Post on 31-Jul-2020
transcript
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
©2013 C
lifto
nLars
onA
llen L
LP
CLAconnect.com
Doing Business in Mexico September 10, 2013
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
Circular 230
To ensure compliance imposed by IRS Circular 230, any U. S. federal tax advice contained in this presentation is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed by governmental tax authorities.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
Housekeeping
• If you are experiencing technical difficulties, please dial: 800-263-6317.
• The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days.
• Submit questions via GoToWebinar questions function.
• Please complete our online survey.
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
CPE Requirements
• Answer the polling questions.
• If you are participating in a group, complete the CPE sign-in sheet and return within two business days.
– Contact Kristen.Nelson@CLAconnect
• Allow four weeks for receipt of your certificate; it will be sent to you via email.
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
Learning Objectives
At the end of this session, you will be able to:
• Understand the various key developments in the Mexican economy
• Obtain practical guidance for doing business in Mexico
• Understand the Mexican tax structure
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
About CliftonLarsonAllen
• A national CPA and consulting firm
• Service areas include audit, tax, consulting, and outsourcing
• 3,600+ professionals
• More than 90 offices nationwide
• Independent member of Nexia International
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
Speakers
Jeff Kvilhaug CliftonLarsonAllen LLP
Phoenix, AZ
Alfredo Solloa Solloa CP
Mexico City, Mexico
9
• Mexico: A Profile – Geographical/Historical Background – Solloa-Nexia
• Why Mexico? – Investment Climate – Economy, Labor – Investment opportunities
• Mexico vs. ???
• Issues for clients starting a business in Mexico – Type of entity – preferred by US subs. – Income Tax and Flat Tax – Value Added Tax (VAT) – Expatriating profits – Dividends, Royalties, Interest – Transfer Pricing – IMMEX – VAT and Income Tax benefits
WEBINAR OUTLINE
• GEOGRAPHY & HISTORY
• POLITICAL REGIME & LEGAL SYSTEM
• SOLLOA-NEXIA
• ECONOMY
• LABOR-MGT. RELATIONS
• INVESTMENT CLIMATE AND OPORTUNITIES
MEXICO A PROFILE
10
11
MEXICO • Independence from Spain in 1810
• Mexico in 1821:
1823 - Separation of Central America. 1848 - With the “Treaty of Guadalupe Hidalgo”, Mexico gave up over 50% of its territory to the US - California, Nevada, Utah, New Mexico & Texas and parts of Arizona, Colorado, Wyoming, Kansas & Oklahoma)
12
MEXICO
• Revolution from 1910-1923 • End of dictatorship & beginning
of Military & Democratic regimes
• Legal system based in Civil Law
• Democratic Republic – Federal System • 3 Powers – Executive, Legislative & Judicial
• 32 States (31 + Federal District)
• 3 levels of Government : Federal, State & Municipal
• Population of 115+ million
• Presidential regime 6 yrs.
50 Years in Business
300+ Total Staff nationwide
6 Offices throughout the country
HQ in Mexico City
Ranked in top 15 in the country
Member of Nexia (former group) for 20 years
PCAOB Registered since 2007
15
Client Base:
• 850+ clients in varied industry sectors.
• Publicly Traded or with publicly traded debt.
• Well known US and EU company subs established in Mexico
• Mid-size privately held Mexican companies.
• Government
16
18
ECONOMY • Ranked 12-14th. Economy in the World (GDP) and
climbing…. • Projected @ #10 for 2018 above Spain, Canada, Italy &
South Korea
• Balanced Budget • 0.3% GDP deficit for FY12 & 0% for FY13
• Inflation of 3.6% for 2012 and est. @ 3.5%-4% for 2013
• Stable currency & record Reserves (160+ BUSD)
• Minimum wage - reference
19
ECONOMY
• NAFTA Member – Exports tripled since 1994. • Mexico is 2nd. US source for imports (Canada is #1)
• US represents 85% of Mexican exports.
• EU represents only 4.3%
• Part of OCED 34 country group.
