On May 15, 2017 general rules were published by the Tax Administration Service (“SAT”) applicable to the “Executive Order granting various income tax breaks for deposits or investments to be received in Mexico”, in effect since January 19, 2017.
The Repatriation of Funds Executive Order (the “Executive Order”) grants an income tax (“ISR”) break to taxpayers resident of Mexico regarding income obtained from direct or indirect investments kept abroad until December 31, 2016. The tax break consists in applying an 8% ISR rate (without inflation adjustments or accruing interest thereon), with respect to income and investments returned to Mexico during the six months following the effective date of the Executive Order (before July 20, 2017).
On May 15, 2017, SAT published the First Amendment to the 2017 Omnibus Tax Ruling, including a Chapter 11.8. containing various rules designed to apply the Executive Order.
Below are some of its main items:
- A notice must be filed in case of any change in the investment vehicle initially chosen by the taxpayer, to a different vehicle also contemplated by the Executive Order.
- Funds being repatriated must be invested in foreign currency financial instruments issued by Mexican entities (e.g., in U.S. Dollars).
- Funds being repatriated, which were not subject to ISR or were exempted from taxes or the relevant tax had already been paid, may be excluded from the tax base.
- A taxpayer may pay the applicable 8% ISR rate by offsetting any amounts payable to the taxpayer by SAT.
- The breaks contemplated by the Executive Order may be applicable to income from the transfer of shares or negotiable instruments or debentures comprising a taxpayer’s financial portfolio kept abroad or from the redemption of capital by non-resident entities, provided that such redemption takes place prior to July 20, 2017.
- It is clarified that individuals and business entities may invest the repatriated funds in shares issued by Mexican companies residing in Mexico.
- Individuals may use the repatriated funds to pay taxes and other government fees.
- Individuals may invest the repatriated funds in the acquisition of shares issued by investment companies and in trust certificates covering shares of stock, the purposes of which is the management, acquisition or transfer of shares issued by Mexican companies.
- The break may be applicable to those taxpayers being audited by the tax authorities to regularize their tax situation with respect to the income obtained abroad and repatriated, provided the ISR is paid as required by the Executive Order during any stage of the audit and even after the assessment of any tax liability.
One of the advantages of the Executive Order is that the income tax payable for 2017 and previous fiscal years will be deemed paid, thus, fully regularizing the tax liability for taxes not paid on investments maintained abroad. Also, other statutory obligations related to said income are also deemed satisfied, including information tax returns not theretofore filed.
Said rules were disclosed in advance by SAT through its Webpage; thus, pursuant to the last paragraph of rule 1.8. and Transitory Article 2 of the First Amendment, these provisions are in effect since the date that they were first published .
As the benefits of funds repatriation are subject to the satisfaction of various requirements and conditions that must be carefully evaluated, the lawyers of the tax and equity planning area will be pleased to provide you any further information on this matter.