Doing Business

Doing Business in Mexico 2015

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153 Doing Business in Mexico 2015 Chapter 16 Taxation of foreign corporations Investor considerations • As from 2014, dividends paid out from a Mexican Company are subject to a 10% withholding tax for foreign corporations. Under certain treaties, this rate could be reduced. • A similar 10% corporate tax is applicable to profits generated by a Mexican branch (permanent establishment) of a foreign entity. Under certain treaties, this rate could be reduced. • The dividend tax does not apply to profits generated prior to 2014. Separate accounts are needed for pre 2014 and post 2013 CUFIN to apply this benefit. • Branches are taxed in the same way as corporations, except that payments for interest, commissions, royalties, or fees to the home office of the same legal entity are not deductible. However, some branches may deduct reasonable allocations of home office expenses. Mexican tax law generally follows the OECD model treaty definition of a permanent establishment. • Sales people or agents with authority to execute contracts constitute a taxable permanent establishment. • Goods held in bonded warehouses within Mexico do not constitute a permanent establishment. The Mexican customer is considered the importer at the time goods are released from the warehouse. • Liaison or representative offices can operate tax-free in certain circumstances. However, if they employ local personnel, they are subject to normal payroll obligations. • Mexican-source income that is not connected with the conduct of business through a permanent establishment is generally subject to specific withholding tax rates, although tax treaties reduce or eliminate withholding taxes in some cases. 16

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