Executive Order for the Repatriation of Funds in 2017

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On January 18, 2017, there was published in the Federal Official Gazette an “Executive Order providing for income tax incentives for the repatriation of deposits or investments maintained abroad” (the “Order”), so as regularize the taxpayer’s tax liability by the payment of the income tax at a reduced rate and with no additional government charges.
The Order contemplates a tax incentive for taxpayers who are residents of Mexico on income derived from direct or indirect investments (such as corporate structures) mantained abroad up to December 31, 2016.
The tax incentive consists in applying an 8% income tax rate (without inflation adjustments or government charges) on income and investments being repatriated into the county, within six months following the effective date of the Order. Taxpayers are required to invest such income and investments, within two years, in any of the following:
 

1. For Business entities:

1. Acquisiton of deductible fixed assets;
2. Acquistion of land and other real estate;
3. Technolgoy research and development (R&D) in taxpayer’s projects;
4. Payment of liabilities derived from third party transactions, as well as payment of taxes, goverment fees or wages, and
5. Financial investments through Mexican banks and other financial institutions or brokerage houses.

 
2. For Individuals:
 

1. Acquisiton of deductible fixed assets;
2. Acquisiton of land and other real estate;
3. Technolgoy research and development (R&D) in taxpayer’s projects;
4. Financial instruments issued by Mexico residents or shares of stock issued by Mexican business entities.

 
Under the program, previous fiscal years income tax will be deemed paid thus, fully regularizing the taxpayer liability for taxes not paid on investments maintained abroad. Any other obligations related to such income also will being deemed satisfied, such as information returns not filed heretofore.
For income tax calculation purposes, the exchange rate in effect on the income tax payment date must be applied and taxes paid abroad may be credited. Furthermore, in case of business entities, the balance of the Net Taxable Profit Account [Cuenta de Utilidad Fiscal Neta] will be increased.
Finally, the benefits are subject to certain requirements and conditions that must be carefully analyzed and evaluated and the Tax Administration Service will publish tax rules for their implementation.
The lawyers of the tax and wealth planning practice groups of our Firm will be plased to provide you further information on the program tax benefits and advise you as to how to apply such benefits.
 
TRULY YOURS
 
 

Mexico City, January 19, 2017.