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Proposed amendments to Mexican tax laws for 2014

Mexico

The Mexican President has submitted to Congress proposed amendments to several tax laws which, if approved, will enter into force 1 January 2014. Taxand Mexico highlights the key updates which could effect multinationals and foreign investors. 

  • Any payment made by a Mexican company to a related party, regardless of its residence, will not be deductible if such payment is not taxed or if it is taxed with an income tax which is lower than 75% of the income tax that would be assessed and paid in Mexico (ie an effective tax rate lower than 22.5%)
  • The maximum rate for certain items of income from Mexican sources will be increased from 30% to 32% in the absence of a reduced rate from an income tax treaty. Among those items are capital gains on the sale of shares, real estate, interest, certain royalties and leasing income
  • Mexican subsidiaries of foreign companies will be subject to an additional 10% income tax on dividend distributions. This is not a withholding tax on the shareholders and consequently will not be subject to a reduction under an applicable income tax treaty
  • The exemption to the sale of shares through the Mexican Stock Exchange is repealed. Now, any sale of shares by a foreign resident through the Mexican Stock Exchange will be subject to a 10% income tax on the gain
  • Regarding transactions between related parties, for purposes of the application of an income tax treaty, the Mexican tax authorities may request a statement under oath from the foreign resident providing that income which may be subject to taxation in Mexico will be subject to tax in the State of residence, including the applicable legal provisions and any necessary documents
  • A new requirement to apply the maquiladora regime is introduced. Any company operating under this regime will be obligated to derive at least 90% of its income from exports. Otherwise, the benefits granted to maquiladoras under the Mexican Income Tax Law will not be applicable (ie permanent establishment). Additionally, the application of the shelter maquiladora regime will be limited to 3 consecutive years

Your Taxand contacts for further queries are:
Manuel Tamez
T. 52 55 5201 74 03
E. mtamez@macf.com.mx

Raymundo I. Domínguez
T. 52 55 5201 74 16
E. rdominguez@macf.com.mx

Luis A. Monroy
T. 52 55 5201 74 66
E.lmonroy@macf.com.mx

Taxand's Take

These are only some of the proposed modifications to the Mexican tax laws. As mentioned, it is likely that these amendments will be approved by the Mexican Congress and be effective as of 1 January 2014. It is considered that if approved, these provisions will have a significant impact on the way foreign entities conduct business in Mexico. Therefore multinationals should plan ahead to avoid or decrease a significant impact on their tax burden.  

Taxand's Take Author

Manuel Tamez
Mexico