Doing Business

Doing Business in Mexico 2015

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167 Doing Business in Mexico 2015 for individuals is now 35%. Therefore, the combined tax for Mexican resident individuals on dividends from foreign sources may be 45%, while the combined additional tax on domestic dividends may be 15%. Capital gains Gains on the sale of shares by corporations are fully taxable, although the historical-cost basis of the shares for this purpose is adjusted for inflation and, in the case of shares issued by Mexican corporations, the basis is also adjusted for the change in the after-tax earnings account (CUFIN), as discussed under "Capital gains" in Chapter 15. Capital gains on the sale of shares by individuals are taxable in the same manner as for corporations. If the gain arises from the sale of publicly and widely traded Mexican shares through the Mexican Stock Exchange (or certain foreign exchanges), a 10% withholding tax rate should be applicable. Foreign shareholders Dividends Individuals and parties resident abroad are subject to 10% tax on dividends or earnings generated as from 2014 and distributed by a Mexican company. The tax must be withheld by the companies distributing the dividends, and it is considered to be a definitive tax payment. Please note that some treaties concluded by Mexico may grant a zero or lower withholding tax rate. As in the case of domestic shareholders, an additional corporate tax at an effective rate of 42.86% applies only if the dividend is distributed out of earnings that have not been subject to the regular corporate income tax. Capital gains Gains by foreign corporations on the sale of shares issued by Mexican corporations are taxable, irrespective of where the sale takes place, as described under "Sales of shares or capital interests" in Chapter 16. As in the case of resident individuals, gains by foreign shareholders, corporate or individual, are subject to a 10% tax if they arise from the sale of publicly and widely traded shares through the stock exchange. Reorganizations Incorporation The conversion of a Mexican branch of a foreign corporation into a subsidiary corporation would entail the following: • Formation of the subsidiary. • Transfer (generally through a sale) of all of the branch assets to the subsidiary. • Transfer of its employees, who would retain their seniority and, • Liquidation of the branch. The transfer of the assets and the liquidation of the branch are taxable transactions that may give rise to taxable income or loss, value-added tax and real estate transfer taxes. A specific authorization (or notification in some cases) may be required to permit the incorporation of the branch of the foreign corporation, but if it is required, in all probability this authorization would be granted by the National Commission on Foreign Investment because operating as a branch already involves 100% foreign ownership. Net operating losses of the branch, if any, would be lost, as they are non-transferable. 17

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