MEXICO Law and Practice Contributed by: Christian Lippert, Gabriela Pellón, Fabiola Jiménez and Cecilia Díaz de Rivera, Galicia Abogados
• respond to requests made by the competent authorities. The amended Anti-Money Laundering Law also pro- vides that each state is bound to issue local laws for the identification of beneficial ownership of asocia- ciones civiles and fundaciones . Although trusts are more opaque structures that offer an additional layer of confidentiality, certain tax and AML obligations are applicable to them regarding internal recordkeeping of beneficial ownership and potential disclosure thereof when requested by tax authorities. 10. Fiduciary Regulation, Standards and Taxation 10.1 Corporate and Professional Fiduciaries As mentioned in 9.1 Choice of Planning Vehicle , only CNBV-authorised financial institutions can act as trus- tees in Mexico; neither individuals nor private trust companies are allowed to act as trustees. In practice, this means that a fideicomiso must always involve a bank or authorised financial intermediary as trustee. Authorised trustees are held to a professional and fiduciary standard of care under applicable Mexican laws and regulations. They are subject to internal control requirements, KYC procedures, conflict-of- interest rules and reporting obligations. 10.2 Taxation of Trusts Transparency Principle Mexican trusts ( fideicomisos ) are generally treated as tax-transparent vehicles for Mexican income tax purposes. As a result, the trust itself is not typically subject to income tax; instead, income generated by the trust assets is attributed to and taxed in the hands of the relevant settlor or beneficiaries, depending on the structure of the trust and the nature of the income. Under Mexican law, trusts must be administered by a licensed Mexican financial institution. In practice, this means that the trustee of a Mexican fideicomiso is almost invariably a Mexican bank, as financial regula-
tion does not permit other types of entities to act as trustees. Business Activity Trusts Where a fideicomiso carries out business activities such as owning and operating real estate or participat- ing in joint ventures, it is treated as a distinct taxable entity (similar to a partnership) for certain purposes, and the beneficiaries are taxed on their proportional share of income. Domestic Estate Planning Structures Mexican fideicomisos commonly used for estate planning purposes generally qualify as administration trusts ( fideicomisos de administración ) and are treated as tax transparent under Mexican tax rules. While the trust itself is not taxed, the trustee may assume certain withholding and reporting obligations depending on the nature of the underlying assets. For example: • where the trust holds shares in Mexican compa- nies, the trustee may be required to withhold the additional 10% income tax applicable to dividend distributions made to individuals; and • where the trust holds Mexican real estate that generates rental income, the trustee is generally required to make advance income tax payments and comply with the relevant VAT obligations asso- ciated with the leasing activity. Non-Resident Settlors or Beneficiaries Where the settlor or beneficiaries are non-Mexican residents, the trustee will generally be required to withhold the applicable Mexican tax on Mexican- source income distributed through the trust. Foreign Trusts and Mexican Tax Exposure If a foreign trust is effectively administered from Mexi- co, it may be necessary to consider whether such cir- cumstances could give rise to Mexican tax residency for the vehicle, potentially resulting in the trust being taxed in Mexico under the rules applicable to legal entities. In addition, Mexican tax residents who participate in foreign trusts as settlors, trustees or beneficiaries may
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