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Doing Business in Mexico 2015

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66 Tax and Legal Services - PwC Mexico Free trade zones within Mexico There are no free trade zones in Mexico, although free-trade-zone concept has been adopted by the border region concept, granting lower duties in some cases. The border region consists of the 20-kilometer stretch lying on both the northern and southern Mexican borders, Baja California Norte, Baja California Sur and Quintana Roo states, and the Cananea district in Sonora, as well as a part of the same state. Within this region, companies may import goods, either exempt from duties or with a maximum import duty rate of 5%, depending on the product, as long as the products do not enter parts of Mexico. In any case, a specific analysis is required to determine whether the incentives provided within the border region may apply to a specific company. Local representation Market surveys Before starting any engage in export sales to Mexico it is essential to survey existing and potential markets. For this purpose PricewaterhouseCoopers maintains a fully integrated international trade practice staffed with customs and trade specialists (World Trade Management Services). Local agent or customs broker Although is possible for a Mexican tax payer to perform an import or export, a customs broker or local agent is recommended to withdraw merchandise from a Mexican customs office. If delivery of goods is made to a customer within Mexico, the supplier is subject to Mexican VAT and may be subject to income tax. However, see "Bonded warehouses" above and Chapter 16 for the tax treatment of local sales through the use of a bonded warehouse. Employee/salesperson The definition of what constitutes a "permanent establishment" for Mexican income tax purposes (i.e., whether a foreign corporation is deemed to be engaged in a trade or business in Mexico) should be considered. See "Permanent establishment for income tax purposes" in Chapter 16. A permanent establishment of a foreign corporation is deemed to exist if the corporation carries out activities through a representative who acts under detailed instructions or receives guaranteed remuneration, as well as when the representative has the authority to execute contracts or deliver merchandise within Mexico on behalf of the foreign entity. Consequently, if a foreign corporation desires to appoint a sales representative, care should be exercised to ascertain that the relationship is that of an independent contractor and not that of an employee, in order to avoid being deemed a permanent establishment. However, if there is a tax treaty in effect between the country of the foreign corporation and Mexico, the definition of permanent establishment should be analyzed on a case-by- case basis. Under the definition of most treaties, merely having a limited activity sales representative who does not have the power to negotiate contracts may not give rise to a taxable permanent establishment in certain cases, although certain employee taxes and labor obligations may still apply.

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