On 18 January 2017, a Decree on Repatriation of Capital was published in the Official Gazette. The Decree provides for tax benefits on income derived from investments which is repatriated to Mexico.
The main details of the Decree are described below:
- Individuals and legal entities resident in Mexico and nonresidents with a permanent establishment in Mexico that obtained income from investments held directly and indirectly abroad until 31 December 2016 are eligible for the benefits
- In general, the benefits are granted in respect of income subject to tax under Titles II, IV and VI of the Income Tax Law (ITL)
- Only the income and investments returned to Mexico during the period in which the Decree is in force and invested in Mexico for a period of at least two years from the day of repatriation are covered by the Decree. The resources returned must be invested during the tax year 2017
- The income and investments must be returned through transactions carried on between banks, brokerage firms incorporated in Mexico and entities incorporated abroad that provide financial services
- The tax must be calculated applying a tax rate of 8% on the total amount
- The income tax paid abroad on the income repatriated may be credited against the income tax
- The tax due must be remitted within 15 days of the resources being returned to Mexico. For these purposes, the resources will be considered returned to the country when they are deposited in a bank or brokerage firm in Mexico
- Legal entities resident in Mexico and nonresidents with a permanent establishment in Mexico are considered to invest the resources in Mexico in any of the following cases:
- The acquisition of fixed assets which are deductible for income tax purposes and used by the taxpayer to carry on its activities in the country without selling them during a two-year period following their acquisition
- The acquisition of land and buildings located in Mexico used by the taxpayer to carry on its activities without selling them within a two-year period following their acquisition
- Research and development of technology to develop products, materials or production processes
- Payment of passives contracted with independent parties before the entry into force of the Decree, provided that the payment is made through banks or brokerage firms incorporated under Mexican laws
- Investments made in Mexico through banks or brokerage firms incorporated under Mexican laws
- Legal entities must calculate the profit for tax purposes of the resources returned according to the ITL, deducting the income tax paid on such resources calculated according to the Decree. The result may be added to the net tax profit account (CUFIN)
- The profit for tax purposes must be taken into account in calculating the profit sharing
- The benefits granted under the Decree will not be considered income for income tax purposes and may not give rise to any tax refund
The Decree entered into force on 19 January 2017 and will remain in force for six months following its publication.
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