Capital Repatriation

On January 19, the Decree granting various administrative facilities in connection with income tax, applicable to deposits or investments received in Mexico (“Capital Repatriation”), issued by the Office of the President of the Republic, entered into force.
For More Information On Capital Repatriation

On January 19, the Decree granting various administrative benefits regarding income tax applicable to deposits or investments returned to Mexico (“Capital Repatriation”), enacted by the Office of the President, entered into force. Under this Decree, Mexican residents who in prior years failed to pay taxes on income derived from investments held directly or indirectly abroad may regularize their tax situation by paying an 8% tax on such earnings.

This 8% rate also applies to determine the tax due on this type of income generated during 2016.

The benefit will remain in effect for six months. To qualify, the funds must be returned to Mexico and invested for at least two years in “qualified assets.” The 8% tax must be paid within 15 days following the date of repatriation.

Qualified assets include: (i) financial instruments issued by Mexican residents; (ii) shares issued by Mexican companies; (iii) fixed assets; (iv) land and buildings; and (v) research and development of technology.

Taxpayers applying this benefit must be able to demonstrate that the principal from which the income was derived was properly taxed at the time. If it was not, the corresponding tax may also be paid at the 8% rate, provided that such resources are returned to Mexico and invested in qualified assets.

Finally, the Decree provides that application of this benefit will be deemed to fully satisfy all tax obligations related to such income, including reporting obligations for income subject to preferential tax regimes (REFIPRES), income generated in blacklisted jurisdictions, and income received through transparent entities or arrangements.

Unlike last year’s repatriation decree, the authorities will not disclose the identities of individuals who apply this benefit.

In our view, this Decree offers significant advantages that should result not only in a substantial increase in tax collection during the first half of the year, but also in increased investment in productive assets within the country.

Mexico City, January 20, 2017.

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