Recent changes have been made to the Mexican Income Tax Law in relation to transactions with companies resident in low-tax jurisdictions. These changes are as follows:
- Normally, payments made by a Mexican entity to companies resident in low-tax jurisdictions are not deductible for income tax purposes unless it can be proved that the transactions are on an arm's length basis. However, payments made to such companies for interest, royalties, commissions, or brokerage will now be deductible for Mexican income tax purposes, provided that a withholding tax of 35% on the gross income is paid. Additionally, if Mexican companies own an interest in the company in the low-tax jurisdiction, income derived from such payments will not be deemed, for tax purposes, to be the income of the Mexican parent company, provided that the payments have been subject to the 35% withholding tax.
- Mexican resident companies with an interest in a company resident in a low-tax jurisdiction will not be taxed on the income of the company if fixed assets, land, or inventories represent at least 50% of the total assets of the company, provided that not more than 20% of the total income of the company arises from dividends, interest, or royalties or from granting temporary use or enjoyment of goods.
Mexican resident companies will not be taxable on dividends or other profits received from companies resident in low-tax jurisdictions if the dividends or profits arise from earnings that have already been taxed in Mexico.
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.
For further information contact Rodolfo Calvo, Galaz, Gomez, Morfin, Chavero, Yamazaki, Mexico City, Mexico on Fax: +52 5 281 5184