Changes to the Mexican SOFOM in 2020
Christian Reeves

Changes to the Mexican SOFOM in 2020

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Mexican reform is in full stride as the new president implements his programs. Some of these changes affect the Mexican SOFOM. Here’s what you need to know about setting up a SOFOM in 2020. 

Reform regarding SOFOMs in Mexico is likely to pass as most banks and financial institutions have already felt the wave of change coming their way. Whether it is good or bad is for you to decide about changes to the SOFOM in 2020. 

The agency in charge of creating new reforms in the country is called CONDUSEF. The CONDUSEF has in its power the ability to review and to make modifications to contracts involving SOFOMs. 

This is not limited to the way SOFOMs works as a whole, the modifications this government institutions make can even alter the way SOFOMs deal with clients and realize their service among other things. 

Think of CONDUSEF as the constitution of how SOFOMs operate in the country. These 2020 reforms, rules, and regulations only apply to regulated SOFOMs. If your SOFOM is not regulated then you won’t have to worry about this. 

In order for a regulated SOFOM to remain in business in 2020 and beyond, 70% or more of its assets must come from the allowed activities that it is authorized to perform as stated in the bylaws. Such authorized activities will usually include mortgages, financing, factoring, and the approval and issuance of credit. 

If your SOFOM does not generate 70% of its assets from this manner, then the same percentage needs to come from the administration of its portfolio as a way to be considered part of the financial system. That is to say, 70% of its income should come from the management of its assets (such as is the case with an investment advisor or fund. 

When a regulated SOFOM is considered part of the financial system, it can receive tax advantages. An important tax advantage that comes with the SOFOM being part of the financial system is that its credit portfolio will not be included in the calculation of the tax on its assets. 

Another tax advantage that you and your clients can take advantage of if you form a SOFOM is that the interest that you charge to your clients shall not be subject to a value-added tax. VAT is 16% in Mexico, so this is a big deal. 

SOFOMs are one of the preferred ways for foreign investors to begin capitalizing in the Mexican and Latin American markets. These structures have fewer restrictions on how they can operate compared to the US and Europe and are very powerful financial entities within Mexico.

All of the previous restrictions on investments by foreign investors associated with the capital stock of the SOFOMs have been eliminated. One of the many benefits of the reforms whose one of its main goals is to promote foreign investment. 

This is great news as before, foreign investors needed to do a ton of due diligence before they could invest in Mexico, and even when everything was in order their investment was limited. The red tape on SOFOMs was intense and intended to keep foreigners out. 

As of today, a SOFOM can be formed entirely with foreign investments as long as they follow the same protocol a Mexican entity needs to follow to be structured and that they register with the proper government institutions. 

This presents a great opportunity for foreign investors to take advantage of the situation and set up a SOFOM to operate within Mexico. This structure might provide financial services or investment management throughout Latin America. The SOFOM might also operate as a cryptocurrency exchange or money transmission business.

When you establish a SOFOM, you are given the opportunity to register it as a regulated or nonregulated entity. As a foreign investor, you have the advantage of using the nonregulated version as a low-cost financial services entity. The setup costs and operational costs for this entity in Mexico are a fraction of those associated with an international bank in Puerto Rico, for example. 

For the same reason, financial institutions who own a SOFOM or individual foreign investors have the opportunity to offer their clients a lower interest rate on credit and loans. Also, the costs of labor and other expenses will be significantly lower than in competing jurisdictions. For example, see Sample Operating Expenses for an Offshore Bank in Puerto Rico.

SOFOMs are becoming extremely popular in Mexico and I expect this popularity to continue in 2020 as the regime of the new president continues to implement his reforms The CONDUSEF is already preparing for an influx of foreign investment associated with the registry of SOFOMs. 

I hope you’ve found this article on what is a SOFOM to be helpful. For more information, or for assistance in establishing a SOFOM on Mexico, contact us at info@premieroffshore.com or call us at (619) 483-1708

What is a Mexican SOFOM
Christian Reeves

What is a Mexican SOFOM?

