Beginning this year, on January 9th, the Federal Government signed with industrial a commercial chambers, with labor unions and other working forces in the country a joint agreement called “Agreement for the economic development and the protection of family economy”, this agreement among other aspects stablished the possibility of bringing back into de country funds kept abroad at a lower tax rate.
Following on the above mentioned agreement, the Mexican Federal Government, finding new ways to promote the local economy and support internal growth to endure the economic challenges that 2017 and 2018 will present, issued a decree on January 18th 2017, in this decree the Mexican Government establishes special tax treatment for investments and other monetary resources kept abroad by Mexican companies or individuals, or even foreign entities or individuals with formal establishment in Mexico, before December 31st 2016, that are brought back into de country.
The decree was published in the Federal Official Gazette on January 18th 2017, and it applies to all investments and other monetary resources kept out of the country before December 31st 2016. This decree includes both companies as well as individuals, Mexican or foreign with tax residence in Mexico.
These special considerations will not apply on those cases in which the government has already began formal auditing or reviewing of any tax payer or if said tax payer has brought a case before the Federal Administrative Justice Court.
The decree, for obvious reasons, does not apply to any revenue as a result from any illicit activity; proof of legit origin of the resources willing to be brought back into de country has to be provided.
All monetary resources brought into Mexico, using this decree will have to be invested for a period no less than two years. According to the decree there are several ways in which the taxpayer can invest his resources to comply with the decree, these are the different options:
- Fix Assets. Taxpayers can bring back into the country their monies and use that money to purchase fix assets related to their activity, these assets can’t be sold before two years.
- Real Estate. Just as with Fix Assets, taxpayers can opt to invest in Real Estate to carry out their commercial or industrial activities, this is also allowed, the property purchased have to be kept for at least two years.
- R & D. The money can be also used, invested in research and development; it has to be directly related to the taxpayers activity.
- The resources can be used to pay any business related debts, in this you can also include past pending wages and salaries
- Financial Institution. Lastly, another option for the taxpayer is to bring back the money using the financial system, in this case, it has to be a Mexican Financial Institution the one receiving the funds or even a authorized stock brokerage house (now called wealth management firms), the investment have to be kept for a period no less than two years.
One very important note, is that all this alternatives are optional for the taxpayers, meaning, they can opt to choose either one of them, in the case of individuals, option “d)” is non applicable.
There still doubt when it comes to answering the question if the money once back in Mexico can be invested in private companies, the decree states that the money can be invested in stocks, at first we all jumped at the conclusion that it meant in Mexican public companies, but now, after a few months, experts are considering that investing in private Mexican companies will also be an option for taxpayers using this program.
Now that we have establishes all the circumstances regarding this decree perhaps the most important information is that a flat preferential tax rate has been set for all funds brought back into the country, the rate has been set at 8%, without any deductions.
The fund have to be brought back before July 19, 2017, and have to be invested in Mexico during 2017, and we have stablished that the investment has to kept for at least two years. The taxes resulting from applying the 8% preferential tax rate, has to paid no later than 15 days after the funds are brought into de country.
The decree stablishes that the exchange rate that will be used in order to pay taxes on this program will be the one the Official Gazette publishes daily, the exchange rate will be the one on the day of the actual payment of taxes.
The filling of this “special” tax will be done exclusively online, using the Tributary Administration Services (SAT) web page www.sat.gob.mx.
Several questions have arisen since the government issue the decree, probably the most intriguing one is if taxpayers have to bring back all of their investment abroad or only the benefits of said investment, the government has not yet fully answer this question, however specialist have conquered that is better for taxpayers to bring back not only the financial benefits but also de capital (main investment) that produced said benefits.
If taxes have already been paid on the investment either in Mexico or abroad, proof of said payment has to be shown, but those taxes are taken into consideration and are subtracted from the taxes to be paid today.
Other interesting aspect is that no penalties of any kind will be applicable for those taxpayers that take advantage of the decree.
The Federal Government expected that ten thousand million pesos will be brought back into the country’s economy, so far, less than five thousand million pesos have been effectively brought back, there still a month to go, and some experts believe the government will extend the time limit originally set on the decree for July 19, 2017.
We have known for decades that many of my countrymen have emigrated into the United States of America looking for work and a better life for them and their love ones, many of them due to hard work have achieved it, and many of them wish to come back into Mexico, but bringing their life savings presented a big problem, this is a unique opportunity to do so, getting a very fare tax rate and a “clean slate”.
There are a few concerns regarding how the Mexican Government will handle the information, the names and the amounts each taxpayer is bringing back into de country, for obvious security reasons, the Mexican Government has commented that they will not publish this information as it was intended at the beginning of this program.
Just so we clearly understand what the above-mentioned decree is about, and how good the propose rate is, let us remind our readers that the federal income tax in Mexico is now at a flat rate of 30% for companies and a variable progressive rate that could reach 35% for individuals.
This program even with all the questions that are not yet fully answer by the federal government, presents a unique opportunity for Mexicans and foreigners with tax residence in Mexico, to “regularize” their resources kept abroad. If you are in a position to take advantage of this program, do not hesitate to contact a Mexican CPA or a Tax attorney that can fully assist you in doing so properly.