Wednesday, February 5, 2020

Mexico Corporations - Which are best for your US Income Tax

When you need to form a Mexican Corporation for your business or real estate rental needs, it is very important if you are a US tax filer that you chose the right kind of Mexican corporation.  Only one type of Mexican corporation allows you tile an election to which will cause the corporations net  taxable income and any Mexico income taxes it pays  to flow through to your personal US income tax  return.  You can take a credit on your US return for the Mexican tax offsetting your US tax on the same income and avoid double taxation. That type of corporation is a Sociedad de Responsabilidad Limitada  (SRL).   Depending on the number of owners it will show up on your tax return either as a disregarded entiy or LLC/Partnership.

You must make the election with the IRS to have the Mexico SRL to be treated as a flow through shortly after it is formed in Mexico.  The election form is filed with the IRS.  It is much more complex if you try to do it after the SRL is included the first ime in your US return.  

SRLs are very commonly used by US person with Mexico real estate and that own Mexico businesses.

The other type of Mexico corporation is a Sociedad Anonima or an S.A. De C.V. If you use this type of corporation the income does not flow through to your personal return and you cannot claim a credit for any taxes it pays.  It may also cause you to pay the Section 951a GILTI on nondistribruted net income if its income is in excess of a certain amount. When you distribute the income as dividends you pay taxes again on the same income.

If  you want assistance in forming a Mexico Corporation, and its taxation in Mexico and in the US (and electing flow through status) contact us. Email us at: and visit our website at for more information. We are a US firm with over 30 years experience in Mexico/US taxation.

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