Doing Business

Doing Business in Mexico 2015

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154 Tax and Legal Services - PwC Mexico Tax concepts Separation of business and nonbusiness income Mexican income tax law contains specific rules for the taxation of Mexican-source income of non-resident foreign corporations and individuals. For tax purposes, Mexican- source income of non-resident corporations and individuals may be divided into the following general categories: • Income of Mexican branches of foreign corporations or income attributable to what are classified as permanent establishments for income tax purposes in Mexico—Income is taxed under similar rules as those applicable to Mexican corporations. • Mexican-source income not arising from branches or permanent establishments—This income is usually taxed at a flat rate applied on a withholding basis to the gross income without deductions of any kind, as discussed below, except in a limited number of cases when a higher rate of tax can be applied to net income if the non-resident meets specific residency requirements and has appointed a duly qualified representative in Mexico. For income from personal services rendered in Mexico, see Chapter 20 Imports Sales from outside Mexico Except in the case where a permanent establishment of a foreign resident is deemed to exist as described below, Mexico treats international sales to a resident of Mexico that legally imports the goods as sales completed outside Mexico. Accordingly, foreign corporations exporting merchandise through direct sales to Mexican customers are not subject to Mexican taxation. In these cases, the goods are imported by the customers and will normally be subject to import duties and value-added tax, but these are obligations of the Mexican importer. Sales of merchandise or other assets within Mexico Foreign residents are taxed on sales in Mexico in two general cases, as follows: 1. When the foreign corporation has a registered branch or permanent establishment for income tax purposes in Mexico—Sales within Mexico made by the head or other foreign office will be attributed to the Mexican establishment. Moreover, foreign residents who own merchandise on consignment in Mexico for sale in Mexico are generally considered to have a permanent establishment in Mexico for income tax purposes and therefore are subject to Mexican income tax on their profits from such sales. However, certain tax treaties that Mexico has in effect with other countries permit the maintenance of inventories solely for delivery. A non-resident is allowed to maintain inventories in a bonded warehouse for delivery in Mexico. The ultimate Mexican importer is responsible for any customs duties or licenses (if applicable) and for the value-added tax upon withdrawal of the merchandise from the bonded warehouse. 2. When the non-resident directly or indirectly sells land or buildings located in Mexico, trust rights to such real property, shares of stock issued by Mexican corporations, or capital interests in non-stock companies domiciled in Mexico, the proceeds of these sales are considered Mexican-source income no matter where the sales take place.

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