Key Mexican Tax Laws and Accounting Principles

Code of Commerce: A Systematized Set of Rules of Mercantile Law

The Code of Commerce is a systematized set of rules of law designed to regulate commercial activities, seeking to adapt to the needs and dynamics of economic relations.

Federal Tax Code: This code contains a computerized system establishing concepts and procedures for tax revenue and the relationship between the taxpayer and the Federation.

Income Tax Law (ISR): This law seeks to levy taxes on the income of individuals, such as employees and those who conduct business or professional activities.

Value Added Tax Law (VAT): This is a general-level law intended to tax activities such as the sale of goods, the provision of independent services, and the temporary use of property.

Accounting Principles that Define the Economic Entity

The principles that define the economic entity identify the entity conducting financial transactions with persons, whether legal or natural, and refer to the accounting period known as the year, i.e., the 12 months into which the company divides its work.

• Entity: An identifiable unit engaged in economic activities, comprising natural or legal persons. It is made up of human, material, and financial or capital resources.
• Realization (Economic Substance): This principle quantifies, in monetary terms, domestic transactions and other events conducted by the entity with other economic entities, such as when buying goods from another entity.
• Accounting Period (Matching of Costs, Revenues, and Expenses): This principle states that the operations carried out by the entity should be identified and recorded in the period in which they occur, usually within 12 months, during which the entity or company operates.

Accounting Principles of the Operations of Quantified Entities and Their Presentation

These are the accounting principles that identify the entity that performs transactions, i.e., carries the history of conducting financial transactions.

• Original Historical Value: This principle states that transactions should be quantified in the accounts and registered at their value at the time they are made. For example, the purchase of computer equipment should be recorded at the current price when it was acquired, in this case, six months ago, not next year's price.
• Economic Duality: This principle states that the resources of the entity, whether its own or others, should be equal to those that give rise to the transactions.
• Going Concern: This principle states that the entity is presumed to be permanent or continuing in existence unless a notice of suspension of activities is given to the Tax Administration Service (SAT).

Accounting Principles Establishing the Basis for Presenting Information

These principles provide the basis for the presentation of information in the basic financial statements, such as the statement of financial position and the income statement, among others. They are the principles that identify the basis for how the results obtained during the exercise should be presented.

• Relative Importance: This principle states that the information presented in financial statements should show the important aspects quantified in monetary terms.
• Consistency (Comparability): This principle states that accounting information must follow the same procedure to quantify the transactions of an entity.