Archive for Stephanie Uribe

Exploring Mexican Business Frameworks | An Investor’s Guide To Legal Corporate Entities

Exploring Mexican Business Frameworks | An Investor’s Guide To Legal Corporate Entities

Mexico’s robust economic landscape and hospitable business setting establish an appealing choice for investors aiming to make their mark in the Latin American market. Understanding the various corporate legal entities available in Mexico is essential for making an informed decision when setting up a business from a U.S. and a Mexican perspective.

This article will address the types of Mexican corporate legal entities, namely the Sociedad Anónima, Sociedad de Responsabilidad Limitada, Sociedad Anónima Promotora de Inversión, and Sociedad Civil to guide investors through their characteristics, benefits, and legal requirements.

  1. Sociedad Anónima

The Sociedad Anónima, is the most common corporate entity structure used in Mexico for business purposes. It is designated as “S.A.” for those with fixed capital. This structure is governed by the Ley General de Sociedades Mercantiles (“LGSM”). Depending on its capital structure, it may be identified as “Sociedad Anónima de Capital Variable” or “S.A. de C.V.” or for those with variable capital. Shareholders own its negotiable or non-negotiable shares, representing the company’s stock.

The defining features of a S.A. in Mexico offer a blend of flexibility and structure, catering to a wide range of business needs. These characteristics include:

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Judiciary’s Interpretation And Enforcement Of FDCPA In Asset Repatriation Case | The Schwarzbaum Compliance Dispute

Judiciary’s Interpretation And Enforcement Of FDCPA In Asset Repatriation Case | The Schwarzbaum Compliance Dispute

The United States District Court, Southern District of Florida, presided over by Magistrate Judge Bruce E. Reinhart, encountered a complex legal issue involving Isac Schwarzbaum (“Mr. Schwarzbaum”), who was ordered to repatriate assets to satisfy a significant judgment against him.

The core of the dispute lay in the Repatriation Order (ECF No. 176), directing Schwarzbaum to transfer overseas assets into a U.S. bank account. Schwarzbaum appealed this order (ECF No. 177) and contested the necessity of compliance, citing the absence of a notice under Section 3202 of the FDCPA (ECF No. 191). The case, hinging on the interpretation of a repatriation order and its compliance with the Federal Debt Collection Practices Act (“FDCPA”), raised substantial questions about the enforcement of court orders and the compliance prerequisites.

This article presents a summarized analysis of the decisive legal proceedings regarding the enforcement of a Repatriation Order by the U.S. District Court, Southern District of Florida, and the ensuing discussion regarding adherence to the Federal Debt Collection Practices Act (FDCPA).

On March 29, 2023, the U.S. District Court issued a Repatriation Order against Mr. Schwarzbaum for the repatriation of over $17 million in judgment debts plus post-judgment interest to satisfy the Outstanding Debt of the judgment, ECF No. 176 (“the Repatriation Order”). The order, which demanded compliance by April 28, 2023, was met with an appeal from Schwarzbaum, and a request for a stay was subsequently denied by Judge Bloom on June 8, 2023, thereby enforcing the order. See ECF No. 186.

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Navigating The Tax Implications Of Forming Or Ending A Partnership

Navigating The Tax Implications Of Forming Or Ending A Partnership

Partnerships are a popular business entity in the United States, particularly for small businesses. If you are considering forming a partnership, it is important to understand the fundamentals (and consequences).

Generally, a partnership is a business relationship between two or more individuals or entities, where they share profits, losses, and management responsibilities. However, joint ownership of property is usually not enough to create a partnership for federal income tax purposes. The IRS defines a partnership as an unincorporated entity, such as a joint venture or group, that carries out a trade, business, financial operation, or venture and divide its profits.

Partnerships can be created for various purposes, including joint ventures, professional practices, and investment opportunities. This article provides a basic overview of the general process of forming a partnership, terminating a partnership, and the tax obligations of the partners in the U.S.

Forming A Partnership

The process of establishing a partnership involves multiple stages (if formed “properly”). First, partners generally select a business name and register it with the appropriate state agency. Next, the partners are wise to adopt a partnership agreement that sets out the terms and conditions for operation and management of the partnership, such as each partner’s responsibilities and rights, how the partnership will be managed, and arrangements for sharing profits and losses.

