Doing Business

Doing Business in Mexico 2015

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150 Tax and Legal Services - PwC Mexico Mandatory profit sharing Every business concern with employees is required to distribute a portion of annual profits among all employees, irrespective of its form of organization. The amount distributable to the employees in most cases amounts to 10% of taxable income. As discussed under "Profit sharing" in Chapter 10, special rules apply to a limited number of specific businesses. Profit sharing is deductible from taxable income or added to tax losses. Branch versus subsidiary Except as noted below, from an operational viewpoint, there is no significant difference in operating through a branch or through a subsidiary of a foreign corporation. However, branches may now represent a disadvantage since the branch profits tax (which is equivalent to the 10% dividend tax) is payable on a yearly basis and tax treaty reductions to the rate may not apply. Remittances (i.e. royalties, fees, commissions, services, or interest payments) made by a branch or other permanent establishment of a foreign corporation to its head office abroad are not deductible by the branch, although they would continue to be subject to any applicable withholding taxes. It should be noted, however, that branches and other permanent establishments of foreign corporations which, are located in a country with which Mexico has concluded double tax treaty, are allowed to deduct pro rata allocations of home office expenses. This deduction is not available to subsidiaries of foreign corporations. Also, certain prorated expenses of the home office paid to third parties are subject to withholding taxes. Lastly, it is important to consult with competent legal counsel on the non-tax responsibilities assumed by the home office when operating as a branch, these may include product liability, legal liability, etc. Special industries Coordinated entities managing and operating fixed assets and land directly or indirectly related to freight or passenger transportation may continue to comply with their tax obligations through the entity, on the basis of the rules for individuals engaged in business operations. The tax authorities may grant facilities of an administrative and evidence of compliance facilities of up to 4% of their income, and as concerns the evidence of compliance facility, it may be established that tax not exceeding 17% must be withheld from amounts disbursed. Agricultural, cattle breeding, forestry and fishing activities, applicable to taxpayers engaged exclusively in that sector, with tax determined as follows: a. Entities will have an exemption on an amount equivalent to 20 times the general minimum wage for the geographic area corresponding to the taxpayer, calculated per year for each member, not to exceed 200 times the general minimum wage for the Federal District. b. Individuals will have an exemption of an amount equivalent to 40 times the general minimum wage for the geographic area corresponding to the taxpayer, calculated for the year.

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