Doing Business

Doing Business in Mexico 2015

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155 Doing Business in Mexico 2015 Branch operations A branch of a foreign corporation formally registered to do business in Mexico, as well as any other permanent establishment for income tax purposes, is in general taxed as a Mexican corporate business enterprise. Only income attributable to the branch itself is considered for tax purposes, except that, under a rule of attraction, sales of goods carried out in Mexico by the head office or other offices of the same legal entity must be considered income of the branch or other permanent establishment. Income may also be attributed to the permanent establishment to the extent that it participates in the expenses incurred to produce income in any other establishment of the same legal entity. It should be noted that if a foreign corporation has more than one branch or other unincorporated permanent establishment in Mexico, even in unrelated lines of business, a single annual return must be prepared that combines the income and deductions of all the establishments. Duly registered branches or other permanent establishments of foreign corporations in Mexico are allowed the deductions corresponding to their activities, whether incurred within or outside of Mexico, as long as they comply with the specific requirements of the income tax law and regulations, including expenses that represent reasonable allocations from the head office or other offices located outside of Mexico. Allocations are only allowed if the head office is a resident of a country with which Mexico has signed a tax treaty and the other foreign offices are in addition residents of a country with which Mexico has signed a "comprehensive exchange of information agreement". On the other hand, remittances to such offices will not be deductible even when made in payment of royalties, fees, commissions for actual services, or interest on funds provided to the establishment in Mexico or for similar purposes. The cost of assets imported from the head office or other offices of the foreign taxpayer will be determined on the basis of the lower of fair market value or the amount declared for customs purposes. Permanent establishment for income and flat tax purposes In accordance with the income tax law, any place in Mexico where business activities are partially or totally carried out, such as branches, offices, agencies, or mining exploration sites, regardless of the length of time involved, will be considered as a permanent establishment in Mexico for income tax purposes and subject to taxation as described above. The law also provides that if a foreign resident corporation or individual acts within Mexico through an individual or company that has and exercises power to sign contracts in the name of the foreign resident, involving business activities in Mexico other than activities referred to below, the foreign resident will be considered to have a permanent establishment for income tax purposes in Mexico as regards such activities even if they are not carried out in a fixed place of business. A non-resident is also considered to have a permanent establishment if it owns merchandise for resale in Mexico (other than that deposited in a bonded warehouse, as discussed above), or in the case of business activities carried out by a foreign resident through a trust, the premises in which the banking institution (i.e., the trustee) carries out such activities will be considered as the place of business of the foreign resident. 16

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