with 2024 rates.
Oaxaca	2.5	Adjusted to fund public services.
Puebla	3.0	No changes noted for 2025.
Querétaro	2.0	Stable rate for competitive positioning.
Quintana Roo	3.0	Increase supports tourism-related projects.
San Luis Potosí	2.5	Remains consistent with 2024 rates.
Sinaloa	2.0	Stable rate with no significant updates.
Sonora	2.0	No recent adjustments.
State of Mexico	3.0	Slight increment to match development needs.
Tabasco	2.5	Stable rate for state competitiveness.
Tamaulipas	3.0	No updates announced.
Tlaxcala	3.0	Consistent with 2024 rates.
Veracruz	3.0	Increase supports infrastructure needs.
Yucatán	2.5	Stable rate for state programs.
Zacatecas	2.0	Increment to promote public safety and education.

It’s important to verify the ISN rate in the specific state(s) where your company operates, as rates may change over time. Businesses with operations in multiple states must comply with the individual tax requirements for each location.

How to Calculate ISN in Mexico

The calculation of ISN is relatively straightforward:

Formula

ISN = Total Payroll Cost × ISN Rate (State-Specific)

Example:
If a company located in Chihuahua (where the ISN rate is 3%) has a monthly payroll cost of MXN 500,000, the ISN would be:

ISN = 500,000 × 3% = MXN 15,000

What Payroll Costs Are Included?

To calculate ISN, the following payroll-related costs are typically included:

Salaries and wages
Commissions
Bonuses and incentives
Vacation pay
Severance payments
Benefits and allowances (e.g., meal vouchers, transportation assistance)
Employer contributions to savings funds

Employers must ensure accurate payroll records and calculations to comply with ISN regulations.

ISN Payment and Filing Requirements

Filing Frequency

ISN must be filed and paid monthly. Some states may require quarterly or annual reconciliations in addition to monthly filings.

Payment Process

Employers must register with the state tax authority where their business operates.
ISN payments are made via the tax authority’s online portal or designated banking institutions.
Payments are typically due by the 17th day of the following month. For example, ISN for January payroll must be paid by February 17th.

Required Documentation

When submitting ISN, employers may need to provide:

Detailed payroll reports
Payment receipts for employees
Company registration details with the state tax authority

Consequences of Non-Compliance

Failing to comply with ISN regulations in Mexico can lead to significant penalties and operational disruptions for businesses. Employers who miss filing deadlines or underreport payroll costs are subject to fines and interest charges, which can quickly accumulate. In addition, state tax authorities have the right to conduct audits to verify payroll records and tax payments. These audits can be time-consuming and, if discrepancies are found, may result in additional penalties or legal actions.

For companies operating across multiple states, non-compliance in one region can impact broader operations, particularly for businesses bidding on government contracts or working with state agencies. Employers should also be aware that recurring non-compliance could damage their reputation, erode trust with employees, and hinder long-term business relationships. Maintaining proper payroll systems and meeting all ISN requirements is essential to avoid financial and operational risks.

Consequences of Non-Compliance

Failure to comply with ISN regulations can result in significant penalties and legal consequences, including:

Fines: Late payments or underpayments may incur penalties and interest charges.
Audits: State tax authorities may audit payroll records to verify compliance.
Operational Risks: Non-compliance can jeopardize business operations, especially for companies bidding on government contracts or operating across multiple states.

To avoid these risks, businesses should implement robust payroll management systems and ensure timely tax filings.

Exemptions and Reductions for ISN

Certain companies and industries may be eligible for exemptions or reduced ISN rates. Examples include:

New Businesses: Some states offer tax incentives or exemptions for newly established businesses during their first years of operation.
Specific Sectors: Industries such as manufacturing or technology may qualify for reduced rates under state-specific economic development programs.
Small and Medium-Sized Enterprises (SMEs): SMEs may benefit from reduced rates or additional tax credits.

Employers should consult with local tax authorities or professional advisors to explore potential benefits and exemptions.

Frequently Asked Questions (FAQ)

To ensure smooth compliance with ISN regulations, employers can follow these best practices:

Stay Updated on State Rates: Regularly check for updates on ISN rates and requirements in the states where you operate.
Implement Reliable Payroll Systems: Use automated payroll software to ensure accurate calculations and timely payments.
Maintain Accurate Records: Keep detailed payroll reports, employee payment receipts, and tax filings for audit purposes.
Work with Local Experts: Engage local tax advisors or Employer of Record (EOR) services to ensure compliance and reduce administrative burdens.
Monitor Deadlines: Set internal reminders to meet ISN filing and payment deadlines to avoid penalties.

Best Practices for Managing ISN in Mexico

What is ISN in Mexico?

ISN (Impuesto Sobre Nómina) is a payroll tax that employers in Mexico must pay based on their total payroll costs. It is a state-level tax with rates varying between 2% and 3%, depending on the state.

Who pays ISN?

The employer is responsible for paying ISN. It is not deducted from employees’ salaries.

How is ISN calculated?

ISN is calculated as a percentage of the total payroll cost, including salaries, bonuses, and benefits. For example: ISN = Total Payroll × State-Specific ISN Rate.

When is ISN due?

ISN payments are due monthly, typically by the 17th day of the following month.

What happens if ISN is not paid?

Non-compliance with ISN regulations can result in fines, interest charges, and audits by state tax authorities.

Conclusion: Staying Compliant for Success

Understanding ISN in Mexico is crucial for businesses to remain compliant with state tax regulations. Since rates and rules vary across states, staying informed and maintaining accurate payroll records are essential. By implementing best practices and leveraging local expertise, businesses can efficiently manage ISN payments and avoid penalties.

If your business operates in Mexico and you need support managing payroll, taxes, or compliance, consider partnering with experts who understand the intricacies of Mexican labor law.

At Europortage, we specialize in payroll, Employer of Record (EOR) solutions, and compliance across Latin America. Let us help you simplify ISN and payroll management in Mexico.

Contact us today to streamline your HR processes!