SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments in the past year.
In early April, the Federal Executive submitted a bill for comprehensive tax reform before the Ordinary Sessions of Congress. Much debate is anticipated. In fact, an Extraordinary Session of Congress may be called to address these matters.
TAXES ON CORPORATE INCOME
Federal income tax/The federal corporate income tax rate is 35%. However, there is a temporary reduction in this rate of up to 5% to the extent profits on which the tax is being reduced are not distributed during the tax year, and, therefore, under this option, profits may be taxed at a rate
of 30%. When the taxpayer selects this option, the 5% difference, applied on a grossed-up basis, is payable when the dividend is paid.
If the deferral alternative is adopted, a reinvested tax profits account (CUFIN RE) must be set up. The CUFIN RE must be utilized before the regular CUFIN, referred to above.
In addition, the rate is reduced as follows.
1.50% (i.e., to 17.5% or 15%) in the case of taxpayers engaged exclusively in agriculture, animal husbandry, fishing, or forestry.
2.25% (i.e., 26.25% or 22.5%) if the taxpayers mentioned in point 1 above industrialize their products or if they are also engaged in other commercial or industrial activities from which they derive no more than 50% of their gross revenue.
3.50% (i.e., to 17.5% or 15%) in the case of taxpayers engaged exclusively in book publishing: If these taxpayers are also engaged in other activities, the reduced rate applies only to the income derived from book publishing.
Provisions designed to recognize the effects of inflation for tax purposes in the areas of monetary assets and liabilities (monetary correction), inventories (deduction upon purchase), and depreciable assets are provided for in the law because of the economic effects of inflation.
Once a corporation has paid its income tax, after-tax earnings (i.e., earnings arising from the after-tax earnings account or “regular CUFIN”) may be distributed to the shareholders with no tax liability at the corporate level, applying a 5% withholding tax on grossed-up dividends paid to individuals and foreign shareholders (by the factor of 1.5385, or 1.515
when the dividend is paid from the CUFIN balance up to December, 1998).
However, if the corporation makes a distribution out of earnings that for any reason have not been subject to corporate income tax, for example, book earnings not yet recognized for tax purposes, it will have to pay a corporate tax of 35% on those distributed earnings grossed up by a factor of 1.5385, aside from the withholding tax applicable on dividends paid to
individual and foreign shareholders.
All corporate entities, including associations of a civil nature, unless specifically excepted as nonprofit organizations, are subject to the rules applicable to corporations.
Minimum tax/ A minimum tax, known as asset tax, is payable at the rate of 1.8% of the value of the assets of the taxpayer (corporations, unincorporated businesses, organizations of a civil nature not specifically excepted, and branches or other permanent establishments of foreign persons).
It supplements the federal income tax; that is, it is payable and increases the overall tax burden only if it exceeds regular income tax.
This feature is achieved by allowing an amount equal to the taxpayer’s regular income tax as a credit against its minimum 1.8% tax liability for the current year.
In addition to the above credit, the excess of annual income tax due over the minimum tax due in each of the last three tax years may be credited against the net minimum tax of the year. This excess is restated for inflation.
No minimum tax is generally payable during the first four years of operations.
Asset tax paid in the previous 10 years (restated for inflation) may be recovered in the year in which income tax exceeds asset tax of the current year by an amount equivalent to that excess.
There is an option that allows taxpayers to determine asset tax based on the tax arising in the fourth preceding period (restated for inflation).
Once the election is made, taxpayers are required to continue determining asset tax under this option.
The taxpayer’s asset tax burden is generally affected only if the taxpayer pays little or no federal income tax over an extended period.State taxes/There are no state taxes on corporate net income.
CORPORATE RESIDENCE
The Federal Tax Code provides that corporations are regarded as residents of Mexico if they are incorporated under the provisions of Mexican corporate law or if the principal center of administration or the effective place of management is located in Mexico. The Income Tax Law provides that permanent
establishments (PEs) and/ or fixe
[1] [2] [3] 下一页