Partnerships are usually classified in two categories: general and limited. A general partnership implies that all partners are accountable for the partnership’s obligations. On the other hand, a limited partnership has one or more limited partners who are usually liable only for the amount of money they have invested, while the general partner is usually responsible for all of the partnership’s debts.
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Maquiladora Program As A Strategy To Attract Investment

Maquiladora Program And Taxes

In 1964, the Mexican government introduced Maquiladoras as a strategy to attract foreign investment and increase industrialization on the Mexican border. Maquiladora’s process, produce, transform, or repair goods owned by non-Mexican residents (foreign residents). Currently, foreign companies incorporate maquiladoras to take advantage of less expensive labor and tax incentives.

On November 1, 2006, the Mexican government issued a Federal Decree to Promote Manufacturing, Maquila and Export Service Industry (IMMEX Decree) in an effort to spur the Mexican economy, and to reduce administrative and logistical costs. The IMMEX program includes the Development and Operation of the Maquila Export Industry and the Temporary Import Programs to Produce Export Goods (PITEX).

The IMMEX Program allows Mexican companies to temporarily import goods owned by foreign residents in order to process, transform, or repair them to be exported outside of Mexico or to provide the foreign resident export services. Generally, if certain requirements are met, the Maquila program provides the following benefits: (1) no permanent establishment is created by the foreign resident in Mexico, (2) imported goods are free of import tax and value added tax, and (3) in certain cases the foreign resident is relieved from complying with certain customs and tax obligations.

The goods are classified as (1) raw materials, (2) shipping containers and boxes, (3) machinery, equipment, tools, spare parts, among others.
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Buying Real Estate In Coastal Mexico: Tax Implications In The U.S. And Mexico

Buying Real Estate In Coastal Mexico: Tax Implications In The U.S. And Mexico

Tulum, Cabo, Cancun, and Playa del Carmen are not only wonderful vacation destinations in Mexico, they are also very attractive destinations for American investors. Clients interested in acquiring real estate in Mexico, often inquiry about recommended structures to acquire real estate in coastal Mexico and the tax implications from such investments.

This article provides a general overview of the process to acquire real estate in Mexico, as well as the most common legal and tax implications with respect to such investments in the U.S. and Mexico.

Generally, non-Mexican citizens can legally acquire real estate within Mexico areas. Although Mexican law may prohibit such investors from directly acquiring or holding real estate in certain areas of Mexico. This restriction is established in the Mexican Constitution and applies to an area known as the “restricted zone” (zona restringida). This area encompasses 100km (approx. 62 miles) in the border area and 50km across the coastal zone of Mexico (approx. 31 miles). Under the applicable Mexican law, non-Mexican citizens cannot directly hold real estate in the restricted zone. For example, a U.S. investor may not acquire real estate in any of the coastal areas of Mexico and hold it for residential purposes.

Fortunately for foreign investors, there are legal avenues to overcome these restrictions. A U.S. investor seeking to acquire real estate within the restricted zone, may seek to acquire the property through a “Mexican Trust” (fideicomiso). A fideicomiso has the flexibility for real estate acquisitions or the pursuit of certain business endeavors, such as construction in Mexico.

A Mexican Trust created by a U.S. investor to acquire real estate within the restricted zone serving purpose is to hold title to the property. The Mexican Trust has three participants: (i) a fideicomitente (or grantor) who is the foreign investor that contributes the assets to acquire the real estate in Mexico, (generally cash); (ii) the fiduciario (or trustee), which is a licensed financial institution in Mexico that will act as a trustee of the assets contributed by the fideicomitente, and who will use such assets to acquire the real estate; and, (iii) the fideicomisario is the beneficiary of the Mexican Trust. The beneficiary is often the same individual as the grantor.

Once the foreign investor (grantor) contributes money or assets to the Mexican Trust, the Trustee will allocate such assets to acquire the real estate. The Mexican Trust holds title and ownership of the property. However, under the terms of the Mexican Trust, the foreign investor is allowed to use the real estate, sell the property, and collect rents from occasional leasing.