• 31 Commercial Treaties in effect.
• 34 Double Taxation Avoidance Treaties (3 in process)
• Foreign Account Tax Compliance Act (FATCA) signee.
20
ECONOMY
• Major Industry Sectors:
• Petroleum & Gas (7th. largest producer)
• Automotive - Car Assembly & Export (3rd. in World)
• Tourism (22M+ visitors per year)
• Agriculture
• Electronics – second supplier to US
Polling Question 1
1. Mexico is
1. 3rd source for imports into the US
2. Not a commercial partner with the US
3. Second supplier of electronics to the US
4. Not a member of NAFTA
21
22
Labor-Management Relations
• Employee Profit Sharing 10% (taxable income)
• New Labor Law just approved in Dec. 2012
• Limits the use of Outsourcing • Intends to limit “general” outsourcing not by specific
area of service (ie. admin., technical, marketing…)
• Potential Social Security (IMSS) and Employee Profit Sharing (PTU) issues.
• New forms of contracts allowed.
23
Investment Climate
• Not an over-regulated environment.
• Open Investment allowances in most sectors.
• Foreign Investment Law • Limits foreign investment in some “strategic” sectors -
to any type of ownership or majority ownership.
• Most activities allowed for foreign investment • Filings with “RNIE” (Foreign Investment Registry)
• Major Regulation changes for Telecomunications & TV in 2013.
24
Investment Climate – cont…
• Anti-monopoly regulations getting stringer.
• Oportunities: • Real estate – foreign ownership along border and
beach pending Senate approval.
• Petroleum extraction – initiative in Congress.
• Infrastructure (roads, rails)
25
Mexico vs. China…
• Wages have become less
competitive
• 2.9% growth in labor market from
2010 to 2020 (27.2 million) • Working age population estimated to
shrink after 2030
• Accounts for 17.5% of US
imports.
• Logistics issues.
• Corruption problems.
Mexico • Wages currently 20% lower than
China vs. 200% more costly 2003
• “Demographic Bonus” • Growing labor market est. @ 20% from
2010 to 2020 (14.2 million)
• Low transportation costs to major NAFTA markets and quick supply.
• Structural reforms which promote Competitiveness and Foreign Investment.
• Accounts for 12.4% of US imports
• Legal certainty.
China
30
THE EMERGING MARKET OF THE AMERICAS
Video
http://mim.promexico.gob.mx/wb/mim/videos
Polling Question 2
1. Worldwide, Mexico is the largest exporter of:
1. Beer, silver and flat screen tvs
2. Silver, Petroleum and cars
3. Electronics and minerals
4. Cement, IT services and beer
31
• PREFERRED TYPES OF ENTITIES
• PROCESS OUTLINE
• TIMELINE & COSTS
COMMON FORMS FOR
STRUCTURING A BUSINESS IN
MEXICO
32
• Mexican Entity (subsidiary) – S.A. or S. de R.L (Corp. vs. LLC)
• Branch or Office – PE tax consequences – Permanent Establishment
– Acting through a representative or hiring employees
• Limited sectors for investment - Foreign Investment Law
• Employee Profit Sharing (PTU) – 10%
BUSINESS STARTUPS Legal Forms, Fiscal Treatment & Other
33
PREFERRED TYPES Limited Liability Corp (LLC) or
Partnership *(LLP)
(S de RL or *SC in Mexico)
Private corporation (Ltd)
and Public corporation
(SA in Mexico)
CHARACTERISTICS
*SC (LLP) only allowed in certain cases
Partners/shareholders 2 minimum / 50 maximum 2 minimum / no max.
Restrictions Partnership: 2 minimum, no limit No limit
Directors (S de RL or SA) Sole Administrator or a Board of Directors
Minimum capital
LLC: 3,000 pesos
Partnership: no minimum No minimum
BUSINESS STARTUPS
34
Liability
The legal representative (with power of attorney) and in
some cases the Sole Administrator or Board as well as the
partners up to the amount of their contribution.
