Mexican Tax Reform Update October 2013
On October 17, the Mexican Congress modified the proposed tax reform that was prepared by the executive branch (led by President Enrique Peña Nieto) and forwarded to Congress on September 8. The executive branch's tax proposal had met with opposition from conservatives in Congress and many in the global business community who expressed concern that the adverse tax impact on multinationals and domestic corporations would negatively affect Mexico's investment climate. Many of the corporate tax increases proposed by the executive branch were removed in the tax reform legislation prepared by Congress. The two houses of the Mexican Congress (i.e., the Chamber of Deputies and the Senate) will debate provisions of the tax reform package during the next few days, and the reform is expected to be approvedeither in its current form or with amendmentsby October 31. Notable provisions are described below, including tax rate changes, flat tax repeal, VAT reform, and other provisions affecting the popular maquila program, foreign residents, and Mexican individuals and companies.
The main income tax proposals are as follows: New Dividend Tax. An income tax will be imposed on any dividend received by individual Mexican residents and corporate and individual nonresidents from a distributing Mexican company. Dividends distributed to Mexican corporate shareholders will be exempt. The dividend tax will be imposed at the shareholder level (unlike the executive branch proposal to impose the tax at the distributing company level). The tax rate will be 10 percent of the gross dividend amount, subject to reduction pursuant to one of the 56 double tax treaties Mexico has in force. The tax is imposed only on profits generated after 2013. The tax is collected through a withholding regime imposed on the distributing company. Corporate Tax Rate. The corporate tax rate, which was scheduled to be reduced to 29 percent in 2014 and 28 percent in 2015 and future years, will remain at 30 percent (as proposed by the executive branch). Individual Tax Rate. The individual tax rate will be increased from 30 percent to 35 percent. This increase goes beyond the more modest proposed increase to 32 percent by the executive branch. Treaty Benefits. In related party transactions, foreign residents claiming treaty benefits may be asked to appoint a Mexican resident as their legal representative that will furnish a written declaration under oath stating that the...
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