Tax Management Portfolio, Business Operations in Mexico, discusses the significant features of Mexican income tax law as applied to foreign investors conducting business activities in Mexico. To
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Tax Management Portfolio, Business Operations in Mexico, No. 7240, discusses the significant features of Mexican income tax law as applied to foreign investors conducting business activities in Mexico. In addition to a detailed discussion of the taxation of domestic and foreign corporations and individuals, it includes an analysis of the legal and regulatory provisions governing the conduct of business operations within the country.
The Detailed Analysis addresses the principal business entities as well as the significant areas of investment and commercial regulations, and contains an in-depth analysis of the Mexican tax system.
The Worksheets supplement the information contained in the Detailed Analysis with English translations of laws affecting foreign investment in Mexico, the texts of the Mexico-U.S. and Mexico-Canada tax treaties, and other pertinent tax materials.
This Portfolio may be cited as Solano and Grosselin, 7240 T.M., Business Operations in Mexico.
Manuel F. Solano
Manuel F. Solano, Universidad Autonoma de Centro America, Costa Rica; Youngstown State University (B.S., 1986); Georgetown University Law Center (J.D., 1989); member, American Bar Association; member, New York State Bar.
Terri L. Grosselin
Terri L. Grosselin, West Virginia University (B.S. 1984, MPA, 1985).
Table of Contents
Detailed Analysis I. Mexico — The Country, Its People and Economy A. The Country B. Language C. Population D. Political Organization E. Legislative Power F. Executive Power G. Judicial Power H. Economy I. Foreign Trade 1. North American Free Trade Agreement 2. Other Trade Agreements II. Foreign Investment Regulations A. In General B. Restrictions on Foreign Investment 1. Incorporation of a Mexican Company 2. Acquisition of Real Property 3. Investment in “Neutral” Shares 4. Registration of Foreign Investment 5. Penalties C. Federal Law on Economic Competition 1. Individuals and Corporations Subject to Law 2. Monopolies and Monopolistic Practices 3. Creation of Conglomerates (Concentraciones) 4. Proceedings and Investigations 5. Requirements Set by Commission D. Import Regulations 1. In General 2. Customs Duties 3. Other Taxes 4. Information Procedures 5. Other Charges 6. Fines and Other Penalties 7. Customs and Storage 8. Ports of Entry 9. Bonded Warehouses 10. Free Trade Zones Within Mexico E. General Business Regulations 1. Monopolies and Restrictive Trade Practices 2. Price Controls 3. Securities Regulations 4. Patent and Trademark Protection 5. Licenses, Copyrights, and Trade Secrets 6. Bankruptcy F. Maquiladora Program 1. Overview 2. Certification Process a. General Requirements b. Additional Requirements for IMMEX Entities c. Additional Requirements for “Sensitive” IMMEX Entities d. Additional Requirements for AA and AAA Types 3. Maquiladora Operation Structures 4. Geographical Locations 5. Taxation Issues 6. Shelters III. Forms of Doing Business in Mexico and Legal Requirements A. Principal Investment Vehicles B. Sociedad Anónima 1. Characteristics 2. Formation 3. Foreign Investment Requirements 4. Required Legal Capital 5. Classes of Shares 6. Shareholders' Meetings 7. Corporate Management 8. Statutory Examiner (Comisario) 9. Dividends 10. Capital Increases or Reductions 11. Amortization of Shares 12. Shareholder Redemptions 13. Recapitalizations 14. Issuance of Publicly Traded Securities by Corporation C. Sociedad Anónima Promotora de Inversión D. Corporation with Variable Capital E. Limited Liability Company 1. Organization and Capital Requirements 2. Management F. Partnership G. Limited Partnership H. Other Investment Vehicles 1. Joint Venture Contract (Asociación en Participación) 2. Trust (Fideicomiso) 3. Branch of a Foreign Company I. Corporate Reorganizations 1. Mergers 2. Corporate Divisions J. Corporate Conversions K. Dissolution and Liquidation of a Company 1. Dissolution 2. Liquidation IV. Taxation — General Remarks Introductory Material A. Legal Framework 1. Taxing Power 2. Federal Tax Laws 3. Rulings 4. Tax Court System B. Administration and Procedure C. Accounting Requirements 1. General