Governance
LLC: Board of Directors or Sole
Administrator
Board of Directors or
Sole Administrator
Partnership: One or more partners
Taxation Mexican residents on all income, regardless of source
Official name
Sociedad de Responsabilidad
Limitada (S de RL) with fixed or
variable equity (CV)
Sociedad Anónima (SA)
with fixed or variable
equity (CV)
If publicly held:
Sociedad Civil (SC) Sociedad Anónima
Bursátil (SAB).
BUSINESS STARTUPS
35
BUSINESS STARTUPS Process Outline
• Obtain authorization of company name from the Ministry of Economics
– Valid for 90 days or forfeit name “reservation”
• Prepare draft deed with object, duration, partners, governance body,
paid in capital, POA’s, company domicile, etcetera.
• Sign deed of incorporation before Notary Public
– Notarized and Apostilled POA’s in case of foreigners.
• Register Deed in the Public Register of Commerce
• Register before Tax Authorities – obtain tax ID number
• Obtain electronic signature for filing tax returns and notices - FIEL
36
• Register with the Mexican Social Security Institute (IMSS) – only employers
• Register with the local (State) Tax administration for payroll tax
• Notice of opening a mercantile establishment before local government
• Filing with the Foreign Investment Registry (RNIE) – 45 days
• Filing with the National Institute of Statistics, Geography and Information
• Issue certificates to shareholders or partners
Time needed approximately 3 – 4 weeks
BUSINESS STARTUPS Process Outline – continued…
37
BUSINESS STARTUPS Timeline & Costs
Obtain Company Name Authorization (Ministry of Economics)
Prepare draft Incorporation Deed
Sign and get copy of Incorporation Deed
with Notary
Obtain Tax ID number & other tax
registrations
Parallel Actions Obtain Notarized
and Apostilled POA’s abroad
Notary to proceed with Public Registry and issue letter that
in process
Foreign Investment Registry and
opening bank accounts
Time 3-4 Weeks
38
• INCOME TAX (ISR)
• FLAT TAX (IETU)
• VAT
• FISCAL CODE • DIGITAL INVOICING
• DOUBLE TAXATION TREATIES – EXPATRIATION OF PROFITS
• MAQUILADORAS
MEXICAN TAX
HIGHLIGHTS
- Companies
- Individuals
39
• TAX RATE
• INFLATIONARY EFFECTS (GAIN/LOSS)
• DIVIDENDS
• TRANSFER PRICING
• FOREIGN RESIDENTS
INCOME TAX (ISR)
40
INCOME TAX (ISR)
General
descriptionCorporate income tax Branch income tax
Taxable entities
Incorporated in Mexico and/or
overseas with central
management and control
located in Mexico
PE located in Mexico
Taxable income Worldwide profits Profits derived by PE in Mexico
Calculation of
taxable profits
Related party
transactions
Tax year,
return and
payment
Capital gains
Losses
Tax group
Tax rate
Taxable at 30%.
In some cases, withholding tax on gross proceeds
Carry forward 10 years
Set off against taxable profits
Holding company w/ at least one subsidiary.
Can consolidate results of each individual subsidiary and up to 100%
of their losses can be offset against the profits of others
30% during 2012
29% during 2013 and
28% from 2014 and on
Interest
payments
Tax deductible
Comparisons with inflation rates = taxable gains or deductible losses
Thin capitalisation rule is 3:1
If liability exceeds ratio, interests paid in excess = non-deductible
On an arm’s length basis
Substantiate w/ formal annual transfer pricing study
Calendar year
Monthly advanced payments
Annual tax return (3 months after tax year end)
Resident corporation Permanent establishment (PE)
Accounting profit is adjusted for various tax add-backs and
allowances to arrive to profits chargeable to corporation tax
41
General
descriptionCorporate income tax Branch income tax
Taxable entities
Incorporated in Mexico and/or
overseas with central
management and control
located in Mexico
PE located in Mexico
Taxable income Worldwide profits Profits derived by PE in Mexico
Calculation of
taxable profits
Related party
transactions
Tax year,
return and
payment
Capital gains
Losses
Tax group
Tax rate
Taxable at 30%.
