MEXICO Law and Practice Contributed by: Javier Díaz de León, Monica Ramos and Martín Cortina, Díaz de León Abogados
Foreign Investment Structures Mexican individuals may also conduct investment and business activities through foreign corporations based in preferred tax regimes, which are generally jurisdic - tions where the effective tax rate is lower than 75% of the income tax that would be payable under the Income Tax Law. One of the main advantages of using foreign investment structures is the deferral of Mexi - can income tax on foreign profits until such profits are effectively repatriated to Mexico. Mexican individu - als may take this deferral opportunity to the extent that they have no “effective control” over the foreign investment structures under Mexico’s Controlled For - eign Corporation (CFC) rules. Investment Portfolio The Mexican Income Tax Law provides a preferred income tax rate of 10% on capital gains arising from the sale of Mexican shares on the Mexican stock exchange or foreign recognised exchanges, subject to compliance with statutory conditions: • the shares must previously have been acquired via a recognised exchange; • the transaction may not be carried out by a “con - trol group”; and • the transaction may not occur outside recognised exchanges (over-the-counter transactions). In the absence of these conditions, the general rate is 35% as occurs with Mexican private shares. The 10% capital gains rate is also extended for resident individ - uals upon the sale of “SIC shares”, ie foreign shares which are listed on the Mexican stock exchange. Investment Insurance Mexican financial institutions offer investment insur - ance options with tax-free treatment on the income generated by the investment premium, to the extent that the resident individual holds the insurance con - tract active for more than five years and reaches the age of 60 upon the exercise date, though the contract may be extended at the will of the contractor. RESICO Regime Individual taxpayers that conduct exclusively busi - ness, professional and lease activities, may choose the payment of income tax at preferred rates rang -
ing from 1.00% to 2.5%, provided the totality of their income does not exceed the amount of MXN3.5 mil - lion. Some restrictions apply to shareholders, foreign residents with permanent establishment, and resi - dents with CFC income or other activities. 1.4 Pre-Immigration and Exit Planning Pre-Immigration Planning Pre-immigration planning is allowed in Mexico with respect to assets, whether principal or income, held outside Mexico prior to the tax migration event. Spe - cifically, foreign residents must observe the level of taxation they may have in Mexico on deferred profits, investment, interest and capital gains. The comparison between the maximum Mexican rate of 35% and the still applicable tax residence rate, will give the answer. If the foreign tax resident achieves a better taxation rate under their own country of residence, they will be in a better tax position receiving non-Mexican dividends, interest, capital gains or services prior to becoming Mexican tax resident in any calendar year. Exit Planning Exit planning must be considered under the new tax residence country’s tax regime and the double taxa - tion treaties existing with Mexico. The individual leav - ing Mexico as country of residency is not subject to any exit tax; however, they must appoint a Mexican legal representative to attend to any tax notices from the tax administration authorities after the migration event, and report the effective date of the new tax residency along with the new foreign tax identifica - tion number assigned by the foreign tax authority. Depending on the exit country of residence, the Mexi - can resident may analyse the convenience of recog - nising taxable income once they have left the Mexican tax residency. It occurs given the tax holidays, flat tax regimes, or tax-free treatment offered by some countries’ tax regimes along with the Mexican double taxation treaties. 1.5 Taxation of Real Estate Owned by Non- Residents and Non-Citizens Foreign entities or private investors are free to invest in Mexican real estate other than any property located in the federal restricted zone. Foreign residents gener - ally structure their ownership of Mexican real estate either directly, or, alternatively, by a trust, a Mexican
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