Requirements 2. Audited Financial Statements 3. The Mexican Accounting System D. Tax Certificate Issued by Public Accountant E. Restructuring of Income Tax System V. Income Taxation of Domestic Legal Entities A. Entities Subject to Income Tax 1. Mexican Residents 2. Foreign Entities with Permanent Establishments in Mexico 3. Foreign Entities that Derive Mexican-Source Income 4. Tax-Exempt Entities 5. Joint and Several Liability B. Worldwide Income Basis of Taxation C. Tax Accounting 1. In General 2. Tax Accounting Periods 3. Functional Currency 4. Tax Accounting Methods 5. Tax Accounting for Inflation 6. Inventory D. Taxation of Legal Entities 1. Corporate Taxation and Dividends a. General Rules b. Cuenta de Utilidad Fiscal Neta Reinvertida 2. Cuenta de Utilidad Fiscal Neta 3. Excess Distributions 4. Taxation of Redemptions and Liquidations 5. Taxation on Disposition of Shares of Mexican Companies Other than by Way of Redemption or Liquidation 6. Deemed Distributions and Shareholder Loans E. Gross Income 1. Definition of Gross Income 2. Gains from Disposition of Stocks and Securities of Mexican Companies 3. Gains from Sale of Shares of Foreign Companies 4. Gains Arising from Alienation of Fixed Assets and Real Property 5. In-kind Payments 6. Improvements Made to Leased Real Property 7. Gains Realized as Result of Merger 8. Gains Realized as Result of Corporate Division 9. Inflationary Gains 10. Gains Arising from Financial Derivative Transactions 11. Unreported Income from Financing F. Deductions 1. In General 2. Pre-operating Expenses 3. Management Fees 4. Travel Expenses 5. Royalties and Technical Assistance Fees 6. Casualty Losses 7. Bad Debts 8. Rents 9. Salaries, Wages and Stock Options 10. Research and Development Expenses 11. Payments to Tax Haven Residents G. Interest and Inflation Adjustments 1. General Interest Deductibility Rules and Limitations on Deductibility 2. Inflationary Adjustments 3. Exchange Gains and Losses 4. Matching of Exchange Losses and Inflationary Gains H. Depreciation 1. In General 2. Annual Depreciation 3. Useful Lives of Assets 4. Special Rules for Depreciation and Amortization a. Capital Expenditure b. Deferred Expenses c. Deferred Charges d. Automobiles e. Entertainment Facilities f. Aircraft and Ships g. Mergers h. Bond Issues i. Obsolete Equipment j. Assets Used in an Asociación en Participación I. Nondeductible Items 1. Taxes 2. Participation in Profits 3. Business Gifts 4. Representation Expenses 5. Business Meals and Entertainment Expenses 6. Fines, Penalties and Indemnifications 7. Certain Interest Expenses 8. Provisions and Reserves 9. Premiums Paid on Redemption 10. Losses Incurred on Merger, Liquidation or Redemption 11. Certain Losses on Assets 12. Goodwill 13. Certain Taxes 14. Losses on Sale of Shares and Certain Securities 15. Pro Rata Expenses 16. Losses Incurred on Certain Financial Derivative Transactions 17. Meals in Restaurants and Bars 18. Certain Expenses of Customs Services 19. Payments Made to Low-Tax Jurisdictions J. Net Operating Losses K. Capital Gains and Losses 1. In General 2. Capital Losses Arising from the Disposition of Shares L. Transfer Pricing Issues M. Tax Rate N. Credits 1. Foreign Tax Credit 2. Investment Credit 3. Incentive Credits a. Research and Development Credit b. High Performance Sports Credit c. Credit for Investment in Charging Stations for Electric Vehicles O. Filing and Payment of Tax 1. Annual Tax Return 2. Estimated Tax Return 3. Payment of Tax on Installment Basis 4. Amended Returns P. Penalties and Interest 1. Penalties 2. Adjustment of Deficiency 3. Interest 4. Refunds Q. Tax Fraud R. Taxable Transfers of Property S. Nonrecognition Provisions 1. Statutory Merger 2. Corporate Divisions 3. Securities Lending Transactions 4. Transfers of Shares Under a Corporate Reorganization T. Consolidated Returns 1. In General 2. Integrated Regime 3. Ownership Requirement for the Integrated Return 4. Nonqualifying Corporations 5. Establishing Holding Company Structure U. Taxation of Other Investment Vehicles 1. Fideicomiso or Mexican Trust 2. Asociación en Participación V. Financial Leases 1. In General 2. Income Tax Treatment 3. Withholding Rates 4. Lessee's Deductions 5. Value Added Tax VI. Income Taxation of Foreign Corporations Introductory Material A. Foreign Corporations