On January 26, the Presidency issued a Decree which establishes certain tax incentives for the repatriation of capital (tax amnesty) and certain tax compliance alternatives (tax anonymity) for individuals with foreign source income. This was done to promote the repatriation of productive capital and increase the security of taxpayers derived from their individual tax compliance obligation.
From a private wealth management perspective two items are worthy of distinction:
I. Repatriation of Productive Capital
The Decree establishes that income, dividends and retained earnings from indirect investments held outside Mexico in preferential tax regimes, including the black-listed tax havens and jurisdictions in which the tax rate is lower than 75% of Mexico’s Income Tax Rate (i.e. 22.5% in 2005), including those generated in 2005, which are repatriated to Mexico for their investment, will be allowed to acknowledge as taxable income only 25% of said income, dividends or retained earnings which are repatriated. To access such benefit, the repatriation must be performed through financial institution in Mexico and abroad. The repatriated funds must be invested in:
A) Legal Entities:
- The acquisition of fixed assets used in their business. Said assets cannot be sold within three years from their date of acquisition.
- Research or development activities pursuant to the guidelines set forth in the Income Tax Law.
- Payment of debt entered into with independent third parties prior to the enactment of the Decree
B) Individuals can invest the repatriated funds in either of a. or b. above, o through the financial system members invest in:
- Securities issued by residents of Mexico
- Stock issued by Mexican resident legal entities.
Said investments must be retained for more than 3 years and evidence must be produced to show that said investments increased the individual’s total financial investments. The combined funds cannot decrease in the 3 year term.
II. Anonymity of Individuals to Comply with Tax Obligations
Mexican resident individuals that obtain foreign source income for interest, dividends or profits which is subject to tax in Mexico, will be able to comply wit their income tax payment obligation through any entity which comprises Mexico’s financial system without said entity having to disclose the name of the individual taxpayer. Said payment will be considered a final payment and relieves the Mexican resident of having to comply with formal obligations for said income. However, financial entities must retain records of the individual taxpayers identity for a five year period
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.