We know that the common way in which the Shareholders of any company, regardless of their line of business obtain their profits, is through “dividends payment”.
At least in Mexico, when it comes to dividends distribution, we must face the fact that among other inconveniences, the shareholder who receives them must pay an additional withholding tax of 10%.
This will only happen when this payment does not come from a special account known as “Net Tax Profit Account” (CUFIN, for its acronym in Spanish) generated by the company until the fiscal year 2013.
This figure allowed by Law to distribute cash to shareholders became extremely expensive, that is, the shareholder would face the following taxes as an owner of a business:
%
Corporate Income Tax
%
Additional Income Tax as a natural person according to the tax brackets
%
Profit Sharing
%
Withholding tax in the event of dividends
%
Total labor and Tax cost for the shareholders
Another obstacle of the dividends payment in any industry is that they are truly an outflow of cash, but without being able to deduct them. This and other issues have truly become a headache for entrepreneurs today, so the next and obvious question is: How to obtain resources without paying high taxes?
This tax burden undoubtedly makes it unattractive to invest in a country like Mexico; we believe that other forms of remuneration can be created so that the taxpayer does not pay a Hugh amount of taxes. Let’s go back a little in time to carry out a more punctual analysis on the subject in particular:
We will remember that as of January 1, 2014, a new tax on the distribution of profits was incorporated.
Said tax was regulated in articles 140 and 164 of the Mexican Income Tax Law, being applicable when the payment is made to individuals Mexicans tax residents and the second in the case of dividend payments to residents abroad (both, companies and individuals).
Now, concerning the transitory tax provisions of that time, there were different interpretations as well:
XXX. The additional tax established in the second paragraph of article 140, and fractions I and IV of article 164 of this Law, will only be applicable to the profits generated from fiscal year 2014 that are distributed by the corporation resident in Mexico or permanent establishment. . For this purpose, the legal entity or permanent establishment that will carry out said distribution will be obliged to maintain the net fiscal profit account with the profits generated until December 31, 2013 and open another net fiscal profit account with the profits generated as of December 31, 2013. 1st. January 2014, under the terms of article 77 of this Law.
In that year, many accountants and tax advisors (99% of them) simply opted to “divide the Net fiscal profit account in two”, one generated up to December 31, 2013, and the other one generated afterward, however, here there is an interpretation that can be very beneficial for your company or business and of which, the SAT even agrees. This idea can save you up to 100% of said Income Tax.
Do you already know this idea? Do you know how to implement it? Do you have the entire legal basis in case of an audit?