United States

Beyond borders: Doing business outside the US

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U.S. companies doing business in Canada or Mexico need to be aware of the current state of compliance and reporting requirements in order to effectively manage their businesses. Both countries continue to introduce significant changes to their tax landscapes that present challenges and opportunities to be considered in evaluating operations and expansions abroad.

Join RSM’s international business team, as we update you on the current tax landscapes. Attend one or both webcasts to learn more.

Part 1 – Northbound: Are you Canada-ready?

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Topics include:

  • Registration and reporting requirements for income tax
  • Introduction to goods and services tax/harmonized sales tax (GST/HST)
  • Registration and reporting requirements for GST/HST
  • What constitutes permanent establishment?
  • Payroll implications of U.S. employees working in Canada
  • When to file a treaty-based Canadian corporate income tax return
  • Nonresident withholding fundamentals
Presenters include:
James Karnick

Senior Manager

Erika Stefanski

Manager

Rob Dew

Senior Manager

Part 2 – Southbound: Are you Mexico-ready?

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Alejandro Luna, a partner from the Mexico City-based firm of Santamarina y Steta, one of the largest law firms in Mexico City, will join RSM to discuss actions U.S. companies can take to address potential tax risks in your Mexican operations.

Topics include:

  • Entity selection and structures
  • Methods for repatriation of funds
  • Recent tax regulatory developments
  • Payroll implications of U.S. employees working in Mexico
  • Value-added tax (VAT) fundamentals 
  • Impact of the base erosion and profit shifting (BEPS) action plan
  • Financial reporting
Presenters include: 
Steve Menaker

Partner

Edgar Lopezlena

Senior Manager

Daniel Carrera

International Manager


Following are answers to questions submitted during the "Beyond borders – Southbound: Are you Mexico-ready?" live webcast:

Inquiry:

Why would I not sell goods and services to a Mexican customer directly from a U.S. entity? Why do I need a Mexican entity?

Our first-reaction comments:

If you are planning on selling directly from the United States to a Mexican customer, you generally do not need a Mexican entity. However, in some instances, your Mexican customer may want you to deliver products in Mexico. In this case, because of taxable presence and value-added tax (VAT) concerns, you may want to consider setting up a Mexican legal entity. Also, if you wish to have a stronger foothold in the country (i.e., if you wish to manufacture products in Mexico or you want to have a more solid commercial presence in the country than your competitors), perhaps the way to go is to set up a Mexican entity.

Inquiry:

Is there required withholding for Mexican customers purchasing goods and services from a U.S. company?

Our first-reaction comments:

Generally, there are not withholding taxes on goods purchased by a Mexican customer. In the case of services, depending on the nature of the service, there may be a withholding tax. The rates may vary from 10 percent to 25 percent.

Inquiry:

Does a U.S. entity selling goods and services to a Mexican customer have to charge VAT?

Our first-reaction comments:

Generally, if title of goods passes while the goods are physically in the United States, there is no VAT. If, on the other hand, title passes when the goods are in Mexico, VAT may apply. In the latter case, the VAT typically is self-assessed by the Mexican buyer of the products.  As far as services are concerned, services rendered by a U.S. company to a Mexican company generally are not subject to VAT, although there are certain types of services for which the Mexican client must pay VAT.

Inquiry:

If a Mexican entity is established, is there accelerated depreciation of assets located in Mexico? Can a Mexican entity show losses?

Our first-reaction comments:

Certain assets purchased by a Mexican company during the calendar years ending Dec. 31, 2016 or 2017 may qualify for accelerated depreciation in the Mexican company’s Mexican tax return, subject to certain limitations and adjustments. Note that, generally, the Internal Revenue Code does not allow for accelerated or bonus section 179 depreciation on foreign-used assets for U.S. tax purposes.

A Mexican entity can show losses as long as the losses are derived from business or economic circumstances and not artificially induced to avoid the payment of Mexican taxes. Losses in Mexico can be carried forward for a period of up to 10 consecutive years. No carryback is allowed.

Inquiry:

How are branches treated for tax purposes?