In some cases, withholding tax on gross proceeds
Carry forward 10 years
Set off against taxable profits
Holding company w/ at least one subsidiary.
Can consolidate results of each individual subsidiary and up to 100%
of their losses can be offset against the profits of others
30% during 2012
29% during 2013 and
28% from 2014 and on
Interest
payments
Tax deductible
Comparisons with inflation rates = taxable gains or deductible losses
Thin capitalisation rule is 3:1
If liability exceeds ratio, interests paid in excess = non-deductible
On an arm’s length basis
Substantiate w/ formal annual transfer pricing study
Calendar year
Monthly advanced payments
Annual tax return (3 months after tax year end)
Resident corporation Permanent establishment (PE)
Accounting profit is adjusted for various tax add-backs and
allowances to arrive to profits chargeable to corporation tax
INCOME TAX (ISR)
42
Tax rates 30% for 2012 & 2013 ( for 2014 expected to increase…)
OTHER MEXICAN TAX RULES
• Mexico applies a so-called “monetary correction” to account for the
impact of inflation on monetary assets and liabilities. As a result of the
varying effects of monetary correction, there have been periods where
Mexican companies have incurred a higher tax burden as a result of
being capitalized by debt instead of equity.
• Management, technical assistance and service fees paid to related
parties should be deductible in most cases, and such fees are not
subject to Mexican withholding tax provided the services in question
are rendered outside of Mexico.
43
OTHER MEXICAN TAX RULES – cont…
• Mexico will want documentation that intercompany charges are
reasonable. The reasonableness of the transfer price on any
purchases of products from or sales to related parties should
also be documented.
– Transfer Pricing Study required yearly and reasonability and
method used, must be mentioned by external auditor on filing audit
report to Mexican IRS – mandatory “tax” audit if gross income>
2.650 MUSD in prior FY.
44
INCOME TAX ON INDIVIDUALS
Residents Non-residents
Taxable income Worldwide income On income from Mexican
source
Types of taxable
income
● Property income (usually rent)
● From capital investment (interest, sale of goodwill,
dividends, royalties, annuities)
● From business activities/professional activities
● From personal services or pensions
45
INCOME TAX ON INDIVIDUALS
Calculation of
taxable income
● Business income minus cost
● Rent income entitled to an optional 35% “blind”
deduction, or else accountable expenses.
● Salary income computed by applying progressive table
@ 0% to 30% tax. (no deductions)
• Dividends not taxed if distribution paid tax at
corporate level (originate from “CUFIN” basket) –
obligation to accrue and credit tax in annual tax
return (applies if shareholder is a company)
46
Tax year, payment
Calendar year or any period of time until December
Usually withheld by payer
Annual return due before end of April the following year
Losses Very specific cases (from the sale of assets and
business activities)
Maximum tax rates
30% during 2012
30% for 2013
2014 and on…???....
INCOME TAX ON INDIVIDUALS
47
• TAX RATE
• TAXABLE BASE • CASH FLOW BASIS
• MONTHLY PAYMENTS
• HOW IT WORKS WITH INCOME TAX
FLAT TAX (IETU)
48
FLAT TAX (IETU)
General description Works as alternative minimum Income Tax (ISR)
Payable to the extent it exceeds Income Tax
Taxable entities and
taxable income
Computed on a cash-flow basis
Collected income
minus Expenses actually paid
Except: salaries and wages (credit), interest and
royalties paid to related parties which are not
integrated into the tax base.
49
Tax year, tax assessment and tax
payment
Calendar year
Monthly advance payments based
on real accumulated cash flow base
for the period.
