Doing Business in Mexico (Tax Regime).June, 2010
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Choose of business entity)
• The stock company (“Sociedad Anónima” - SA)
– Capital requirement (as minimum 50,000 MXN)
– Shares
• The limited-liability company (“Sociedad de Responsabilidad Limitada” - SRL)
– Capital requirement (as minimum 3,000 MXN)
– Quotas
• Both can be variable capital (CV) and must have 2 shareholders at least
• Incorporation can take four weeks or longer, depending on the complexity of the project. A permit must be secured from the Ministry of Foreign Affairs
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Investment’s incentives & restrictions)
• The most significant tax incentive is the accelerated depreciation
– The scheme allows same-year deductions for up to 92% of an investment’s value, which may vary by industry or type of assets
– Applies only to new assets. Furniture and cars are not included
– Not applicable in Mexico City, Guadalajara and Monterrey
• Many state governments attract foreign investment through state tax incentives
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation)
• Federal: Income tax vs. Flat tax, Value added tax and Cash deposits tax
• Local: Payroll and property tax
• Social security and housing fund contributions
• Mandatory profit sharing (10%)
• Taxpayers will be obligated to file a tax report if during the previous year:
– Obtain taxable income higher than MXN$34,803,950
– The value of the assets is higher than MXN$60,607,920
– During each month had had more than 300 employees
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (2)
Income Tax :
• Corporate rate 30% on the tax profit (2010, 2011 and 2012)
» 29% for 2013
» 28% for 2014 and subsequent
• Residents taxation on worldwide basis
• Non-residents only for Mexican source of income
• The revenue and expense recognition is on an accrual basis
• Restrictions and requirements on deductions are imposed
• Monthly tax pre-payments are required
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (3)
Income Tax (Deductions):
• Must be properly recorded and supported
• Should be strictly necessary for the business purposes
• Depreciation: straight line basis & maximum rates imposed by government
• Interest: Thin cap rules (3 to 1)
• Inventories: Cost of goods sold
• Documentation requirements
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (4)
Transfer pricing:
• Transactions between related parties must be at arm’s length or they may be adjusted by the tax authorities
• Mexico’s transfer pricing rules generally follow the OECD Transfer Pricing Guidelines
• APAs are possible and documentation must be maintained
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (5)
Non-residents (Withholdings):
• No withholding on Dividends
• Interest:– Foreign banks resident in tax treaty countries 4.9%
– If no tax treaty from 10% to 30% depending on who receive the payment
– Financial leases are taxed at 21%
• Royalties:– Technical assistance, know-how, use of models, plans, formulas and similar technology
transfer 25%
– Patents, trademarks and trade names 30%
• Tax Treaties applicable
• 40% on payments made to “tax havens”
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (6)
Mexico-China Treaty to Avoid Double Taxation:
• Signed in 2005. Effective as of January 1, 2007
• Benefits similar to other treaties to avoid double taxation
• Tax exemptions (i.e. technical assistance) and reduced withholding rates (i.e. interest and royalties)
• Allows “maquiladora” operations to enjoy Mexican special tax regime that provides tax administrative conveniences
• Tax exemption on interest paid to People’s Bank of China, State Development Bank, Import and Export Bank of China, Agriculture Development Bank of China, China Export & Credit Insurance Corp.
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Foreign Income &Tax Treaties)
• Foreign tax credit for tax paid on income earned from abroad up to certain limits
• Treaty network with over 35 countries (Treaties for the avoidance of double taxation)
• Over 10 International Free Trade Agreements
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation)
Flat Tax :
• In force since January 1st, 2008
• Corporate rate 17.5%
• Residents & Non-residents with a PE are liable for sales, services rendered and lease activities
• The revenue and expense recognition is on a cash flow basis (including Inventories & Fixed Assets)
• Restrictions and requirements on deductions are imposed
• Interest, payroll, royalties are not deductible, but a credit is granted for payroll only
• Monthly tax prepayments are required
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (2)
Value Added Tax:
• Indirect tax
• General rate 16%, 11% in the border
• Individuals & Corporations that sale, render services, imports and lease activities within Mexico are liable
• The revenue and expense recognition is on a cash flow basis
• Requirements & limitations on VAT creditable
• Monthly tax payments
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (3)
Cash Deposits Tax Law :
• The objective of the tax is to avoid the informal commerce in Mexico
• Effective as of July 2008
• Taxpayers: Individuals and Companies that received cash deposits in their bank accounts.
– Mexican Pesos or foreign currency
– Considering all cash deposits made in the same bank, regardless if there are different accounts
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (4)
Cash Deposits Tax Law :
• Basis and rate: 3% rate on the cash deposits which exceed MX$15,000, and only the amount in excess of the latter
– This tax do not apply to transfers between accounts of the taxpayers, wire transfers or check deposits.
• Taxpayers are able to credit the cash deposits tax against other taxes in the next order:
– Annual Income Tax and monthly advanced tax payments
– Income tax withheld to third parties
– Other Federal taxes
– Tax refund through the filing of an opinion of a Certify Public Accountant
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (5)
Tax compliance:
• Monthly advanced tax payments (IT & FT) must be filed no later than the 17th day of the following month, except for IT during the first year.
• Annual Tax return within the next 3 months after the closing of the FY (calendar year)
• No later than February 15th of the following year informative tax returns must be filed
• Social Security and Housing Fund should be paid no later than 15th day of the following month
• Withholding taxes should be paid no later than 17th day of the following month
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Business taxation) (6)
Customs:
• Taxpayers should obtain an import register for the importation of goods
• The importer could be a different entity or individual than the real owner of the goods
• IMMEX (“Maquiladora”)
– To have assets in Mexico without create a permanent establishment in the country
– The goods would be under temporary importation
– The entities should obtain small profits (Maquiladora activity)
©2008 Galaz, Yamazaki, Ruiz Urquiza, S.C.All rights reserved
Doing Business in Mexico (Personal taxation)
• Mexican residents taxed on a worldwide basis
• Non-residents when Mexican source, rates vary depending on the type of revenue
• 30% Maximum income tax rate (2010, 2011 and 2012), certain deductions are allowed
» 29% for 2013
» 28% for 2014 and subsequent
© 2008 Galaz, Yamazaki, Ruiz Urquiza, S.C. All rights reserved.
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/mx/aboutus for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its Member Firms.