This GMS Flash Alert reports that the Mexican government is offering for a limited time a tax incentive program for certain Resources held overseas by individuals and previously undisclosed to the tax authorities.
A recent Mexican government Decree1, issued on January 18, 2017, provides tax incentives for taxpayers who bring back to Mexico investments and related income (hereinafter “Resources”) held outside of Mexico up to December 31, 2016.
This Decree applies to individuals and legal entities resident in Mexico (or residents abroad with permanent establishment in Mexico) and is valid only for six months (until July 19, 2017).
Individuals who have Resources located outside of Mexico that have not been previously disclosed to the tax authorities can avail of the new rules to repatriate those Resources (not considering deductions) without the payment of penalties, inflationary adjustments, and interest surcharges.
Given the small window of opportunity (the provision is only valid through July 19, 2017), taxpayers and their tax service providers should consider acting with minimal delay.
The tax incentive consists of applying an 8-percent rate to the Resources held abroad up to December 31, 2016, that are returned to Mexico. The tax due should be paid within the following 15 days counted from the day the Resources are returned to Mexico.
It should be clarified that if the individual can prove that the corresponding tax in Mexico was already paid on the returned Resources, that the Resources were exempt from taxation in Mexico, or that they were not otherwise subject to Mexican income tax, said Resources can be returned to Mexico free of tax. Also, in case a tax has been paid in a foreign country on such Resources, a credit may be allowed (capped to the 8-percent tax due).
This benefit will not be applicable for those individuals who are under a tax audit or litigation (except for those who desist from their legal actions), nor is it applicable to income obtained from illegal activities.
There are certain requirements and limitations that individuals should adhere to in order to be eligible for the benefit:
a) File a return through the tax authorities’ Web page, in which the amount of the Resources returned should be reported – consequently, the 8-percent tax can be calculated. A reference number will be provided to the individual to pay through his/her Mexican bank account Web page.
b) File an informative return to detail the destination of the Resources returned no later than December 31, 2017.
c) Keep for five years, as part of their accounting records, the following supporting documentation:
- Documents that prove the Resources were received from abroad;
- The tax payment made in Mexico under the Decree;
- Proof of the deposits or investments made in Mexican territory per the above described; and
- The return described in point “a”.
It is expected that the Mexican tax authorities will be issuing regulations to further clarify the content of the Decree.
In addition, taxpayers should consider undertaking an analysis, on a case-by-case basis depending upon the investments and related income maintained outside Mexico, to help define what is the appropriate avenue of pursuit in light of the Decree.
1 For the text of: Decree Granting Administrative Benefits on Income Tax Regarding Deposits and Investments Received in Mexico (Decreto que otorga facilidades administrativas en materia del impuesto sobre la renta relativas a depósitos o inversiones que se reciban en México) published in Mexico’s Diario Oficial de la Federación on January 18, 2017.
The information contained in this newsletter was submitted by the KPMG International member firm in Mexico.
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