Tax Audits in Construction: What No One Tells You About Deductions and Materiality in Mexico

Tax Audits in Construction: What No One Tells You About Deductions and Materiality in Mexico

Do you want to ensure profitability and fiscal peace of mind for your construction company in Mexico? Discover how to avoid tax audits, penalties, and the loss of key tax deductions in your construction projects.

Tax audits in the construction sector in Mexico have intensified due to the dynamic real estate market, large investment volumes, and recent tax reforms. Authorities such as the SAT (Mexican Tax Authority), IMSS, and INFONAVIT have increased their audits and inspections, affecting small, medium, and large construction companies alike. Fully complying with the requirements for tax deductions, proving fiscal materiality, and ensuring proper documentation of subcontracting is essential to protect the profitability and legal compliance of your projects.

Common Challenges in the Construction Industry

At Tax Art, specialists in tax and accounting services for construction companies in Mexico, we have identified common mistakes that impact businesses of all sizes and profiles:

  • Lack of documentation and tax compliance: Failing to provide formal contracts, CFDIs (electronic invoices), electronic logs, and evidence of received services can result in the cancellation of tax deductions by the SAT.

  • Confusion between deductible expenses and capital investments: Recording fixed asset acquisitions as operational expenses generates fiscal discrepancies, affects tax profitability, and can trigger audits.

  • Unawareness of materiality requirements: Not having objective evidence (photographic reports, construction logs, signed progress reports) jeopardizes tax compliance before the authorities.

  • Non-compliance with recent subcontracting reforms: The latest reforms on subcontracting in Mexico require strict integration and ongoing updating of labor files, contracts, and payment proofs before IMSS and INFONAVIT.

Real Case: SAT Audit Consequences

A construction company recently audited in northern Mexico failed to prove the materiality of subcontracted services. This led to the loss of key tax deductions, financial penalties, and a compliance warning from the SAT, negatively impacting its reputation and business continuity.

Key Legal Foundations and Obligations

  • SAT: Article 27 of the Mexican Income Tax Law (LISR), which requires evidence of the existence and materiality of deductible goods and services.

  • IMSS: Article 15-A of the Social Security Law, applicable to subcontracting in the construction sector and proper integration of labor records.

  • INFONAVIT: Article 29 of the INFONAVIT Law, related to documentation and proof of employer contributions.

How to Protect the Tax Profitability of Your Construction Company

  • Always request CFDIs, detailed contracts, and updated documentation from all suppliers and subcontractors, fulfilling both fiscal and labor requirements.

  • Maintain electronic logs, photographic reports, and physical evidence of every stage of your construction project to support fiscal materiality.

  • Conduct quarterly accounting and tax reviews to detect and correct inconsistencies before any SAT, IMSS, or INFONAVIT audit.

  • If you have foreign investors or work on international projects, make sure to have bilingual tax advisory (bilingual CPA) and specialists in cross-border taxation US-Mexico to ensure compliance in both countries and facilitate communication.

Benefits of Specialized Tax Advisory

Prevention, periodic accounting review, and tax advisory for construction companies are the keys to maximizing deductions, complying with Mexican regulations, and minimizing tax risks. At Tax Art, we support our clients in document management, materiality, and comprehensive tax compliance, ensuring their competitiveness in the national and international market.


Conclusion

Tax audits in construction are increasingly rigorous in Mexico. Prevention, fiscal materiality, and professional advisory make the difference between a profitable project and one vulnerable to penalties or fiscal losses.

Are you looking for peace of mind, tax compliance, and greater profitability in your construction projects? Contact Tax Art for a professional, personalized, and bilingual review of your construction company. Our team of experts in tax audits, materiality, and tax deductions will help you protect your interests before the SAT, IMSS, and INFONAVIT

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