The repatriation of capital is the entry into a country of capital obtained by its own residents abroad.
By means of the Decree that grants several administrative facilities in income tax matters related to deposits or investments received in Mexico and the Decree that amends the other, which grants several administrative facilities in income tax matters related to deposits or investments received in Mexico, published in the Official Gazette of the Federation on January 18, 2017, the Capital Repatriation facility was established as well as the guidelines to properly exercise the same. At the time, this generated a lot of interest from companies that opted to adhere to it.
In short, the purpose of these Decrees was to encourage productive investment in strategic areas and in the generation of jobs through actions that would promote that the resources that had been kept abroad until December 31, 2016 would return to the country and be invested for the benefit of the population, contributing to the economic growth of the country and at the same time generating tax revenues to be used to defray public spending.
Thus, it was decided to grant taxpayers (applicable to individuals and corporations) that decided to return resources to the country, a tax incentive in the matter of income tax, which consisted of applying a rate of 8%, without any deduction, on the total amount of such resources.
However, in order to benefit from this tax incentive, it was necessary to comply with several conditions stipulated in the two decrees, among which we can highlight the following:
- As the most notable point and from which all the others emanate, we have Article 1, which reads as follows: “Individuals and legal entities residing in Mexico and those residing abroad with permanent establishment in the country that have obtained income from direct and indirect investments, which they have kept abroad until December 31, 2016, may opt to pay, in accordance with the provisions of this Decree, the tax to which they are obliged in accordance with the provisions of the Income Tax Law”, This article is considered the most important since if the taxpayer does not fall under this assumption, he/she could not benefit from the decree, in which case the authority may require payment at the corresponding rate for the year under review, plus updates, fines and surcharges.
- Another important point stipulated in this article is that it establishes that taxpayers who, prior to the date of payment of Article Four of the Decree, had initiated verification powers or when they had filed a defense or any other administrative or jurisdictional proceeding, could not opt to apply the benefit, unless they withdrew.
- Likewise, Article 2, in connection with Article 6 of the Decree, establishes that the income and investments returned to the country during the term of the Decree, which are destined for investment, should remain invested in the country for a period of at least two years, as well as the purposes for which such resources are considered to be invested in the country, respectively.
Likewise, it is of vital importance that the operations have been carried out through the financial system and that the corresponding notices have been filed and the corresponding taxes have been paid.
Based on the guidelines provided by the aforementioned Decrees for the purpose of taking advantage of the capital repatriation facility, years later the companies are experiencing the effects of the authority’s inspection on the subject, since the Tax Administration Service has begun to deploy various acts of inspection, in order to verify strict compliance with the applicable requirements for this purpose.
It should be recalled that the authority may exercise its powers of verification to determine the omitted taxes or benefits and their accessories, as well as to impose penalties for violations to the tax provisions, within a term of 5 years, as provided by number 67 of the Federal Tax Code, and such term may be doubled in the event that the taxpayer has not filed its application in the Federal Taxpayers Registry, does not keep accounting records, does not keep them or fails to file its annual tax return.
Therefore, in the event that there is any doubt or suspicion that, having benefited from the capital repatriation facility any of the procedural requirements were not complied with, it is advisable to preventively carry out a comprehensive review of tax compliance for the year, in order to implement the most appropriate strategies to ensure optimum compliance with tax obligations and legal certainty.
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