Mexico's recent tax reform may have a substantial impact on insurance businesses, as it affects the deductibility of individuals' insurance premiums.

Previously, the Income Tax Law allowed individuals to deduct from their annual taxable income all amounts paid for:

  • medical insurance; and
  • insurance for retirement savings, provided that the beneficiary is the individual or the individual's spouse, ascendant or descendant.

However, the tax reform has limited the amount of annual deductions to $7,000 a year, regardless of the number of dependants in the individual's household.

The immediate effect of this limit on deductions will be numerous cancellations of medical insurance policies and retirement plans, which had previously incentivised long-term savings by individuals.

While many hoped that the executive branch would issue resolutions expanding the deductibility of medical insurance premiums and incentivising retirement insurance – or else that amendments would be made to the Income Tax Law – a recent tax pact announced by the Ministry of Finance indicates that no amendments will be made to the law for the remainder of the administration.

Further, corporations will face limits on the deductibility of life and medical insurance premium payments that are considered an element of employee compensation (ie, social provision contributions, which can be considered non-cash compensation). Although uncertainty still abounds as to the interpretation of the Income Tax Law and its constitutionality, corporations will be allowed to deduct only 43% or 47% of such insurance premium payments, rather than 100% as previously.

These changes in the tax treatment of premiums will surely have an impact on the placement of insurance, and are already considered a disincentive for personal insurance savings and a serious hit to social provision contributions, which until now have greatly benefited employees as non-cash compensation.

For further information on this topic please contact Carlos Ramos Miranda at Barrera, Siqueiros y Torres Landa SC by telephone (+52 55 5091 0000), fax (+52 55 5091 0123) or email ([email protected]). The Barrera, Siqueiros y Torres Landa SC website can be accessed at