Mexican tax reform 2014

Business tax in mexico

The proposal put forth by the current Administration also tackles simplicity and administration-enhancement policy objectives. Also, new formulas are established to determine foreign tax credits, and are aimed at solving previous issues arising from circular references in determining the taxable income and the creditable tax. Nevertheless, those reforms fell short of providing the Mexican Government with an adequate source of non-oil tax revenues to mobilize development resources for growing needs in physical and social infrastructure. Despite some of the proposals to increase the VAT on some naturally progressive consumption items, the reform does not address the major weaknesses in the VAT structure. The pervasive effects of this revenue erosion measure have lasted for over three decades. While the tax reform proposal has still to overcome two historical hurdles — the approval by Congress amid a vociferous public debate and the interposition of judicial amparos by large taxpayers - there are reasons to believe the Mexican tax system is on the verge of a major overhaul within its long reform process. A transitory provision provides the regime applicable to the activities subject to tax, for which the compensation is effectively collected in or after Environmental taxes A new tax is imposed on the importation and sale of fossil fuels; the amounts payable are based on the carbon content thereof. Therefore, Mexican companies will be required to maintain two separate net after-tax profit accounts CUFIN , to keep track of profits generated after the entry into force of the new law. Maquiladora companies Several modifications were made to the maquila tax regime, including a new definition thereof for income tax purposes under which a company may only qualify as such if assets are furnished by the non-resident principal, and all income of the "maquiladora" derives from such activity, among others. On the simplicity side, the tax bill proposes a streamlined income tax legislation with a more transparent legal treatment across economic activities and economic agents. The tax will only apply to profits generated starting During the government embarked on a major overhaul of the tax system, following a strategy based on lower tax rates and a broader tax base, and done in the context of an overall reduction of the cost of capital at the time that Mexico entered into NAFTA with the US and Canada, and joined the OECD. Any reduced withholding tax rate established under an applicable tax treaty will now become very relevant, as it could be directly applied by the withholding agent if all requirements are met.

However, certain authorised deductions have been limited or eliminated, and thus the effective tax may be higher. International transportation The treatment applicable to international air transportation of goods is now equal to that afforded to the international air transportation of persons.

Assuming the tax package is approved by Congress as proposed by the Government, the tax ratio is expected to increase by about 2. From a broad perspective, the tax reform effort carried out during the period showed mixed results.

Nevertheless, those reforms fell short of providing the Mexican Government with an adequate source of non-oil tax revenues to mobilize development resources for growing needs in physical and social infrastructure.

Pwc tax mexico

Foreign pension funds The new law maintains the exemption available to foreign pension and retirement funds in respect of Mexican source rental income derived from real estate, interest and capital gains from the sale of real estate or shares whose value arises from real estate. Any reduced withholding tax rate established under an applicable tax treaty will now become very relevant, as it could be directly applied by the withholding agent if all requirements are met. The registration procedure for the foreign pension funds or the vehicles through which thy invest in Mexico has been repealed, and thus it is no longer a requirement for the exemption to apply. From a historical perspective, questions arise as of whether the new reform effort tackles for good the long pending hurdles embedded into the system, or rather proposes yet another ad hoc set of measures. As a result the tax system was integrated by numerous levies on industrial production, natural resources and international trade. During the post-crisis period of and beyond, the tax reform agenda again addressed some of the issues pending after the overhaul of the tax system. Treaty benefits In the case of transactions among related parties, the tax authorities will now be entitled to request the non-residents to produce evidence regarding the foreign legal provisions that result in legal double taxation, under the argument that the benefits of tax treaties should only be granted to parties suffering double taxation.

Tax consolidation The consolidation regime has been repealed, and Mexican companies filing consolidated returns will be forced to de-consolidate as of December 31 Any reduced withholding tax rate established under an applicable tax treaty will now become very relevant, as it could be directly applied by the withholding agent if all requirements are met.

As part of an emergency economic package put forth by the government, a set of policy measures — including a VAT general rate increase to 15 from 10 percent — were introduced.

In addition to the general criteria for economic policy, this package included the Federal Revenue Law and the Federal Budget, as well as very important social and tax reforms.

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Foreign principals operating under a shelter maquila operation contracted with a third party will now be forced to abandon such alternative after a four-year period. Treaty benefits In the case of transactions among related parties, the tax authorities will now be entitled to request the non-residents to produce evidence regarding the foreign legal provisions that result in legal double taxation, under the argument that the benefits of tax treaties should only be granted to parties suffering double taxation.

A new optional regime is established for groups of companies, where individual tax liabilities are determined on the basis of a group profit ratio. The pervasive effects of this revenue erosion measure have lasted for over three decades.

Accordingly, it will be essential to determine whether a tax treaty may result in a reduction of the tax rate in those cases.

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Tax Reform Proposal in Mexico: A New Chapter of a Never