Legal Aspects of Establishing a Business in Mexico

When you start a business in Mexico, you have decide whether you incorporate; what type of corporation or set up a branch of your US corporation.  If you are a permanent resident you can also set up a sole proprietorship. Below is a great article of the subject written in 2017 (so it is current).

Everything you need to know about forming entities to do busienss in Mexico and operating a business there from Westlaw (click here)

If you wish to review the US tax and legal ramifications of doing business in Mexico with a US attorney who has hundred of clients in Mexico and has been assisting them for over 25 years you should email Don D. Nelson , Attorney at Law at ddnelson@gmail.com     The proper legal and tax guidance will save you not only money but untold problems.

Everything You Wanted To Know about Buying, Selling, Owning, Renting and Occupying Real Property in Mexico from MLS Baja

The list of articles on this link includes almost everything you need to know about real estate law, taxes and ownership in Mexico . It is put together by the Baja Sur MLS and is a great compilation of knowledge from the experts.  SEE INDEX OF AVAILABLE ARTICLES HERE.

If you need help with US taxes in Mexico or rental taxes on Mexico properties, email us at ddnelson@gmail.com

CONSEQUENCES FOR AMERICANS AND CANADIANS FAILURE TO PAY TAXES ON RENTAL INCOME ON MEXICAN PROPERTY

What are the consequences of failing to report the rental income in Mexico? You will be liable for not being enrolled as a taxpayer which can cost you from 2,740. to 8,230 pesos when assessed by the SAT.   The penalty for not making rental tax declarations as required range from 1,100. pesos to 13,720. pesos per month in addition to interest for not paying on time and as required is 1.13% per month.  The amount of the penalty may depend upon whether or not this is your first violation.

Should you go back and pay in those taxes for past years when you failed to pay the rental income and VAT taxes?   If the Mexico tax authorities have not notified you are in violation of the tax code, you probably will not need to file back taxes (but there are no guarantees).   The important point is to begin paying now on your rental income from your Mexican properties and to be consistent in the future.

target="_ Remember also to pay your US taxes on that rental income. You can then claim a credit or deduction for the taxes you paid in Mexico on the same income so you are not double taxed. Have questions? Email us at ddnelson@gmail.com

Taxes You May Have to Pay as a Gringo in Mexico

There are some things about Mexican taxes you need to know if you are spending a lot of time anywhere in Mexico.

• If you spend over 183 days in Mexico you are considered a permanent resident under Mexican tax law and are liable for their income taxes on your worldwide income. The enforcement of this rule is lax in many areas of Mexico, but since Mr. Trump is causing Mexico problems they may start to enforce it.  Their tax rate is much higher than the USA.
• If you own property you rent out in Mexico even for a short time when you are no there, you owe VAT tax and income tax on your earnings. You are suppose to collect the VAT tax from the renter and pay income taxes on your rental income.  You can read more about the rules and how to pay these taxes if you do not have a Mexican tax ID number at: www.rentaltaxmexico.com
• If you sell real property in Mexico, it is the notary who handles the transfer that determines the amount of tax you pay on your gain.  How this is calculated does seem to vary.  If you are a permanent resident and you meet the criteria, and the property you are selling is your personal residence, that gain on sale may be exempt from tax.  See you Mexican accountant to learn the exact rules since the specifics as reported seem to be difficult to determine.
• If you have a commercial property or business, and wish to own or operate it in a Mexican Corporation, it is best to use the form of corporation that is a Sociedad de Responsibilidad Limitada (SRL), since you can make certain elections for US tax purposes that make it a flow through entity and thus you will not suffer double taxation on your US tax return and can claim tax credits for the income taxes it must pay in Mexico
• Email us if you need help with your US tax planning for Mexico.  ddnelson@gmail.com

Buying and Selling Real Estate in Mexico - Reality Check on Enforcement of the Contract

When you buy or sell real estate in Mexico brokers and agents sometimes tell you that everything is done differently in Mexico than in the USA.  While in many respects, there are some differences, many parts of the process are remarkably similar to the USA.  Therefore, you should make sure your contract contains the same protective clauses and paragraphs you will find in a US contract of sale.   Using the California Association of Realtors contract as a guide is a good place to start when reviewing the contract given you by the RE agent, and making changes and improvements.

Where their may be some differences in the law, there are hugh differences in the enforceability of the contract.  Why?  The difference arises due to the Mexican legal systems, courts and the extremely long time in many areas of Mexico it takes to get a judgement or decision.  It can easily in some areas of Mexico take 5 or more years to get a judgment and sometimes due to factors not usually encountered in the US, the decision in any lawsuit may not be the correct one.

What is the solution?  Write a good contract and in the event a dispute arises, make certain it contains a mediation and arbitration provision.  The arbitraion laws are excellent in Mexico and if you and the other party agree to arbitrate it is likely you will resolve your dispute within  8 to 12 months.  That decision is then entered into the Court as a judgment.  Most arbitration are binding and cannot be appealled ( unlike most Court judgments in Mexico which are often appealled adding many more years to the final decision).

If you want to learn more about arbitraion or mediation, the clauses to put in your next contract, and how to have a dispute arbitrated or mediated, email us a ddnelson@gmail.com   If all parties agree, you can even remove your case from the Courts and have it decided by arbitration.  It is even legal to have the arbitrator be a US attorney or a panel of US and Mexican attorneys with real estate experience. Due to the speed of the process, you may save a lot of money in costs and attorneys fees.

