Doing Business

Doing Business in Mexico 2015

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172 Tax and Legal Services - PwC Mexico Taxation of foreign income Mexican corporations are taxed on their income from all sources. Foreign-source income usually qualifies for the foreign tax credit described in this chapter. Branch income The net income or loss from operations of a foreign branch of a Mexican corporation is includable in the annual income tax return of the Mexican corporation and subject to the same income tax rates, with right to the foreign tax credit discussed below. Foreign subsidiary income The income of foreign subsidiaries of Mexican corporations is not taxed until dividends are paid to the latter, with the exception of investments in preferred tax regimes as described below. Consolidation for tax purposes The inclusion of foreign subsidiaries in a consolidation for Mexican tax purposes is not allowed. Capital gains and liquidation proceeds Gains on sales of shares or on the liquidation of a foreign subsidiary are taxed as ordinary income to a Mexican resident. Loss carry forwards on sales of shares can generally be used to offset gains from similar transactions. Dividends and interest Dividends or distributions of profits received by Mexican companies as shareholders or partners of foreign enterprises and interest from a foreign subsidiary must be included as ordinary income, subject to the foreign tax credit indicated below. Dividends or distributions of profits received by an individual are subject to an additional 10% tax, which should be paid as a definitive payment. Royalties and technical assistance fees Income from technical assistance fees and royalties charged to non-Mexican companies represents ordinary income for income tax purposes, with foreign tax credit allowed, but it is subject to favorable treatment for value-added tax purposes. Foreign exchange gains and losses Foreign exchange gains and losses resulting from certain assets or liabilities denominated in foreign currency are treated as additional interest income or interest expense, respectively, as discussed under "Business profits" in Chapter 15. Exchange gains and losses are recognized on an accrual basis at the end of each month.

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