US Tax Factors When Forming a Mexican Corporation

 There are two main types of Mexican corporations.  Both are taxed in the same way in Mexico but only when  of those two are  eligible for often advantageous tax treat on your US tax return if the proper election is made for US tax purposes. That US tax election must be made with the IRS within a certain time period after your Mexican corporation is formed.  If you do not make the election in that period making it later may cause you to pay unnecessary US and Mexico income taxes.

The two primary types of Mexico corporations are (a) Sociedad Anonima or (2) Sociedad de Responsabilidad Limitada.

We can help you chose the best type of Mexico corporation for your Mexico business or real estate ownership or rental property.  This of course depends on the net profit you project the corporation to make. We can also help you file the election  (if you have the correct type of corporation in Mexico) with the IRS which will allow you to take a tax credit on your personal US return for taxes paid by the corporation in Mexico. That tax credit will reduce your US taxes you might have to pay on that corporate income.

We can help you chose the best type of Mexico corporation to achieve the optimum savings on your US tax return.  Email US to set up a mini- consultation before you form your Mexico corporation. CONTACT US HERE

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: ddnelson@gmail.com and visit our website at www.taxmeless.com for more information. We are a US firm with over 30 years experience in Mexico/US taxation.

Consider Forming a Mexican Sociedad de Responsabilidad Limitada (SRL) when Incorporation Your Business or Rental in Mexico

When you decide to incorporate your business or rental property in Mexico and you are a US taxpayer it is wise to consider making your Mexican corporation a Sociedad de Responsabilidad Limitada (S. de R.L. ).  rather than the more common  Sociedad Anonima de Capital Variable, (SA de C.V.).  One offers great advantages on your US tax return due to the "Check the Box" regulations (IRS Form  8832). Most Mexican attorneys and accountants  are not familar with the advantages of a S. de R.L. and recommend the other type of corporation.

Advantages of using an S. de R.L :

1. Allows losses and profits  of the corporation to flow through to your personal US return (avoids double taxation)
2. Allows you to claim a foreign tax credit on your US return for all Mexican income taxes paid by your corporation in Mexico.
3. Avoids the new US GILTI tax which causes owners of Controlled Foreign Corporations to have to pay taxes on part of the corporations profits even if they are not distributed to you.

We can help you structure your Mexican business or real estate in the optimum manner for your US tax return and to save taxes.  Please email us with your questions or to set up a planning session.  We can also then do the return.  EMAIL US  We have been assisting US Gringos in Mexico with their US tax returns for over 20 years.