MEXICO WILL 'IMMEDIATELY' RESPOND TO ANY US BORDER TAX - MINISTER

Reuters Article of the day

By Michael O'Boyle and Frances Kerr

MEXICO CITY (Reuters) - Mexico must be ready to respond immediately with its own tax measures if the incoming administration of President-elect Donald Trump imposes a border tax, the economy minister said on Friday, warning such protectionism may trigger a global recession.
Trump, who takes office on Jan. 20, has promised a "major border tax" on companies that shift jobs outside the United States, and such a measure could hobble Mexico's exports to its top trading partner.
"It is clear we need to be prepared to immediately neutralize the impact of such a measure", Economy Minister Ildefonso Guajardo said in an interview on Mexican television.
"And it is very clear how - take a fiscal action that clearly neutralizes it", he said.
Trump has repeatedly attacked Mexico over trade, jobs and immigration since he first launched his run for the White House in 2015, driving the peso currency to historic lows and unnerving investors, especially in the auto sector.
Guajardo said Trump's proposed tax "was a problem for the entire world" and that it "would have a wave of impacts that could take us into a global recession".
Nonetheless, the minister said he expected foreign direct investment in Mexico this year to total around $25 billion, with investment in the energy and telecommunications sectors expected to more than make up for the loss of a planned $1.6 billion Ford Motor Co. factory that the company said this month it is cancelling. Trump had strongly criticized the plan, but Ford said its decision was not the result of pressure from Trump.
Guajardo also praised the government of Japan and Toyota Motor Corp for their "reasonable" response to Trump's threat to impose a significant border tax if the company does not stop making its Corolla model in Mexico for the U.S. market. Toyota said last week the automaker has no immediate plans to curb production in Mexico.
"Toyota has 10 plants in the United States... and employs more than 130,000 Americans. If I were Mr. Trump, I'd treat them with more respect", Guajardo said.
He added that he expects total foreign direct investment during the six-year term of President Enrique Pena Nieto, which ends in late 2018, to average $30 billion annually.
Guajardo has previously warned that U.S. corporate tax cuts proposed by Trump, as well as the border tax, could undermine foreign investment in Latin America's No. 2 economy.
Mexico slapped a tax on U.S. high fructose corn syrup in the early 2000s after the United States refused to allow free trade in Mexican sugar.

IMPORTANT US TAX DEADLINES AND INSTRUCTIONAL VIDEOS FOR US EXPATS IN MEXICO

All U.S. citizens and residents (green card holders) must report worldwide income on their federal income tax return. If you lived outside the U.S. on the regular due date of your tax return, the extended filing deadline for your 2016 tax return is Monday, June 15, 2017.  Similarly, the deadline to report interests in certain foreign financial accounts is the same as your tax return (with some exceptions). Here are some important tips to know if these reporting rules apply to you:

• FATCA Requirements.  FATCA refers to the Foreign Account Tax Compliance Act. In general, federal law requires U.S. citizens and resident aliens to report any worldwide income. You must report the existence of and income from foreign accounts. This includes foreign trusts, banks and securities accounts. In most cases you must report the country where each account is located. To do this file Schedule B, Interest and Ordinary Dividends with your tax return.

You may also have to file Form 8938, Statement of Special Foreign Financial Assets with your tax return. Use the form to report specified foreign financial assets if the aggregate value of those assets exceeds certain thresholds. See the form instructions for details.

• FBAR Requirements.  FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. If you must file this form you file it with the Financial Crimes Enforcement Network, or FinCEN. FinCEN is a bureau of the Treasury Department. You generally must file the form if you had an interest in foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. This also applies if you had signature or other authority over those accounts. You must file Form 114 electronically. It is available online through the BSA E-Filing System website. The FBAR filing requirement is not part of filing a tax return. The deadline to file Form 114 is June 30.

• View the IRS Webinar.  You can get help and learn about FBAR rules by watching the IRS webinar on this topic. The title is “Reporting of Foreign Financial Accounts on the Electronic FBAR.” The presentation is one hour long. You can find it by entering “FBAR” in the search box of the IRS Video Portal home page. Topics include:

o FBAR legal authorities
o FBAR mandatory e-filing overview
o Using FinCEN Form 114; and Form 114a
o FBAR filing requirements
o FBAR filing exceptions
o Special filing rules
o Recordkeeping
o Administrative guidance

You can access IRS forms, videos and tools on IRS.gov at any time.

Additional IRS resources:

• Comparison of Form 8938 and FBAR Requirements
• International Taxpayers
• International Tax Topic Index
• FBAR Reference Guide
• Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
• IRS Tax Map
• Treasury Department End-of-Year Exchange Rates

IRS YouTube Videos – International Taxpayers:

• Introduction to the International Taxpayers Webpage
• Filing Requirements
• Filing Status If Married to a Nonresident Alien
• Foreign Earned Income Exclusion
• Individual Taxpayer Identification Number (ITIN)

Our firm has specialized in expat, nonresident and international tax returns for over 30 years. Need help or further explanation, or your return prepared, contact us.  Email us at ddnelson@gmail.com or visit our website at www.TaxMeLess.com .