Doing Business

Doing Business in Mexico 2015

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165 Doing Business in Mexico 2015 Chapter 17 Taxation of shareholders Investor considerations • Dividends paid to individuals and residents abroad are subject to 10% withholding tax. Use of tax treaties to reduce this withholding tax rate should be considered on a case-by-case basis. • Dividend withholding does not apply to profits generated prior to 2014. Balances distinguishing pre 2014 and post 2013 CUFIN are needed to apply this benefit. • When dividends are distributed in excess of net after-tax distributable earnings, the company paying the dividend is subject to a corporate tax at an effective tax rate of 42.86% for 2014. • Intercompany dividends paid between Mexican corporations are not included in taxable income. • Dividends to domestic individual shareholders are taxable to these shareholders on a gross-ed up basis, although a proportional credit is available for their portion of the income tax incurred by the payer. • Capital gains on the sale of shares by domestic corporations are generally fully taxable. • Capital gains on the sale of shares issued by domestic corporations that are realized by individuals, whether Mexican nationals or foreigners, or by foreign corporations are taxable through a special procedure. • Disposal by individuals and non-resident owners of Mexican shares traded widely and publicly in the Mexican or certain foreign stock exchanges is generally subject to a 10% tax rate. • A reorganization of Mexican corporations of the horizontal type, i.e., a consolidation of two corporations or a spin-off of a corporation into two or more corporations, can be done essentially tax-free fulfilling specific requirements, except for the special tax on acquisition of real property. For non-Mexican entities involved in a reorganization of ownership in Mexican entities, an authorization can be granted for deferral of taxes. • Tax basis of assets can generally be stepped up through acquisitions. • Net operating loss carryovers of the surviving corporation in a merger may be utilized only against profits earned in the same line of business. • Net operating losses of the merged company are permanently lost. 17

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