PFAE 2026: complete guide to the Self-Employed Business Activity regime in Mexico

The PFAE regime (Persona Física con Actividad Empresarial y Profesional — Self-Employed Business and Professional Activity) is governed by Arts. 100 to 110 of the LISR and applies to individuals carrying out commercial, industrial, transport, agricultural, livestock, or independent professional activities. It has no income ceiling: unlike RESICO, which caps at $3,500,000 pesos annually, PFAE applies at any income level. Individuals are required to file under PFAE when they exceed the RESICO ceiling, when they are active partners in civil partnerships (sociedades civiles), when they provide professional services to multiple clients without employer withholding, or when the SAT migrates them automatically for exceeding other regime thresholds. The main advantage of PFAE over RESICO is the ability to deduct actual documented expenses via CFDI invoices — which can result in significantly lower ISR when expenses represent more than 40-50% of income.

The monthly provisional ISR payment under PFAE uses the utility coefficient (coeficiente de utilidad) from the prior fiscal year, as established by Art. 106 LISR. The process has four steps. First, determine the utility coefficient: divide the prior year's fiscal profit by that year's net income. If in 2025 you had income of $1,200,000 and taxable profit of $360,000, the coefficient is 0.30. Second, apply that coefficient to the current period's cumulative income: if in January–March 2026 you earned $350,000, the estimated profit is $350,000 × 0.30 = $105,000. Third, apply the Art. 96 LISR rate schedule to that estimated cumulative profit to determine the ISR for the period. Fourth, subtract provisional payments made in prior months of the year. The result is the ISR due for that month. If it is the first year of activity and no coefficient exists, actual documented expenses for the period can be deducted directly instead. Provisional payments are due by the 17th of the month following the period.

Under PFAE, deductible expenses are those strictly necessary for the business activity, documented with a valid CFDI and paid by bank transfer or nominative check when the amount exceeds $2,000 pesos (Art. 105 LISR). Authorized deductions include: office rent or proportional workspace costs (including a home office percentage), computer equipment and work tools, direct raw materials or business inputs, fees paid to collaborators or subcontractors with their CFDI, fuel and vehicle maintenance for business-use vehicles (with carta porte when applicable), IMSS employer contributions if you have employees, and depreciation of fixed assets such as equipment, machinery, and vehicles. What CANNOT be deducted: personal expenses unrelated to the activity, cash payments above $2,000 pesos without a bank transfer, invoices from suppliers on the SAT blacklist (Art. 69-B CFF), invoices where the RFC does not match the taxpayer's, and asset purchases that must be deducted through depreciation rather than as a direct expense. The difference between having organized CFDIs and not having them can represent 15-30% of the annual ISR bill for taxpayers with moderate expense levels.

The choice between PFAE and RESICO depends primarily on the ratio of expenses to income. Under RESICO, ISR is calculated by applying a fixed rate on collected revenue (between 1% and 2.5% for income up to $3,500,000), regardless of actual expenses. Under PFAE, ISR is calculated on actual profit (income minus authorized deductions). PFAE is advantageous when expenses exceed roughly 40-50% of income, because real deductions generate a lower ISR than RESICO's flat rate on gross revenue. Example: a consultant with $2,400,000 in income and $1,200,000 in deductible expenses has taxable profit of $1,200,000. The ISR on $1,200,000 under the progressive schedule will be noticeably lower than the 2.5% applied to $2,400,000 that RESICO would charge ($60,000). RESICO makes more sense when expenses are low (pure intellectual services with few costs), annual billing is under $1,000,000, or when simplicity and automatic calculation without full bookkeeping are prioritized. This decision should be reviewed annually against projected real income and expenses — it is not permanent and can be changed at the start of each fiscal year by filing the corresponding notice with the SAT.

The SAT may update a taxpayer's tax regime by official action when it detects that income exceeded the permitted ceiling (Art. 27 CFF). For RESICO, if income exceeds $3,500,000 in one fiscal year, the SAT notifies the taxpayer and migrates them to PFAE for the following year, typically effective January. The problem is that many taxpayers do not check their tax mailbox (buzón tributario) or do not detect the change until they try to issue an invoice under the old configuration or until an accountant reviews the situation. The consequences of continuing to operate as if still under RESICO when already under PFAE include: incorrectly calculated provisional payments creating tax differences due with surcharges (1.47% monthly) and a filing violation for not submitting returns in the correct format, omission of monthly VAT filing if under RESICO the taxpayer was exempt from filing VAT as a non-business activity, and loss of deductions for the first months because CFDIs were not properly registered from January. The preventive action is to check the RFC registration on the SAT portal (cédula de identificación fiscal) in December of each year to confirm the active regime for the following year, especially when income is approaching the $3,500,000 ceiling.