Following-up our article about the income tax for the disposal of shares and securities, according to article 161 of the Income Tax Law, we share another fragment of the same article regarding the disposal of shares through the stock market by foreign tax residents. Let us remember that the sale or disposition of shares and securities whose origin of wealth is in Mexico is subject to income tax.
Disposition of shares through stock exchanges
The tax shall be paid through a 10% withholding upon the gain from the sale of:
- Shares issued by Mexican companies, carried out through concession stock exchanges or recognized derivatives markets under the terms of the Securities Market Law, provided that said shares are placed among the general investing public in accordance with said general rules,
- Shares issued by foreign companies, titles that represent them, or share index that are disposed of in said stock exchanges or derivatives markets, including the disposition of shares placed in concession stock exchanges that are carried out through financial operations derived from capital in accordance with article 16-A of the Federal Tax Code.
This withholding or payment of the tax is considered as a final payment for the gain from such dispositions. For these purposes, the gain from the disposition of shares or securities should be calculated for each transaction without offsetting the losses from the disposals or operations described the article. The Tax Administration Services shall establish in general rules the cases where withholding of the tax shall not be applied.
The financial intermediary in the securities market must withhold and pay the tax at the authorized offices no later than the 17th day of the month following the month in which the disposition is performed. The payment of the tax will not be required when a taxpayer is a resident of a country that has a treaty in force to avoid double taxation. For these purposes, the taxpayer must deliver to the financial intermediary a document attesting under oath that he is a resident for purposes of the treaty; and provide his registration number or tax identification issued by the competent tax authority. Whenever a foreign resident fails to deliver such information, the intermediary will withhold pursuant to the preceding paragraph.
Disposition of stock in variable income investment funds
For the disposal of shares issued by equity investment fund, the tax shall be paid through withholding to be made by the company distributing investment fund shares, applying the 10% rate on the profit arising from such disposal, and will be considered as the final payment of the tax. The determination of the profit should be made according to the provisions in article 88 of this Law, without deducting the losses referred to in paragraph six of said article.
Difference between appraisal and price
In the case of acquisitions by foreign residents of shares or securities that represent the ownership of goods, the tax authorities may practice an appraisal of the transaction in question and if the value indicated thereby is more than 10% above the agreed consideration for the disposition, the entire difference will be considered the purchaser’s income and the acquisition cost of the goods should be increased by the entire aforementioned difference. The tax is calculated by applying, on the entire difference without any deductions, the top rate applicable (35%) to the excess over the lower limit (3 million MXN) set forth in the tax rate schedule in article 152 of this Law; and the taxpayer shall pay the tax by filing a tax return at the authorized offices within 15 days following the serving of notice by the tax authorities, with the corresponding update for inflation and interest on unpaid taxes. This paragraph will be applicable regardless of the transferor’s residence.
Free acquisitions
In the case of acquisitions for free, the tax is calculated by applying the 25% rate to the total appraised value of the shares or ownership interest, without any deduction. Said appraisal shall be practiced by a person authorized by the tax authorities. Income received as donations referred to in article 93(XXIII)(a) of this Law shall not be subject to tax
Securities placed among the general public
In accordance with the relevant general rules issued by the Tax Administration Service, when securities of the type placed among the general investing public are transferred off the Stock Exchange, the tax authorities will consider the stock-market quote of the last event of the day of the disposition, rather than the appraised value.
Foreign Financial Entities
Foreign resident financing entities in whose capital the Federal Government participates through the Ministry of Finance and Public Credit or Mexico’s Central Bank, may pay income tax from a disposition of shares or securities referred to previously in this article, based on the gain determined in accordance with the sixth paragraph of article 161, provided that the provisions thereof are complied with.
Learn more about Income tax and VAT in Mexico
Contact us for questions or more information,
Tax Partner CPA Mario Enrique Morales mario.morales@bmtc-dfk.com
Senior Tax Comunications CPA Carla Torres carla.torres@bmtc-dfkc.om
The purpose of this article is merely informative. BMTC-DFK nor any of the firms affiliated with DFK International is responsible for the decisions made based on what is described in it.