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In this post, I’ll consider the question, “What is a Mexican SOFOM?” A Mexican SOFOM is a complex entity used for many purposes and the most powerful financial entity or structure in Mexico after a full banking license. In fact, a SOFOM is often the most efficient path to a banking license in Mexico. 

Mexico is a prime destination for American investors looking to grow their portfolios. Its proximity to the United States, secure banking laws, English speaking professionals, and the strength of the dollar of the country are all factors why American investors are doing business south of the border. 

One of the most powerful entities that you can use for your advantage is called a Sociedad Financiera de Objeto Multiple or SOFOM. There are a number of activities that you can do with a SOFOM such as financing, factoring, making loans, issuing credit, etc. The Mexican SOFOM is also used for cryptocurrency exchanges and money transmission businesses. 

Mexico is currently in the beginning of a new era as its President has promised a wave of reforms that will change many laws, one of the many reforms that have gone through is the way SOFOMs operate in the country. 

You do not need any special authorization to start operating as a SOFOM. Any person with proper Mexican identification can open a SOFOM. That is to say, the director and person responsible for the SOFOM must be a Mexican person. 

The Mexican federal government does not have to be involved at all in the process, so long as you register your financial institution as a non-regulated SOFOM, no license or special permission is required.

Establishing a SOFOM in Mexico works just like opening any other business in the country. Your company must be formed and authorized by a Notario. Do not get confused, a Notario’s role in Mexico is very different from the United States. A notary in Mexico is a very important person, where anyone can be a notary in the US.

Your Notario will create the bylaws of the SOFOM which will feature how the principal purposes of the entity will take place. It is important for you to have a business plan that explains in detail how your financial entity will work under a SOFOM. 

As part of one of its functions a SOFOM has the ability to act as a fiduciary in a guaranty trust that is formed to guarantee the credits that it issues, it should also be noted that trusts in Mexico do not work the same way as in the United States. 

One activity that cannot be done with a SOFOM receives deposits from clients as those are reserved for banks and financial institutions in the country. A partnership with a bank in Mexico is required. 

Partnering with a bank as a SOFOM is a great way to operate as a financial entity without an international bank license. The SOFOM structure allows you to hold client funds in your corporate bank account and transact as described above. 

There are two types of SOFOMs available, the regulated SOFOM and the unregulated SOFOM. If you will set up a regulated entity, within the bylaws of a the SOFOM you must include the phrase “financial entity with multiple purposes, a regulated entity”. 

Meaning that in your bylaws your SOFOM needs to be identified by the abbreviation S.O.F.O.M, E.N.R. Regulated SOFOMs are those that have business activities involving financial holding companies and credit institutions. 

Most regulated SOFOMs are owned or controlled by financial institutions and have a number of shareholders. This is because the SOFOM structure is often the most efficient path to an international banking license in Mexico.  

Unregulated SOFOMs work a little different than regulated ones. Unregulated SOFOMs are not overseen or are subject to any relevant banking or tax laws in a country such as the CNBV and SHCP.

Capital in unregulated SOFOMs is independent and does not include the participation of third party credit institutions and holding companies. You cannot use the word “bank” in the bylaws of an unregulated SOFOM. Also, an unregulated SOFOM does not have any minimum capital requirements. 

If you are establishing your SOFOM as an unregulated entity you must disclose to clients and possible investors that you are not subject to the supervision of Mexican Banking Laws or institutions such as the CNBV. 

The only government institutions that have the power to regulate unregulated SOFOMs are the Secretaria de Hacienda y Crédito Público (SHCP), CONDUSEF, and any other applicable anti-terrorism and money laundering laws. 

The bottom line is that the Mexican SOFOM is the most powerful structure to start a financial services business, mortgage or payday lender, to raise capital, or to operate a cryptocurrency exchange in Latin America. 

The setup process to start an unregulated SOFOM is burdensome and takes 3 to 4 months depending on the time of year. We will be happy to assist you throughout the process, including local representation, banking, and operational support. 

