Mexican tax reform: Are you prepared?

On October 31, the Mexican Congress approved a tax reform package that will take effect in 2014.  Although the new tax on junk food should not affect most U.S. business in Mexico, many other provisions will.  First, the Mexican minimum tax commonly called IETU, has been repealed.  This should be a benefit for most U.S. businesses.  Second, the Maquiladora regime has been updated with more stringent requirements so that an entity in the program must derive almost all of its income from qualifying activity.  This is a significant change from prior requirements where only a minimum level of activity in the entity needed to qualify.  The last significant change is the imposition of a distribution tax on a company making payments to Mexican individuals and foreign residents.  The tax is assessed at a rate of 10 percent and is collected as a withholding tax.  Because the tax is assessed against the Mexican corporation paying the dividend, the amount is not eligible to be reduced by a double tax treaty.

Have you taken the time yet to understand how these provisions affect your operations in Mexico?  Whether assessing the gross level of Mexican tax assess on the company or the ability for the U.S. parent to credit Mexican tax. These changes should be understood in the context of your business so you can take advantage of any tax-saving opportunities that may exist.