MEXICO Law and Practice Contributed by: Javier Díaz de León, Monica Ramos and Martín Cortina, Díaz de León Abogados
Jurisprudence The Supreme Court of Justice has recognised the extension of certain rights, originally reserved for marriage, to cohabiting partners under the human rights principles of non-discrimination and equality, including gifts between partners. However, the con - stitutional protection is not an automatic measure. In the absence of a written will or any other estate plan - ning instrument, the cohabiting partner’s protection remains considerably weak. Best practice for cohab - iting couples is to formalise a will, gift agreements or trusts to protect the surviving partner. Not-for-profit entities including associations, founda - tions, trusts, funds and other charitable vehicles are generally excluded from income tax by Chapter III of the Income Tax Law in Mexico. Not-for-profit entities are relieved from income taxation to promote non- profitable activities in the country in sectors such as education, culture, sports, literature, scientific, welfare and environment. Some of these vehicles may qualify as Charitable Enti - ties to Receive Tax Deductible Contributions subject to an authorisation process obtained from the Tax Administration. As a result, some Mexican family offices or companies choose to form their own chari - table entity to conduct philanthropic activities relating to education, culture, sports and literature. Corporate donors, which may be related entities, may deduct donations of up to 7% of the previous annual taxable income. If donations are made exclusively to federal, state or municipal governments, the limit is 4%, with a combined limit of 7% in the case of other non-gov - ernmental donations. 10. Charitable Planning 10.1 Charitable Giving The tax-free status of not-for-profit entities is not restricted to Mexican territory. Mexican double taxa - tion treaties may include the “Exempt Organisations” article whereby not-for-profit entities are relieved from income taxation when conducting religious, scientific, literary or educational activities in other countries. In some cases, double taxation treaties recognise the Charitable Entity Status to Receive Donations in the
other country, which implies that non-Mexican donors may contribute funds to Mexican charitable vehicles. 10.2 Common Charitable Structures Civil Association (Asociación Civil) The civil association is a civil law vehicle that provides flexibility for a wide array of non-profitable activities that may be conducted by members in Mexico and overseas. The legal framework is fully regulated in the Federal Civil Code, which provides for transparency in crucial elements such as management, administra - tion, equity and liquidation. The acceptance and exit of members, distribution restriction on assets, and annual accounts reporting are effectively regulated, to continue with the envisioned non-profitable activi - ties of the civil association. The choice of a civil association is generally found in the following charitable organisations: • literal, philanthropic, cultural and professional organisations; • sports and environmental associations; • collections and museums; • scholarship and research institutions; and • associations authorised to receive deductible gifts. Foundations The foundation concept is not an autonomous choice of legal entity under Mexican law. The term foundation is mostly used to refer to civil associations or private assistance institutions (IAP) which engage predomi - nantly in specific philanthropic activities. As a distinc - tion, IAPs are governed by state private assistance laws (the most relevant being the Private Assistance Institutions Law for Mexico City), subject to perma - nent supervision by the Private Assistance Board. Beneficiaries are not necessarily designated, which make IAPS functional for social projects in Mexico. Charitable Trusts The formation of Mexican charitable trusts are another tax-efficient vehicle for conducting not-for-profit activ - ities, including sport, cultural, literal and environmental projects. The main difference with civil associations, civil partnerships and IAPs is reliance on the trustee, which must be a Mexican financial institution. The trustee is required to observe a high level of diligence
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