The sale or disposition of shares and securities whose origin of wealth is in Mexico is subject to income tax. In cases of dispositions of shares or securities that represent the ownership of assets, the source of wealth is considered to be in Mexican territory when the person who issued said shares or securities is a Mexican resident or when more than 50% of the book value is derived directly or indirectly from real estate located in the country.
In the following article, we are going to review the principal issues regarding this topic, according to article 161 of the Income Tax Law.
Disposition of interest in partnerships
Dispositions of interest in a partnership should be treated as dispositions of shares or securities representing the ownership of assets. For such purposes, the source of wealth is considered to be in Mexican territory when entrepreneurial activities are totally or partially conducted in Mexico through the partnership.
Income from usufruct transactions on shares and securities, etc.
Similarly, income derived from the usufruct, or the use of the shares or securities or the assignment of the usufructuary rights regarding said shares or securities, should be treated as a disposition of shares. Income derived from legal transactions in which the right to receive the earnings from shares or securities is totally or partially transferred should also be considered income covered by this paragraph. In such cases, taxpayers who earn the described income may not elect to calculate the tax on the net gain.
Income tax rate and withholding
The tax shall be calculated by applying the 25% rate to the total amount of the transaction, without any deductions. Withholding shall be performed by purchasers who are Mexican residents or foreign residents with a permanent establishment in Mexico. In other cases, the taxpayer will pay the corresponding tax by filing a tax return at the authorized offices within 15 days after income is earned.
Option available when there’s a representative in Mexico
Taxpayers who 1) have a representative in Mexico who meets the requirements set forth in article 174 of this Law and are foreign residents whose income is not subject to a preferential tax regime, or 2) are not residents of a country governed by a territorial taxation system; may elect to apply, to the net gain obtained, the top rate applicable (35%) set forth in the tax rate schedule in article 152 of the Income Tax Law. For these purposes, the net gain shall be calculated in accordance with Title IV, Chapter IV, of this Law, and the losses in the alienation of real estate, shares, equity contribution certificates issued by national credit companies and partnerships (last paragraph of article 121) may not be offset. In this case, the representative must calculate the tax and pay it by filing a tax return at the office competent in the taxpayer’s domicile within 15 days after income is earned.
Report by auditor enrolled with the tax authorities
Taxpayers making the election referred to in the preceding paragraphs must file a report prepared by a public accountant registered with the tax authorities in accordance with the rules set forth in the Regulations of this statute and the general rules issued by the Tax Administration Services, indicating that the tax was calculated according to tax provisions. A copy of the appointment of the legal representative must be included as an annex to the report.
Transactions with related parties
For the purposes of the preceding paragraph, in the case of transactions between related parties, in the report, the public accountant needs to indicate the accounting value of the shares being transferred, including the supporting documentation that the sale price of the shares being sold corresponds to that which would have been used by independent parties in comparable transactions.
If the public accountant fails to comply with the mentioned provisions, the penalties set forth in the Federal Fiscal Code may apply.
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.
