Mexico Depreciation

LISR Maximum Rates: Mexico's Prescribed Depreciation Schedule

Mexico's Ley del Impuesto Sobre la Renta (LISR) Articles 31–38 establish maximum annual depreciation rates applied on a straight-line basis to the original inflation-adjusted cost. Buildings are limited to 5% per year (a 20-year write-off), office furniture and equipment to 10%, automobiles and light vehicles to 25% (four-year write-off), general computers and peripheral equipment to 30% (approximately three years), and semiconductor production equipment to 35%. Assets used in manufacturing, industrial processing, or research often qualify for higher rates — machinery in specific industries can reach 35% or more under Articles 35 and 36. Crucially, Mexican depreciation is calculated on inflation-adjusted historical cost, with the Índice Nacional de Precios al Consumidor (INPC) factor applied from the month of acquisition to the calculation date. This inflation adjustment distinguishes Mexico's system from most peer countries and can materially increase the allowable deduction in high-inflation years.

Immediate Deduction for Regional Investment

Article 56 of the LISR (formerly Article 220, reinstated in 2022) permits an immediate deduction on qualifying fixed asset investments — effectively allowing the discounted present value of future normal depreciation to be claimed in a single year. The benefit is calculated using present-value factors published by the SAT that vary by asset type and designated investment region. Assets placed in stimulated regions of Mexico — broadly corresponding to less-developed states — qualify for the most favourable factors, sometimes approaching 85–90% of cost in year one for machinery. A food processing company investing MX$50 million in new equipment in Oaxaca state could deduct MX$42–45 million immediately rather than MX$8.75–17.5 million per year under standard LISR rates — a tax deferral benefit worth millions of pesos in present value terms that can materially change the investment decision calculus.

Vehicle Depreciation Cap and Practical Implications

Mexico imposes a strict acquisition cost cap on vehicle depreciation: only MX$175,000 of cost (approximately US$9,000 at current exchange rates) can serve as the depreciation base for automobiles, regardless of actual purchase price. At the standard 25% rate, the maximum annual deduction per vehicle is MX$43,750. A company acquiring a MX$600,000 executive sedan cannot deduct 25% of MX$600,000; it is capped at MX$43,750 per year. This cap has not been indexed for inflation since 2014, significantly eroding its real value — in 2014, MX$175,000 represented a mid-range vehicle; today it represents a low-specification economy car. IVA (VAT) crediting on vehicles is similarly restricted, making vehicle acquisition and deployment tax planning in Mexico uniquely complex compared to most Latin American peers, and creating strong incentives to structure corporate vehicle use through leasing arrangements.