Annual return within 3 months after
tax year end
Losses Carry forward 10 years
Set off ONLY against future IETU
Tax Rate 17.5%
FLAT TAX (IETU)
50
INCOME TAX & FLAT TAX CONCEPT A) INCOME TAX A) FLAT TAX
Accruable Income 100
Collected Income 80
Allowed Deductions (accrued / paid)
70 50
Taxable Base 30 30
Income Tax (ISR) 9.0
Flat Tax (IETU) 5.25
Tax Payable:
Income Tax 9.0 0 Flat Tax
51
TAX PAYERS
All entities and individuals
Residents or not
Performing activities within Mexican territory, as described
by Law
TAXABLE
ACTIVITIES
● Transfer of goods
● Rendering of services
● Property derived income (rent)
● Import of goods/services
● Export of goods/services
VALUE ADDED TAX (VAT)
53
0% RATE
(examples)
● Food (taxed for 2014 ?)
● Primary activities (agriculture, fishing, catering)
● Export of goods and some services
EXEMPTIONS
(examples)
● Medicines (taxed for 2014 ?)
● Books
● Interest from financial institutions
● Services rendered or goods transferred by not-for-profit
organizations
VALUE ADDED TAX (VAT) cont.
54
REFUND Within 40 working
days
Not allowed to foreigners under
general rules
TAX LIABILITY Supplier of goods/services is responsible for charging
VAT
TAX RATES &
BASE
● Standard rate = 16%
● Rate along the border = 11%
● Rate on exports and food = 0% (for 2013)
● Tax is computed on a cash-flow basis
VALUE ADDED TAX (VAT) cont.
55
ADMINISTRATIVE
OBLIGATIONS
• Registration with tax authorities • Applies even if no PE – not exempt by Tax Treaties.
• File monthly returns
• Withhold VAT when applicable
• File monthly and annual informative
returns via internet of all transactions
with third parties (DIOT format A-29)
• VAT specifically separated in electronic
invoicing – or non-deductible for income tax.
VALUE ADDED TAX (VAT) cont.
56
DIGITAL INVOICING (CFF)
Mandatory for:
- Taxpayers with TURNOVER above 4 million mxp
(about 325,000 usd) and those already issuing
digital invoices
58
DIGITAL INVOICING (CFF)
Characteristics:
• Digital tax receipt called a “CFDI” or Digital Tax Invoice
• Documents and validates business transactions
• Must be generated, transmitted and protected by electronic means.
• Companies must keep track of the invoices issued, by storage or backup of digital vouchers (.XML), subject to review by Tax Authorities.
59
TAX TREATY US - MEXICO
TAXES COMPRISED:
• INCOME TAX
• FLAT TAX – creditable while study in process – how long?...
(VAT NOT INCLUDED)
61
TAX TREATY US - MEXICO
Dividends 5% – 10%
Interest 4.9% – 15%
Royalties 10%
Sale of shares Taxable when more than
25%for at least 2 years
62
* Business income not taxable
Polling Question 3
Mexican Taxes:
1. Federal Income Tax in Mexico is @ 35%
2. Flat Tax or IETU, works as a minimum Income Tax.
3. VAT in Mexico is applied @ 18% without exception
4. Dividends are always taxed when paid to shareholders.
63
Maquiladoras
Maquila
Industrial process or services for
the production, transformation or
repair of foreign goods
temporarily imported for later export
65
66
IMMEX
Incentives program for the:
Manufacturing,
Maquiladora and
Export Services Industry Export Services: production, processing or repair of goods of foreign origin, imported temporarily for subsequent return abroad
REQUIREMENTS FOR IMMEX PROGRAM
1. Legal and economical relation with foreign entity
(maquila contract)
2. Maquiladora incorporated as a corporation subject
to Income Tax under Title II provisions.
3. Operations:
- Repair or
- Transformation into a different product with added value.
4. Goods imported temporarily must return abroad with
the finished product.
67
REQUIREMENTS FOR IMMEX PROGRAM
5. Raw materials, parts and components under temporary importation, and 30% of machinery and equipment:
Property of foreign resident entity that hired the maquila, or Property of foreign resident third party with manufacturing relationship with the above.
