The Simplified Mexican Corporation and You

Opinion

By Orlando Gotay

Mexico has created another way of doing business: The “Simplified Corporation” (or SAS, its acronym in Spanish). It will be available beginning September 15, 2016.

The new system provides huge simplifications in establishing a business entity. No deeds (escrituras) are required, and a single individual can form an SAS with himself or herself as sole shareholder. However, individuals must have a Mexican Tax ID number (RFC). SAS shareholders will select provisions for their organizational bylaws from a menu of options that will be made available online. This provides ease, but limited flexibility.

One of the novel features of the SAS system is that it is done completely online. Through digital signatures, shareholders will consent to the creation of the entity at the website of the Secretary of the Economy, where the data will be listed and available for review by the public.

SAS entities are required to file annual reports (in addition to maintaining regular tax compliance) and can be suspended if reports are not filed for two years in a row.

This is all fine and dandy, but don’t ever forget that for US persons involved with foreign corporations, special information requirements apply. Officers, directors, and shareholders who own 10 percent or more of the value or stock of a foreign corporation may be required to notify the IRS of this on annual Form 5471. Penalties for not filing this form can be very steep. Another consequence is if the form is not filed, the IRS can audit your personal return for that year at any time. There would be no statute of limitations on assessment.

Lastly, there’s the pesky issue of the Report of Foreign Bank and Financial Accounts (FBARs). If you have signature authority for the business accounts, those may be reportable to the US Treasury under the FBAR regime in addition to whatever personal foreign bank accounts you may own or control.

The bottom line: Just know exactly what you are getting into and the responsibilities you assume!

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at tax@orlandogotay.com.

 

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