Mexico: Decree on capital repatriation

Ricardo González Orta	Eduardo Barrón

A capital repatriation decree has been published in Mexico's federal Official Gazette, offering a tax amnesty relating to deposits or investments repatriated to Mexico by June 19 2017. The decree became effective on January 19 2017.

The decree on capital repatriation will remain in force for six months following the effective date of the decree. It applies to Mexican resident entities and individuals, as well as non-residents with a permanent establishment in Mexico, that have earned income from previously unreported direct and indirect offshore investments held abroad until December 31 2016. The decree offers qualifying taxpayers an opportunity to repatriate the investments, pay a specified tax, and meet their tax obligations in Mexico for the fiscal year in which the payment is made and for the previous fiscal years in which the investment was held, provided certain specified requirements are fulfilled.

The tax will be calculated by applying an 8% rate, with no offsetting deductions, to the total amount of the direct or indirect investments repatriated to Mexico that were held abroad before January 1 2017. The applicable exchange rate in cases involving holdings in a foreign currency will be determined by the rate of the day on which the 8% tax is paid.

Foreign tax paid on the income from investments held abroad before January 1 2017 may be credited against the 8% tax paid on the repatriation of those investments, but the credit is limited to the amount of the 8% tax.

The 8% tax (as reduced by any foreign tax credit) must be paid within 15 days following the date on which the investments are repatriated to Mexico.

The decree does not apply to income derived from illegal activities or to income that has resulted in a deduction, for income tax purpose, to a Mexican resident or a non-resident with a permanent establishment in Mexico.

Only income and investments repatriated to Mexico during the six months following January 19 2017 that are invested in Mexico during 2017 and remain invested in Mexico for at least two years from the date on which they are repatriated are eligible. The two-year requirement will be deemed to be met if a taxpayer has invested in the following: the acquisition of fixed assets, the acquisition of land or buildings used for domestic business activities, research and development, payment of liabilities with third parties before the capital repatriation decree became effective, or in Mexico through a bank or brokerage house formed under Mexican law.

The Mexican tax authorities may issue rules for implementing the decree.

Ricardo González Orta (rgonzalezorta@deloittemx.com) and Eduardo Barrón (edbarron@deloittemx.com), Mexico City

Deloitte Mexico

Website: www.deloitte.com/mx