Mexican Tax Implications Of A Mexican Trust
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Written by | Posted in Trusts • Trusts And Taxes • U.S./ Mexico Real Estate And Taxes

S Corporations – Involuntary Termination Of The S-Election

STEPHANIE URIBE: S Corporation Involuntary Termination

Private Letter Ruling 202302004, 01/13/2023, IRC Sec. 1362

Summary: Entity “A” (“A”) was incorporated as a limited liability company under state law and thus was initially treated as a partnership for federal income tax purposes. However, “A” elected to be treated as an “S-corporation” (“S-corp”) by submitting an IRS Form 2553, Election by Small Business Corporation. “A” later participated in a reorganization under 26 U.S.C. § 368(f). In doing so, “A” elected to be treated as a “qualified subchapter S subsidiary,” pursuant to 26 U.S.C. § 1361(b)(3)(B), as “A” was wholly owned by Entity “B” (“B”). “B” (referred to herein as “Taxpayer-B”) was formed as a corporation and treated as an S-corporation for income tax purposes. “A” later elected to be treated as a disregarded entity from Taxpayer-B. The owners of Taxpayer-B entered into an Operating Agreement that included provisions where it was considered to treat the entity as a partnership (and not an S-corp) for federal income tax purposes but without limiting the company to that treatment, and the agreement included several partnership provisions. Taxpayer-B later adopted a Revised Operating Agreement but without modification to the previous partnership tax treatment provisions and without creating a second class of stock.

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Tax Residency Status Modification: Mexican Tax Implication

Tax Residency Status Modification: Mexican Tax Implication

For Americans and other foreign residents, Mexico is a very attractive country to live and work, because of its weather, rich culture, delicious food, friendly locals, and cost of living. And in an increasingly global society, foreign residents are not only coming to work in Mexico, but Mexicans are also moving to the U.S. or other countries abroad. Foreign residents planning to work or invest in Mexico, as well as Mexican residents leaving Mexico, may face tax implications.

In this article, we provide a general overview of the most common legal and tax implications of working in Mexico and moving abroad.

Non-Mexican Citizens

Individuals

An individual qualifies as a Mexican tax resident if the following requirements are met:

  1. The individual has a home in Mexico, or
  2. If the individual has a home in another country, they are nonetheless a Mexican resident if their center of vital interests is in Mexico.

The individual’s center of vital interests is in Mexico if (1) more than 50% of their income is derived from a Mexican source in a calendar year, or (2) Mexico is the primary place of their professional activities.

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U.S. And Mexico | Trademark Royalties And Tax Considerations

U.S. And Mexico | Trademark Royalties And Tax Considerations

Trademarks: Tax implications in the U.S. & Mexico

Approximately 30% of the global market is related to intellectual property. While intangible goods cannot be touched or seen, they are all too real. For companies around the world, one of the most important intangible assets for trading are Trademarks.

In practice, owners of Trademarks often generate income by licensing their trademarks to other parties.  The owner is referred to as a “licensor.”  The other party, referred to as the “licensee,” pays “royalties” to the licensor for use of the Trademark.

Investors often come to Mexico seeking out foundational legal advice concerning the incorporation of a Mexican company. But they should not overlook tax planning in connection with their Trademarks. However, the failure to engage in proper tax planning with respect to intangibles may leave much on the table.  Indeed, royalty payments are often an alternative to repatriating capital.

This article provides a general overview of the tax implications in connection with cross-border use of Trademarks and their implications for U.S. tax residents investing in Mexico.

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How Are Stock Purchases Treated For Tax Purposes Under 26 USC 338?

Stephanie URIBE

An IRS Letter Ruling On Asset Acquisitions

A foreign purchaser bought all the stock of a foreign target (controlled foreign corporation) which was a qualified stock purchase under 26 U.S.C. Section 338(d)(3). The taxpayer was not required to file a U.S. income tax return for its taxable year under Treas. Reg. § 1.6012-2(g) and § 1.6012-2(g)(2)(i)(B). After the due date to make the election to treat the acquired stock as assets under Section 338(a) and 338(g) the taxpayer discovered the election was not filed.

Consequently, on November 3, 2021, the taxpayer requested an extension of the time to the IRS under Treas. Reg. § 301.9100-3. The taxpayer mentioned that the request was not intended to amend, his or her, tax position regarding any accuracy-related penalty to be assessed by the IRS under Section 6662; and any qualified amended tax return filed under Treas. Reg. § 1.6664-2(c)(3).

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