Doing Business

Doing Business in Mexico 2015

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128 Tax and Legal Services - PwC Mexico • Mexico does not recognize any transparency for foreign corporations. • Mexican source income obtained by foreign non-taxed corporations is considered as income obtained by an entity resident in a preferential tax regime (tax haven). • Deduction for payments to foreign related parties and entities resident in tax havens, have specific requirements. • Other deduction limitations and requirements were included in the 2014 tax reform. Corporate tax system Corporations and shareholders The tax rate for corporate taxpayers is 30% Profits taxed are included in the net after tax earnings account (CUFIN) from which dividends can be paid out free of additional corporate taxes. CUFIN balance must be restated for inflation. When dividends are not paid out of the CUFIN, they should be grossed up by a specific factor (1.4286) in order to determine the additional corporate tax payable by the company. This additional corporate tax can be credited in the year of payment and the following two. On the other hand, individuals and parties resident abroad are subject to an additional 10% tax on dividends or earnings distributed by Mexican companies or permanent establishments located in Mexico. This tax must be withheld by the distributing entity. The aforementioned 10% tax is applicable only to profits arising as from 2014. In this regard, the entity or permanent establishment is required to track the CUFIN balance with earnings generated up to 2013 and those generated as from 2014 (i.e., post 2013 CUFIN balance).When these two accounts are not handled separately or profits cannot be identified, the earnings distributed are deemed to be generated as from 2014. Taxable entities Taxable entities include different types of companies, such as corporations, limited liability companies, Mexican partnerships and organizations of a civil nature other than those specifically designated as non-profit organizations, as described in Chapter 13 under "Classes of taxpayer". Under certain circumstances non-resident corporations (or individuals) may be considered to have a permanent establishment in Mexico for income tax purposes, including branches of foreign corporations duly registered to operate in Mexico. The business operations of such establishments are taxed in the same manner as a corporation, with the relatively few differences described under "Branch versus subsidiary" later in this chapter. The Federal Tax Code provides that corporations are to be regarded as residents of Mexico if their principal administration or effective management is established in Mexico. All partners and shareholders of Mexican companies must be registered for tax purposes, except those who acquire their shares on recognized stock markets or markets with high trading volumes. This requirement is met by corporations or entities providing the relevant information on partners and shareholders.

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