Doing Business

Doing Business in Mexico 2015

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171 Doing Business in Mexico 2015 Chapter 18 Taxation of foreign operations Investor considerations • Foreign-source income of Mexican corporations is fully taxable, with limited double taxation relief by way of a foreign tax credit. • Mexico has entered into tax treaties and has signed agreements to exchange tax information with several countries, and these treaties also include provisions to minimize the effects of double taxation. • Earnings of a foreign subsidiary of a Mexican corporation are taxable only when repatriated as dividends, with the exception of companies with investments in entities located in a low-tax jurisdiction or preferred tax regime (PTR) (i.e., tax havens specially mentioned in the law as well as entities subject to a tax rate which is less than 75% of the tax that would be paid had the income been earned in Mexico) the income from which, the Mexican investor must generally consider as earned and taxable, although certain particular rules may apply. • In some cases the Mexican corporate shareholder owning at least 10% of the shares of the distributing corporation are entitled to a deemed paid credit for taxes paid by the foreign corporation. • Proceeds from the liquidation of a foreign subsidiary are taxable if they exceed their cost basis. • Dividends received by an individual are subject to an additional 10% tax which should be paid as a definitive payment. • Losses of a foreign branch can be offset against domestic profits, as the taxable income or loss of the foreign branch is included with the domestic operations on a current basis. • Consolidation of foreign subsidiaries is not allowed. 18

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