2008 Mexican Tax Reform
What impact will the Mexican Tax Reform have on your company?
On October 1, 2007, the Mexican Government enacted sweeping tax changes in the Tax Reform Act, which will come into effect on January 1, 2008. The tax reform created a new tax called the "flat tax rate" or "IETU"
Below are some of the general features regarding the IETU:
- This tax operates much like an “alternative minimum tax.”
- Taxpayers affected include all business taxpayers, corporate and non-corporate, including individuals with business activities on their worldwide income, and foreign residents with a permanent establishment in Mexico.
- Generally, all business revenue is affected by this new IETU “alternative” income tax system, including independent personal services, and the rental of property.
- Limited deductions (excluding compensation) are allowed to compute the tax base, although a direct tax credit is allowed for most of the compensation expense.
- The IETU is calculated as an “alternative” tax, and the greater of the IETU or the regular income tax becomes the liability.
- The IETU statutory rate is 16.5% for 2008, 17% for 2009 and 17.5% for 2010 and thereafter.
- Companies operating under the IMMEX program (known as Maquiladoras) may be allowed a tax incentive in the form of a tax credit that will reduce their IETU liability.
Note: The Assets Tax will be repealed on 1/1/2008.
Many taxpayers may be able to minimize their first year IETU liability by taking action before 12/31/07.
We encourage you to set a meeting or conference call with our US-Mexico Cross Border Specialty Group to discuss your company's specific situation and the tax implications of the IETU impacting your Mexican operations. A white paper is available upon request.
For more information, please contact:
Edgar Lopezlena, Mexican Tax Practice
Phone: 847.413.6900
E-mail: edgar.lopezlena@rsmi.com
James Dawson
Phone: 954.462.6351
E-mail: james.dawson@rsmi.com
Jose Dominiguez
Phone: 949.255.6500
E-mail: jose.dominguez@rsmi.com