I hope you’ve found this article on what is a SOFOM to be helpful. For more information, or for assistance in establishing a SOFOM on Mexico contact us at info@banklicense.pro or call us at (619) 483-1708

For more up to date information on offshore bank licenses and financial services structures, see www.banklicense.pro

Foreign Earned Income Exclusion 2020
Christian Reeves

Foreign Earned Income Exclusion 2020

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In this article, I’ll look at the Foreign Earned Income Exclusion 2020. The FEIE is the most powerful tool in the expat’s kit and is the focus of international tax planning for individuals and small business owners living abroad. The Foreign Earned Income Exclusion 2020 is the only major tax planning option left after Trump’s 2017 tax law changes. 

I wrote that the Foreign Earned Income Exclusion 2020 is the ONLY tax deal left after Trump’s changes to the US tax code. In previous years, small business owners could use the FEIE to eliminate the tax on their first $100,000+ and then retain profits in excess of the FEIE in an offshore corporation. These days are gone… we Americans can no longer retain profits in our offshore corporations tax-deferred. 

And there was a time when we had hope that the Foreign Earned Income Exclusion would be made obsolete by President Trump. During his campaign, he had indicated that he would move the US to a territorial tax system. Rather than taxing US citizens and residents on our worldwide income, we could pay tax only on profits made in the United States. 

Well, big corporations and multinationals moved to a territorial tax system, but the little guy got the shaft (per usual). We expats are still taxed on our worldwide income and we lost the ability to use an offshore corporation to retain profits over the Foreign Earned Income Exclusion 2020 amount tax-deferred. For more, see President Trump’s Tax Plan and Expats

With that in mind, here’s what you need to know about the Foreign Earned Income Exclusion 2020.

As stated above, the most important tool in the expat’s U.S. tax toolbox is the Foreign Earned Income Exclusion for 2020.  And, in most cases, the Foreign Earned Income Exclusion 2020 is the ONLY tax break you get for living abroad. 

If you qualify for the FEIE, you can exclude up to $107,600 in 2020 of earned income free from U.S. Federal income tax. This amount is up from $105,900 for the tax year 2019, $104,100 in 2018, $102,100 in 2017 and $101,300 in 2016. If you’re married, and both spouses qualify for the exclusion, your total combined exclusion may be up to $215,200.

There are two ways to qualify for the Foreign Earned Income Exclusion 2020. You can be out of the US for 330 out of 365 days or you can be a resident of a foreign country for a full calendar year. 

The first option, referred to as the 330-day test, is the easiest to use. Just be out of the US for 330 out of any 365 day period. For example, if you are out of the US from March 30, 2020, to March 15, 2021, you qualify for the Foreign Earned Income Exclusion 2020. 

The second option, known as the residency test, is much more challenging to implement. To oversimplify a complex topic, you need to move to a foreign country with the intention of making that place your home for the foreseeable future. You should have a residency permit and pay taxes in this new home. 

In most cases, you will use the 330 day test for the Foreign Earned Income Exclusion for the first year or two you’re living abroad. Once you’ve put down roots in a new country, you can switch to the residency test. 

Maximize the Value of the Foreign Earned Income Exclusion 2020

While you can’t retain earnings in an offshore corporation in 2020, you still need a structure in a tax-free country to maximize the value of the FEIE. 

First, if you use a personal bank account or a US company to run your business, you must pay self-employment tax on your income. The Foreign Earned Income Exclusion does not reduce self-employment or payroll tax. 

If you draw your salary from an offshore corporation, you can eliminate SE tax. This is a savings of about $15,000 a year for a single person earning $100,00 and about $30,000 for a husband and wife where both are working in the business. 

Second, if you operate a business without a corporate entity, the amount of your Foreign Earned Income Exclusion for 2020 will be reduced in proportion to your expenses. 

For example, the FEIE is $107,600 for 2020. Let’s assume you gross $160,000 from business and your net profit is $80,000 after deductible business expenses. You report this income on Schedule C and use Form 2555 to calculate the Foreign Earned Income Exclusion. 

