Mexico: Regulations for Capital Repatriation 2017
As previously mentioned in an Aminews, on January 18th, 2017 a Decree for repatriation of funds maintained outside Mexico by Mexican companies, individuals and permanent establishments in Mexico (the “Decree”), was published in the Federal Official Gazette.
Such decree establishes a tax amnesty program which include paying a preferential income tax rate of 8% for the offshore funds (maintained abroad before December 31, 2016) that are repatriated between January 19, 2017 and until July 19, 2017. Please note that the repatriation is about previously undeclared assets, since taxpayers are only forced to pay the mentioned flat rate of amounts that have not paid the corresponding Mexican tax income.
Article eleven of the Decree establishes that the Mexican Tax Authorities (Servicio de Adminsitracion Tributaria, “SAT”) could issue general rules for due application of the Decree.
Those rules were published on May 15, 2017 and among other establish the following:
- They clarify how payment of the 8% income tax rate should be made (first the UBO shall repatriate the funds to a Mexican financial institution, then file a return in the SAT web portal to ask the Tax Authorities the amount they should pay, then SAT will give them a wire transfer payment code and after that they could make the corresponding payment which should be made no later than August 3, 2017);
- If repatriation is made by multiple transactions the abovementioned procedure should be applied each time;
- It clarifies that the investment of the repatriated funds can be made in financial instruments (such as debt, equity, guarantees) issued by Mexican companies in Mexican Pesos or in foreign currency;
- Rules do not confirm if only the income is subject to repatriation, but they exempt from the tax base the amounts repatriated that can be evidence to be tax compliant (for which there was no obligation to pay the income tax (for example, earnings obtained from a trust to finance descendants education up to an undergraduate degree), or were exempt of income tax payment (for example, inheritance, or donations among spouses or among ascendants and descendants in direct line), or because they already paid the income tax);
- Rules allow for the offset of favorable tax credits against the 8% income tax due from the repatriation;
- Rules grant individuals the possibility to pay taxes and products with the repatriated funds (in the Decree this benefit was granted only to companies);
- Taxpayers who have acquired shares or debt instruments issued by foreign residents before December 31, 2016 could sale such titles and repatriate both the gain from the sale of the instrument and the capital thereof, paying the 8% income tax rate only for the gain if they could evidence capital already paid taxes in Mexico. This is also applicable to capital reimbursements of foreign entities; and
- Originally the Decree did not considered taxpayers currently under a tax audit as eligible of the advantages provided by the Decree. In these rules they extend the repatriation benefit for those taxpayers.
If you are interested in more information related to this matter please contact your account manager, Amicorp Mexico or the Private Clients Unit.
Amicorp, together with the client’s advisor, can:
1. Support in getting the relevant documents of the structures prepared (documents of trusts, foundations, companies, funds, legalized or translated);
2. Request and collect all relevant bank documents; and
3. Analyze case-by-case in order to provide a potential solution.