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) Having an employee who exercises the power to enter into contracts on behalf andin the name of the nonresident intended for the carrying out of the activities of thenonresident in Mexico;c) Engaging in activities in Mexico through an independent person when such servicesto the nonresident are outside the normal scope of the independent person’sactivities.In addition, certain special cases exist in which trusts, insurers, and real estate constructionor assembly services also create a permanent establishment in Mexico. In thecase of maquiladoras (in-bond manufacturing plants), there are special rules related tothe generation of a permanent establishment in Mexico.The ISR Law also sets out certain circumstances under which a nonresident would notbe considered a permanent establishment, regarding places that store, exhibit, and buygoods and, in general, the use of a place of business only to carry out preparatory or auxiliaryactivities for the activities of the nonresident.It is important to take into account that the double taxation treaties signed by Mexicohave specific rules applying to permanent establishments which, while very similar tothose set out in the ISR Law, must be reviewed if the nonresident is a resident of a countrywith which Mexico has entered into such a treaty.When it is considered that a nonresident has a permanent establishment in Mexico,this fact must be registered in the Federal Taxpayers’ Registry and the nonresident mustcomply with all of the tax obligations as would a tax resident in Mexico. With regard toincome tax, the foreigner will incur such tax as if he/she were a legal entity, but only overincome attributed to the permanent establishment.113Tax Regime2.2. Legal Entities with Tax Residence in MexicoTitle II of the ISR Law, which regulates how legal entities should calculate their taxes,is complex and in many cases there are specific rules for particular situations. Despitethis, in this section we briefly describe the procedure.Income tax is calculated by fiscal years which, as a general rule, coincide with thecalendar year. The income tax rate is 28 percent. There is also a requirement tomake provisional monthly tax payments for the annual tax incurred during the fiscalyear.The first step in determining the taxable base on which the income tax rate is to becalculated is calculating the taxable profit for the previous fiscal year, which is the resultof subtracting the deductions authorized by the ISR Law of that period from the totalincome of that fiscal year. As a second step in calculating the taxable profit, the lossesfrom previous fiscal years may be subtracted.