Subject to Mexican Taxation B. Concept of Permanent Establishment C. Income Attributable to Mexican Permanent Establishment 1. In General 2. Computation of Tax Liability D. Income of a Nonresident Not Attributable to a Permanent Establishment 1. In General 2. Dividends 3. Interest a. In General b. Definition Under Domestic Law of Interest when Paid to Nonresidents c. Withholding Tax Rates on Interest Payments to Nonresidents d. Interest Payments to Nonresidents Exempt from Mexican Income Tax e. Back-to-Back Loans 4. Royalties and Technical Assistance Fees 5. Construction Fees 6. Rents 7. Sale of Shares of Mexican Company by Nonresident 8. Publicly Traded Shares 9. Gains from Sales of Real Property 10. Income from Financial Derivative Transactions 11. Exemption from Mexican Withholding Taxes for Foreign Tax-Exempt Pension Funds VII. Taxation of Resident Individuals A. Individuals Subject to Tax B. Residence C. Determination of Gross Income 1. Items Included in Gross Income 2. Capital Gains and Losses 3. Exempt Income D. Allowable Deductions and Credits 1. Business Deductions 2. Small Taxpayers 3. Personal Deductions and Exemptions E. Tax Rates F. Assessments and Filings 1. Filing Date 2. Payment of Tax 3. Withholding Tax Obligation on Sale of Shares by Mexican Individual VIII. Taxation of Nonresident Individuals A. General B. Salaries and Directors' or Administrators' Fees C. Income from Pensions and Other Retirement Benefits D. Independent Personal Services IX. Other Taxes on Individuals and Payments that Must Be Made by Employers Introductory Material A. Social Security B. Severance Pay C. Seniority Premium D. Christmas Bonus E. Paid Holidays and Vacations F. Profit Sharing 1. Obligation to Pay 2. Calculation of Profit Sharing 3. Effect of Profit Sharing X. Other Taxes on Companies and Individuals A. Value Added Tax 1. History 2. Method of Taxation 3. Taxpayers 4. Tax Rates a. In General b. Zero Rate 5. Exempt Transactions 6. Timing of Tax Liability 7. Independent Services 8. Importation of Goods and Services 9. When Sale Is Considered to Take Place in Mexico 10. Exportation of Goods and Services 11. Withholding of Value Added Tax 12. Determination of Value Added Tax Credits 13. Filing Requirements and Payment of Tax 14. VAT During Pre-operating Periods B. Excise Taxes C. Property Taxes 1. Tax on Acquisition of Real Property 2. Annual Property Tax D. Single Rate Business Tax XI. Taxation of Mexican Residents on Income from Investments in Low-Tax Jurisdictions A. General Rules B. Exceptions to the General Rules C. Scope of Investments D. Calculation of Income E. Foreign Tax Credits F. Obligations of Taxpayers XII. Avoidance of Double Taxation Introductory Material A. Foreign Tax Credit B. 1992 Mexico-United States Tax Treaty 1. Background 2. Residence 3. Permanent Establishment 4. Taxation of Business Profits 5. Dividends and Branch Profits Tax 6. Interest 7. Royalties 8. Possibility of Fees for Technical Assistance Falling Within Overall Definition of Royalties 9. Capital Gains on Share Disposals 10. Other Fee Income 11. Associated Enterprises and Transfer Pricing 12. No Application to Value Added Tax C. Other Treaties
Table of Worksheets Worksheet 1 Filing Requirements for Incorporating Sociedad Anónima Worksheet 2 Information To Be Presented to the Ministry of Foreign Affairs Worksheet 3 Legal Requirements with Respect to Statutory Merger Worksheet 4 Filing Requirements for Division Worksheet 5 Chart of Accounts Provided by Tax Authorities for Mapping Electronic Accounting (Annex 24 to the RM) Worksheet 6 Schedule of Significant Transactions That Must Be Reported on a Quarterly Basis Worksheet 7 1991 Mexico-Canada Income Tax Treaty Worksheet 8 1992 Mexico-United States Income Tax Treaty Worksheet 9 1994 Protocol to 1992 Mexico-United States Income Tax Treaty Worksheet 10 2002 Protocol to 1992 Mexico-United States Income Tax Treaty Worksheet 11 1989 Mexico-United States Exchange of Information Agreement Worksheet 12 1994 Protocol to 1989 Mexico-United States Exchange of Information Agreement Worksheet 13 List of Countries with Which Mexico Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018 Worksheet 14 [Reserved.] Worksheet 15 List of Tax Havens as Provided for Under Mexican Income Tax Law
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