Our first-reaction comments:

In Mexico, branches are usually taxed no differently than a Mexican entity (the same rates, tax rules of accounting, and filing and reporting requirements). In the United States, branches are typically taxed as if the U.S. company that has the branch had obtained the income. Generally, the United States will allow a credit against U.S. income tax for any Mexican income tax the branch pays, subject to certain limitations and adjustments.

Inquiry:

We are just now trying to determine the best way to enter Mexico, either as a foreign corporation or by establishing a legal entity in Mexico.

Our first-reaction comments:

There are multiple tax and nontax considerations to take into account when deciding the most appropriate arrangement for your venture in Mexico. From a tax point of view, if your venture entails a one-time contract or activity, perhaps the most convenient arrangement is to operate as a foreign company with a trade or business in Mexico (although this does not necessarily mean that you will not be not be subject to Mexican taxes). If, on the other hand, you wish to have a significant footprint and are planning long-term or ongoing operations, the best option may be to set up a Mexican legal entity. This legal entity will be the taxpayer for all Mexican intents and purposes.

Inquiry:

Are there any considerations if you are currently performing services in Mexico but don't have a physical presence yet?

Our first-reaction comments:

We do not have sufficient facts to make a determination. However, depending on the nature and duration of the services being performed in Mexico, you may already have a taxable presence in the country, even if you do not have a physical presence. Generally, if the service is a one-time visit by your U.S. employees for a couple of weeks, you should not have a taxable presence in Mexico. However, the longer the physical presence of your U.S. employees and the longer the duration of the service, the greater the exposure for having a taxable presence.

Please note that if you have a taxable presence in Mexico, you may become liable for Mexican taxes on the enterprise activity (income tax and VAT), as well as for payroll taxes of those U.S. employees that are physically present in the country.

Inquiry:

What is an ‘S.A. de C.V.?’

Our first-reaction comments:

A Sociedad Anónima de Capital Variable (S.A. de C.V.) is a variant of an S.A. The ‘de C.V.’ acronym denotes that the company can receive capital contributions or make capital reimbursements without the need to have those events registered in the Public Register of Business Enterprises. For convenience, most S.A.’s are formed as S.A. de C.V.s. Note that the Sociedad de Responsabilidad Limitada (S. de R.L.) has the same variant in the S. de R.L. de C.V.

The ‘de C.V.’ attribute has no impact on the U.S. or Mexican tax characterization of the S.A. or S. de R.L.

Inquiry:

Are intercompany service agreements required when charging management service fees between a U.S. parent and Mexican joint venture subsidiary? Are there any pitfalls to consider when developing these agreements?

Our first-reaction comments:

Written intercompany services agreements are required as part of the documentation supporting the management services, especially between a U.S. parent and a Mexican joint venture or subsidiary. In addition to a proper written agreement, some of the principal items to take into consideration are the following:

  1. The prices used in the agreement should meet Mexican and U.S. transfer pricing requirements
  2. Potential withholding taxes in Mexico, depending on the nature of the activity being performed
  3. The services must have been actually performed and resulted in evident (and to the extent possible, measurable) benefits for the Mexican subsidiary or joint venture
  4. The amounts charged must be determined based on a reasonable method, depending upon the activity performed. Some of the generally accepted methods are time and materials, proper apportionment of certain costs or expenses, and cost plus added margins, among others
  5. The amounts charged by the U.S. parent to the Mexican subsidiary or joint venture must be commensurate with the work performed and benefits attained by the Mexican subsidiary or joint venture

Failure to meet the above requirements may result in the disallowance of the expense in the Mexican subsidiary or joint venture’s tax return, as well as in the imposition of VAT and interest and penalties.

Inquiry:

Our company is based in the United States, and we sell our products worldwide from our U.S. facilities. We do not have any employees in Mexico. Are there any requirements to register and file certain tax returns or information returns?

Our first-reaction comments:

If you do not have employees or agents in Mexico who have a substantial participation in the deal (i.e., that have the authority to enter into written or verbal sales contracts on behalf of your company), you should have no registration or filing requirements in Mexico.

On-demand webcast details

Who should attend?
Chief financial officers, tax executives and senior business executives at internationally active companies

CPE credit
One credit per webcast will be awarded to eligible participants

Fee
Complimentary

More information
Email us or call +1 800 274 3978.