U.S. persons who plan to do business in Mexico or invest in new or existing Mexican business ventures are faced with a myriad of U.S. federal income tax issues. U.S. counsel advising U.S. persons regarding the ownership structure for a contemplated business or investment in Mexico should have a basic understanding of the U.S. system of international taxation. While a working knowledge of Mexico’s tax system is also helpful, Mexican counsel can provide information regarding the Mexican tax implications of doing business or investing in Mexico. A review of the U.S. system of international taxation should begin with a consideration of the general pattern of federal income taxation of income earned abroad by U.S. persons. U.S. citizens, U.S. corporations, and resident aliens are subject to federal income taxation on their worldwide income. To avoid double taxation of income earned abroad by U.S. persons, the United States allows, subject to certain limitations, a tax credit for income taxes paid to foreign countries on foreign-source income. In addition to the general pattern of federal income taxation of income earned abroad, U.S. persons should consider the sources of income to be derived from Mexican businesses or investments, the federal income tax benefits associated with foreign sales corporation, availability of foreign tax credit in the United States, and the classification of Mexican income taxes paid or accrued. U.S. persons should also consider the federal income tax consequences arising from a transfer of property to a Mexican entity, the antideferral mechanisms in the Internal Revenue Code, and the federal income tax issues arising from the valuation of goods. U.S. employers who are transferring U.S. employees to a Mexican operation should also note the employees may be allowed to exclude a portion of their foreign earned income for federal income tax purposes.
St. Mary's University School of Law
William H. Hornberger,
U.S. Taxation of U.S. Persons Doing Business or Investing in Mexico: An Overview.,
St. Mary's L.J.
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol26/iss1/4
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