MEXICO Law and Practice Contributed by: Christian Lippert, Gabriela Pellón, Fabiola Jiménez and Cecilia Díaz de Rivera, Galicia Abogados
jurisdiction will be asserted based on the place of death of the deceased. The Civil Code defines the domicile of a person first according to the place where the individual usually resides – the law defines this as a place in which an individual remains for more than six months. In the absence of a usual residence, the place of his or her principal place of business will be considered the domicile. In the absence of both, the Civil Code con- siders a person’s domicile to be the place where they simply reside, and in the absence thereof, the place where they are located. Absence of Estate or Inheritance Tax Pursuant to Mexican civil law, domicile is defined as the place where a person resides with the intent to remain there. It is critical to note that civil domicile is not equivalent to tax residency under Mexican law. Tax residency is determined separately under the Mexican tax legislation, specifically the Mexican Fed- eral Tax Code. It is important to consider that, in Mexico, income received through inheritances or legacies is generally exempt from income tax when the recipient is an indi- vidual who qualifies as a Mexican tax resident. This exemption is established under the Mexican Income Tax Law and reflects the general policy that wealth transfers upon death are not subject to federal inherit- ance or estate taxation when received by individuals resident in Mexico. However, it is equally important to consider that the exemptions provided under Mexican law may not apply in the same manner if the recipient is not a Mexican tax resident (and is therefore considered a foreign tax resident). In such cases, Mexican domes- tic legislation may impose income tax at rates of up to 25%, depending on the type of asset or property being transferred and whether the income is deemed to have a Mexican source. For example, different tax treatments may apply, depending on whether the inherited assets consist of Mexican real estate, shares in Mexican companies or other assets located in Mexico.
Accordingly, when structuring lifetime or succession planning involving Mexican assets, it is important to analyse the tax residency status of the beneficiar- ies as well as the nature and location of the assets being transferred. These factors may significantly affect whether the transfer qualifies for the applicable exemptions or whether Mexican income tax obliga- Individuals who qualify as Mexican tax residents are subject to taxation on a worldwide income basis. This means that all income earned is subject to Mexican income tax, regardless of its source, whether domes- tic or foreign. Individuals who do not meet the requirements to qual- ify as Mexican tax residents are classified as foreign tax residents and are taxed exclusively on income derived from Mexican sources expressly set forth in the law. tions could arise for the recipient. 2.2 Income Tax Residency An individual is considered a Mexican tax resident if he or she has established a home or dwelling in Mexico. If that individual also has a home in another country, Mexico will be deemed the country of tax residence only if the individual’s centre of vital inter- ests is located in Mexico. This occurs when any of the following conditions are met: • more than 50% of the individual’s total income during a calendar year is derived from sources of wealth located in Mexico; or • the individual’s principal centre of professional or business activities is located in Mexico. Individuals who do not meet the requirements estab- lished under Mexican tax law will be considered for- eign tax residents. However, individuals with Mexi- can nationality are presumed to be tax residents in Mexico, unless proven otherwise by demonstrating their tax residency in another country. It is important to note that domicile is not an inde- pendent basis for determining tax residency in Mexi- co. While the concept of domicile exists under Mexi- can civil law, tax residency is determined exclusively under the criteria established in the Federal Tax Code
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