Capital Repatriation Decree for 2017
First published in Global Tax Weekly, 16 February 2017
On 17 January 2017, President Enrique Peña Nieto announced the actions to promote productive investments and employment creation, pursuant to the Agreement for Strengthening and Protecting the Families Economy. Along with other actions, this Agreement includes the Decree that grants incentives for income tax (IT) purposes in connection with investments or deposits received in Mexico. This Decree was published on 18 January 2017, and it seeks to promote and simplify the repatriation of capitals.
In general terms, the Decree grants a tax incentive to Mexican tax residents and foreign tax residents with a permanent establishment in Mexico that obtained income from direct and indirect investments held abroad until 31 December 2016.
Such incentive consists of applying an 8 percent tax rate to the resources kept abroad before 1 January 2017, which are brought back to Mexico. The resulting tax shall be paid within the following 15 calendar days in which such resources are repatriated.
The Decree applies to income originated abroad that would normally be taxable in terms of Titles I, IV and VI of the Mexican IT Law (Corporations, Individuals, and Preferential Tax Regimes, respectively), and it shall be enforceable for six months as of 19 January 2017. Returned capital shall remain invested in Mexico for at least two years as of the date on which it is returned.
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In the midst of an unfavorable economic environment and the loss of foreign investment, the Decree intends to bring capitals held abroad by individuals and corporations by taxing them at a low income tax rate (ordinarily, such resources would be taxed at a 30% or 35% rate on corporations and individuals, respectively). However, from our point of view, its success will ultimately depend on the rules issued by the Tax Administration Service, particularly in connection with the anonymity of the beneficiaries of the Decree, which has been a major concern in the past. Potential beneficiaries should analyse their particular situation to assess if the Decree would be beneficial to them.