Doing Business

Doing Business in Mexico 2015

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206 Tax and Legal Services - PwC Mexico Plus: After-tax earnings of the current fiscal year. Dividends received from Mexican entities. Dividends received from a Preferred Tax Regime (Tax Haven). Less: Dividends paid by the company Capital Redemptions. Equals: Ending balance of the after-tax earnings account. Appendix IV Withholding taxes – Taxation of shareholders Dividend/profit distribution tax rates A dividend or profit distribution must be grossed up by a factor of 1.4286, if in excess of the after-tax earnings account (Cuenta de Utilidad Fiscal Neta or "CUFIN"). As a consequence, the company paying the dividend is subject to a corporate tax at an effective tax rate of 42.86%. The tax so anticipated is creditable currently or in the following two years, against corporate tax liabilities. For individual shareholders there is also a new 10% tax on dividends received from Mexican corporations to the extent the dividends come from income generated after 2013.It must be withheld by the Mexican corporation, and it is a final tax. In addition the individual must report the dividend in his annual tax return and pay income tax up 35% net of the deemed credit for the 30% Mexican corporate tax paid. After-tax earnings account (CUFIN) - determination of balance In broad terms, the CUFIN account represents a Mexican company's net taxable income less reinvested earnings, income taxes, profit sharing distributions, dividends paid and other non-deductible items. The annual taxable income (i.e., Utilidad Fiscal, "UFIN") is a concept that attempts to reflect the true economic earnings of the company. The starting point in determining the annual UFIN of a company is the company's net taxable income for the year after any deductions for net operating loss carry forwards and the profit sharing paid for the prior year. The company's net taxable income is then reduced by income taxes, profit sharing of the year and, in general, certain other non-deductible expenses incurred by the company during the year, to arrive at the company's UFIN for the tax year. Upon the determination of this amount, the resulting amount is then added to the accumulated CUFIN balance (adjusted for inflation) from previous years. For 2014, the determination of the balance of CUFIN must be carried out as follows: Balance of after-tax earnings account of the previous year (Note 1) IV

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