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16 August 2018 Mexico: Bill to limit inheritance tax exemption proposed to Permanent Commission of Mexican Congress On 8 August 2018, Deputy Jorge Álvarez Máynez, a member of the parliamentary group of the Citizen Movement Party (Partido Movimiento Ciudadano in Spanish), submitted to the Permanent Commission of the Mexican Congress a bill that would amend certain provisions of the Mexican Income Tax Law to limit the inheritance tax exemption. Under this exemption, Mexican individuals who receive income from inheritances, legacies and gifts do not have to pay tax on that income. The bill is consistent with the one submitted by the same legislator in the Chamber of Deputies in 2016. The 2016 bill would have taxed inheritances, legacies and gifts to spouses and beneficiaries who are direct descendants when the amount exceeds 10 million pesos. In other words, the new bill would tax inheritances, legacies and gifts when they exceed 10 million pesos. In accordance with the bill, at the moment of receiving the income, the taxpayer would be required to make a pre-installment tax payment that would be computed by applying the following progressive tax rates to the amount that exceeds 10 million pesos:
Taxpayers would calculate and pay the pre-installment tax payments monthly and those payments would apply toward the annual tax payment. The pre-installment tax payment provision, however, conflicts with another provision in the bill on calculating annual taxable income. Under that provision, the annual taxable income calculation would take into account the entire amount of the inheritance when it exceeds 10 million pesos. For this reason, even though the explanatory statement to the bill states that the first 10 million pesos will be exempt and the prior progressive rates will apply to amounts exceeding 10 million pesos, an argument could be made that the maximum rate of 35% would apply to an entire inheritance that exceeds 10 million pesos. It is also proposed that this inheritance tax would not apply to Mexican individuals with disabilities as defined in the General Inclusive Law for People with Disabilities. Taxpayers should follow the reaction of both Commissions of the Mexican Congress, considering that the current legislative period ends on 31 August 2018, and the newly elected legislators will take over starting 1 September 2018, and may take up this bill then. We shall closely follow this initiative and its development through the Mexican Congress in order to provide further information as to the tax implications that may result from it.
Document ID: 2018-5984 |