Your allowed business expenses are about 50% of your gross. Because you are using Schedule C, your FEIE will be reduced in proportion to your deductible expenses. So, your available FEIE for 2020 is 50% of $107,600 = $53,800. 

You will be allowed to exclude $53,800 of your $80,000 net using the FEIE. Thus, you will pay US tax on $26,200. 

If you had operated your business through an offshore corporation for 2020, you would have paid zero in self-employment taxes and would have been allowed the full FEIE amount of $107,600. 

Perpetual Travelers and the Foreign Earned Income Exclusion 2020

There’s one group of expats that can never use the residency test. A perpetual traveler is someone that is out of the United States but never puts down roots. This group includes military contractors and those who can’t become residents of the country in which they work and Americans who travel constantly. 

If you’re a perpetual traveler, you won’t have a home base. You won’t get a residency visa and you will not pay taxes in any foreign country. In this case, you must use the 330-day test because you will never qualify for the Foreign Earned Income Exclusion 2020 using the residency test. 

Because the residency test allows you to spend more time in the United States, it might be in your best interest to gain residency in a low or no-tax country. For a list of options, see Which Countries Tax Worldwide Income?

One of the easiest residency programs for Americans is Panama’s Friendly Nations Reforestation Visa. Invest $25,000 in teak and get residency. For more on this topic see Best Panama Residency by Investment Program (note the investment amount has increased from $20,000 to $25,000 for 2020). 

I hope you’ve found this article on the Foreign Earned Income Exclusion 2020 to be helpful. If you need assistance preparing your US tax returns, drop me a line to info@premieroffshore.com and I will connect you with a tax prep expert. If you would like to form an offshore corporation to maximize the value of the FEIE, you can reach me by email or at (619) 483-1708

Income-Tax-Deductions
Christian Reeves

Itemized Deductions for 2020

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Itemized deductions are expenses on specific products, services, or contributions, that can be used to reduce your tax bill. These itemized deductions are only allowed if the taxpayer does not use the standard deduction to reduce the amount of taxes.

Some of the most popular types of itemized tax deductions used by taxpayers include charitable donations, child tax credit, adoption credit, mortgage interest, earned income tax credit, and medical expenses among many others.

You should not confuse itemized tax deductions with tax credits. Tax credits are a much simpler fiscal concept than tax deductions. With tax credits, you just subtract the number of tax credits to what you pay on yearly taxes, while tax deductions take into consideration many things such as what tax bracket you belong to.

There are many itemized deductions that you can include in your tax report, the list is quite extensive. You must do your research and make sure which deductions apply and which not, the following are some of the most popular itemized deductions for 2020.

By far one of the most popular items used to deduct taxes is by adding medical and dental expenses on your tax report. This includes payments done to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, etcetera.

Deductions using medical and dental expenses will remain the same percentage as in 2019 for 2020 which is 10%. Meaning that you will only be able to deduct those expenses that exceed 10% of your adjusted gross income. 

Taxpayers who reduce taxes through itemized deductions on federal income tax returns are permitted to reduce state and local real estate and personal property taxes including income taxes or general sales tax. 

These deductions done to state and local taxes are limited to a total of $10,000 dollars. Married taxpayers who file their taxes separately is $5,000 for each. These deductions are some of the most popular and it is quite easy to apply for them. 

Home Mortgage Interests may only be deducted on acquisition indebtedness interests such as your mortgage being used to buy, build, and/or repair your home. The amount that is allowed to do this can reach up to $750,000 or half which is $375,000 for those married taxpayers who file their taxes separately. 

Even though they have been a number of controversies involving charitable donations as a means to deduct taxes, these itemized deductions are still going strong. Although they are being scrutinized more than ever before and some changes were made for taxpayers who make charitable donations and then report them. 

Due to these changes and tax reforms the limit of cash donations allowed for public charities made an increase from 50% to 60% in 2020 and it will remain that percentage for the rest of the year. 

One of the major changes for itemized tax deductions in 2020 is for casualty and theft losses. Casualty and theft losses have been removed from the list except for the losses that can be proved in a federal disaster area.

