Below are the rules of the new Mexican Repatriation Presidential Decree (Program) published on January 19, 2017 (Decree Granting Administrative Benefits on Income Tax Regarding Deposits and Investments Received in Mexico).
A. General rules
- The Program is applicable to individuals and legal entities.
- Not applicable to taxpayers currently subject to audit procedures or that have filed a tax claim in connection with the funds to be repatriated, unless such claim is withdrawn.
- The funds are abroad (i.e. capital and interest) directly or indirectly, should be returned to Mexico, including those maintained in Preferential Tax Regimes/low tax jurisdictions.
- Indirect investments are deemed those which are held through a foreign legal entity or structure in which the taxpayer participates, as well as through fiscally transparent entities.
- Taxpayers must evidence the payment of Mexican income tax on the funds (i.e. capital) maintained abroad which lead to interest, income or proceeds subject to repatriation under the Program. Otherwise, unpaid taxes on capital can be paid through the Program at the reduced rate referred to below.
- Applicable only to investments maintained abroad up to December 31, 2016.
- Six-Month Program’s Effectiveness: starting January 19, 2017.
- The return of funds must be made within the six-month effectiveness period.
- Return must be done through financial institutions or brokerage houses in Mexico.
- Sender-recipient of funds in Mexico must be the same person, except if the persons involved in the repatriation of funds are related parties in terms of Mexican tax law.
- Tax payment due date: fifteen calendar days following “repatriation date” – i.e. effective date of deposit in Mexican financial institution/brokerage house.
- The funds must be invested in Mexico for a two-year period counted as of "repatriation date".
- Legal entities must destine the repatriated funds to:
- The acquisition of fixed assets located in Mexico that are deductible for income tax purposes and used by the taxpayers in their business activities;
- The acquisition of land and buildings that are to be used in the performance of the taxpayer activities;
- Investment in research and development regarding projects undertaken by the taxpayer;
- Loan payments;
- Taxes due and wages;
- The performance of investments in Mexico through financial institutions or brokerage houses forming part of the Mexican financial system.
- Mexican individuals must invest the repatriated funds through Mexican financial institutions in: (i) financial instruments issued by Mexican residents; (ii) shares issued by Mexican companies; and (iii) as per items 1, 2 and 3 above.
- Investment must be made during FY 2017.
- Taxpayers applying the Program must evidence that: (i) the funds are received from abroad; and (ii) the corresponding income tax was duly paid in terms of the Program. Deposit vouchers and income tax payment acknowledgement need to be kept readily available as documentary evidence in Mexico. This evidence must be kept for a five-year period counted as of the date on which the income tax was paid as per the Program.
- 8% Reduced Income Tax rate applicable to the gross amount of funds – no deductions - maintained abroad before January 1st, 2017 and returned to Mexico. We consider that this treatment applies also to exchange gains. This preferential tax rate represents a significant reduction with respect to the 30% and 35% income tax rate applicable to legal entities and individuals, respectively.
- Formal (e.g. reporting) obligations with respect to the repatriated funds are deemed duly complied with in terms of the Program.
- Increase balance of the net-after-tax profit account (CUFIN) for legal entities in an amount equal to the funds repatriated under this Program reduced by the tax paid.
- The funds repatriated in terms of this Program, would not be subject to the so-called tax discrepancy procedure (procedimiento de discrepancia fiscal).
Taxpayers may credit against the income tax due in terms of this Program, the tax paid abroad up to the amount resulting from applying the 8% rate to the repatriated funds.