Mexico’s Tax Reform is well into its 18th month from its enactment date of January 1, 2014. For foreign companies that operate under a shelter company’s legal framework, the Tax Reform (through Article 183) provides a 4 year exemption from permanent establishment status and from income tax payments in Mexico. Companies that were already operating under the shelter legal framework prior to January 1, 2014, will need to establish an income tax presence in Mexico beginning January 1, 2018. This tax presence has not yet been completely defined by Mexico’s Treasury Department but elements are at work to streamline matters for foreign companies by simply assigning a Mexican Tax ID number without the need to establish a legal entity in Mexico. Regardless of how the taxpayer is identified in Mexico (through an ID only or an ID and legal entity), income tax obligations will begin January 1, 2015.
Depending on the legal framework and on the outcome of ongoing lobbying that looks after the interests of foreign companies operating in Mexico, the income tax will be determined by a number of methods that are more fully described in Articles 182 of Mexico’s New Income Tax Law.
It is important to note that Mexico has bilateral tax treaties with both Canada and the United States, in which double taxation is not permitted. Therefore, income taxes paid in Mexico may be creditable on U.S. or Canadian income tax returns.