68
REQUIREMENTS FOR IMMEX PROGRAM
6. Export 500,000 USD or 10% of production.
7. Import only authorized fractions as per Customs Law.
8. Allocate goods for what was authorized.
69
REQUIREMENTS FOR IMMEX PROGRAM
9. Meet agreed deadlines.
10. Keep goods in declared domicile.
11. Keep inventory control as provided in
the Customs Law
70
REQUIREMENTS FOR IMMEX PROGRAM
12. File reports to SE and SHCP if:
– Change of corporate name, RFC, address
– Change of sub-maquila’s address
– Suspend activities.
13. Comply with Transfer Pricing provisions
SE – Secretaria de Economia (Ministry of Economics)
SHCP – Secretaria de Hacienda (Revenue Service)
71
MAQUILA BENEFITS
No Permanent Establishment (PE) for foreign residents with legal or economic relationships with maquiladoras, if:
• It habitually processes goods or merchandise maintained in Mexico by the foreign resident .
72
MAQUILA BENEFITS – cont…
• Uses assets provided by the foreign resident or any related party .
• Mexico and the foreign resident's country have entered a Treaty to Avoid Double Taxation and meet requirements .
• Companies comply with Transfer Pricing provisions.
73
Temporarily import duty free for:
– Machinery and equipment
(life of program approval)
– Parts, components and raw material
(12 to 60 months)
– Containers (2 years)
MAQUILA BENEFITS – cont…
74
VALUE ADDED TAX (IVA)
– 0% on maquila services
– 0% on sales to final consumer or distributors in
Mexico = Export
MAQUILA BENEFITS – cont…
75
VALUE ADDED TAX (IVA)
– No VAT on temporary imports
– No VAT on Mexican purchases
Expedited VAT refunds on VAT paid in Mexico
- General: 20 working days
5 if Entity is Certified
MAQUILA BENEFITS – cont…
76
INCOME TAX (ISR)
• Partial exemption
ISR payable considering greatest of operational cost +6.5% , or revenue of 6.9% on assets
minus:
ISR payable considering greatest of operative cost + 3% or revenue of 3% on assets
MAQUILA BENEFITS – cont…
77
TAXABLE INCOME TO AVOID P.E.
• Safe Harbor
Higher of:
• Assets employed in maquila operation x 6.9%
• Costs/expenses of maquila operations x 6.5%
• Methodology Study 1999 + 1%
Sales + (machinery x 1%) = Taxable income
78
SAFE HARBOR I. ASSETS EMPLOYED IN MAQUILA OPERATIONS
Property of the maquiladora 500,000 Property of foreign resident 150,000 ª TOTAL 650,000 Percentage on assets 6.9% Taxable gain 44,850 II. COSTS AND EXPENSES OF MAQUILA OPERATIONS Costs and expenses incurred by maquiladora 250,000 Costs and expenses incurred by foreign resident 10,000 TOTAL 260,000 Percentage on expenses 6.5% Taxable gain 16,900 III. HIGHER OF I AND II 6.9% on assets 44,850 Income Tax Rate 30% INCOME TAX 13,455
79
METHODOLOGY STUDY 1999 + 1%
Methodology 1999 1% Machinery (foreign) Total
Sales 273,000 150,000ª x 1% = 1,500 274,500
Costs
and expenses 260,000 260,000
Mark-Up 5% 5.5%
Operating gain 13,000 14,500
Income Tax Rate 30%
INCOME TAX 4,350
80
Polling Question 4
Maquiladoras adhering to IMMEX program:
1. Pay no Income Tax or VAT on sales
2. Pay no Income Tax
3. Constitute a PE in Mexico
4. Pay no VAT on sales
82
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
Questions?
Please submit any questions via the questions function on the upper
right hand side of your screen
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
85
©2
01
3 C
lifto
nLa
rso
nA
llen
LLP
CLAconnect.com
twitter.com/ CLAconnect
facebook.com/ cliftonlarsonallen
linkedin.com/company/ cliftonlarsonallen
Thank you
Jeff Kvilhaug, Partner
Jefforie.kvilhaug@CLAconnect.com
407-802-1200