Derived from the tax reform to the Income Tax Law ("ISR") that came into force on January 1, 2022, new obligations were included to designate a legal representative in Mexico by a resident abroad in Article 174 of the ISR Law.
We believe that the imposition of such obligations can have a great impact on the application of the benefits provided under domestic legislation or even on the application of treaties to avoid double taxation, for example, in the case of the sale of shares by residents of the Foreign.
The foregoing, since when a resident abroad makes a sale of shares of a Mexican issuer, the general rule is that said resident would be subject to a 25% ISR rate on the sale price. However, the resident abroad may choose to apply the 35% rate to the profit obtained or even, under certain treaties, business reorganizations may be exempt if, among other requirements, a legal representative is appointed in the country.
Considering the foregoing, to comply with the requirement to appoint a legal representative, the representative will have to voluntarily assume the joint and several liability of their principals, in addition to having the necessary solvency to respond as a joint and several obligor with respect to the contributions of said resident abroad. .
Likewise, Annex 1-A of Miscellaneous Tax Resolution 2022 (published on December 30, 2021) adds the obligation to file a notice with the tax authorities to report on the appointment as legal representative of the resident abroad. Said notice must be presented prior to the expiration of the term to pay the entire ISR to which the resident abroad is obliged to obtain income with a source of wealth in Mexico.
Among the most relevant requirements that must be met to present the aforementioned notice are the following:
- That a power of attorney be granted to the legal representative of the resident abroad for acts of ownership.
- Provide a list of the assets of the resident abroad or of the representative that can be seized, to guarantee the ISR caused by the resident abroad.
In our opinion, the application of said requirements could have the consequence that the resident abroad is not in the possibility of applying the alternative that is most beneficial for him, for example, applying the 35% rate on the profit obtained in the disposal of the aforementioned shares or apply the benefits of the treaty to avoid the respective double taxation, since to do so it is necessary to meet all the new requirements to appoint a legal representative, an issue that now goes beyond the requirements established in the ISR Law before the reform that came into force in 2022.
Similarly, we believe that it leaves residents abroad in a state of legal insecurity, since there are certain edges regarding the amount required to guarantee the assets, if the amount must be updated, as well as the interpretation that must be given. give said requirements to be in compliance with said provisions, among other considerations.
In view of the foregoing, we remain at your service to support you in complying with said requirements, as well as to analyze what alternatives can be implemented for compliance.
**The publication of this note does not constitute a legal consultation, nor is it intended to be applicable to particular cases.
If you require additional information, please contact the partner responsible for your affairs or one of the attorneys listed below:
Mexico Office
Lic. Mariano Calderón V. (Partner) , mcaldero n @ss.mx
Lic. Karina Robledo Y. (Counsel) , krobled or @ss.mx
Phone: +52 55 5279-5400
Monterey Office
César Cruz A. ( Partner ) , ccruz@ss.mx
Tel: +52 81 8133-6000
Queretaro Office
Mr. José Ramón Ayala A. (Partner) jayala@ss.mx
Tel: +52 442 290-0290