Why is the “bonus in share placing” (paid-in capital) the new and most modern tax-planning tool in Mexico for companies and individuals?
First, we must define the concept of “bonus in share placing (paid-in capital)”.
To make things clear from the beginning, (let’s say simply), imagine that you would like to be a shareholder of a company like Coca-Cola or Wal-Mart.
On the other hand, I ask you to imagine that the regular price you should pay for one of those shares is only “one hundred dollars.” Can you imagine that, for that small amount, you could own a share of those companies? It wouldn’t be bad, right?
Well, the way shareholders “protect” their stake so that the business they have built over the years is not diminished by the entry of “new shareholders” seeking new capital, is through the so-called “bonus in share placing.” In simple terms, this bonus is defined as “the additional price paid for a share of a company based on its positioning in the market.”
In practical and simple terms, if the value of a share is 100 dollars in a certain company, and a new partner pays 140 dollars for it, then we say that 40 dollars is the “bonus in share placing” (paid-in capital) for the shares.
What does this have to do with my tax strategy?
Well, let me explain. We must know that, for tax purposes, every time that a “new partner” enters the company through the mechanism of the bonus in share placing, there is an indicator in Mexico called “Capital Contribution Account” (“CUCA” by its acronym in Spanish) that increases when this event occurs, which is quite beneficial for the shareholders of the company (for tax purposes, the more CUCA you have, the better).
It turns out that, when a company wants to reimburse capital to its partners, as long as it has sufficient CUCA (and CUFIN in some cases), such reimbursement will be tax-free for the receiving shareholder.
The bonus in share placing has been, in the last 24 months, the preferred legal, reliable, and transparent vehicle for medium and large companies doing business in México, to reduce their tax burden when their shareholders need cash at a 0% rate.
Of course, this tax strategy is not for all companies and business owners; it is only reserved for those who are intelligent in their investments and in optimizing the cash flows of their company.
Should a capital reimbursement be stamped when it comes from a bonus in share placing?
The answer is “No”, as long as there is no fictitious dividend, according to the corresponding tax calculations required by the Mexican Tax law.
You must be very careful with the specific capital reduction rules found in the Mexican Income Tax Law (LISR) when implementing this tax strategy (such as the so-called “up and down rule” and other specific safeguards for this mechanism).
If you are interested in this topic, you can schedule a completely free call with our specialists using the button below and discuss the specifics of your particular case and your industry. Remember that these types of ideas used by large corporations worldwide can also apply to you and your business, as the law applies without distinction, equally to everyone.