Another major change on itemized deductions is the ones for job expenses and miscellaneous deductions which in 2019 were subject to a 2% deduction on Adjusted Gross Income. They have all been eliminated. 

The child tax credit had an extension of $2,000 for every child that qualifies that is refundable by up to $1,400. The $1,400 are subject to phaseouts and reviews by the corresponding fiscal authorities.

Adopting a child with special needs gives you as a taxpayer a credit of $14,300. The maximum credit that is allowed for any additional expenses is also $14,300. The amount fluctuates for taxpayers with an income that equals more than $214,520.

Student loan interest deduction for 2020 remains the same as it was in 2019 at $2,500. If you pay more than $85,000 you do not qualify for this deduction. This is one of the most sought after deductions, currently, there are a number of proposed reforms to make this number higher. 

Having a Medical Savings Account can be very beneficial for your tax plan. For individual taxpayers who are only covered by the Medical Savings Account, there is an annual deductible that is no less than $2,350 but no more than $3,550.

Shared individual responsibility payment has been eliminated for a variety of reasons, also the Pease Limitations for 2020 have been shut down. For Americans living outside of the country, the Foreign Earned Income Exclusion for 2020 is $107,600.  

I hope you’ve found this article on changes to the itemized deductions for 2020 to be helpful. For more information, or for assistance with international tax matters contact us at info@premieroffshore.com or call us at (619) 483-1708

tax deductions
Christian Reeves

Standard Deduction Amounts, Tax Exemptions, and Other Applicable Taxes

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Standard tax deductions are flat amounts of money that the tax system of the United States lets you deduct, plain and simple. Tax deductions allow an individual and a corporation to subtract applicable expenses to reduce the amount of taxes they have to pay. 

These tax deductions need to include some kind of proof to the IRS that they indeed apply for a deduction. Standard deduction amounts are expenses that are not subject to federal income tax, no questions asked. 

As an individual or corporation who pays yearly taxes you have the option to make tax deductions or to use standard deduction amounts to pay fewer taxes, but you can never choose both options. 

It would be smart and beneficial for you to make sure if you qualify for the federal standard deduction as some taxpayers are not allowed to apply for this. If you are married but you and your spouse file separate taxes and itemize deductions when you file your annual tax report then you will not be able to realize the standard deduction. 

Another situation in which an individual would not be able to make a standard deduction is if you file joint taxes with your spouse and he/she was a non-resident at any moment during the tax year.

It is simpler and much faster to make a standard deduction amount than to reduce taxes. You have to make an in-depth analysis of your fiscal situation and decide which option best fits your needs and will make you pay less in tax.

For 2020, the standard deduction amount increases to $12,400 from the $12,200 of 2019. The $12,400 is only applicable for individual taxpayers and for married couples who file their taxes separately. 

Heads of household have a standard deduction amount set for $18,650 for 2020. Married couples who file jointly have a standard deduction amount of $24,800, the same goes for surviving spouses.

You will also see that the standard deduction amount for taxpayers who are blind increased to $1,300. The $1,300 is an addition to the category that these blind taxpayers already fall under when paying their taxes. 

Unmarried taxpayers also have an additional standard deduction amount of $1,650. Individuals who are listed as dependents by other taxpayers cannot deduct an amount greater than $1,100 or $350 plus the earned income of the individual. This amount should not exceed the normal standard deduction amount. 

Just like last year, there will be no personal exemption amount for 2020. Standard deduction amounts are not the only tactic that a taxpayer can use to reduce taxes, there are other tax exemptions that he can take part in. 

Alternative Minimum Tax Exemptions is the amount that a taxpayer can deduct from the taxable income before calculating its liability. This amount depends on which tax bracket the taxpayer belongs to. 

For an individual taxpayer born in the United States the exemption amount is $72,900. For married couples who file their taxes jointly the number is $113,400, the same goes for surviving spouses. 

Married couples who file separately have an alternative minimum tax exemption of $56,700. Trusts and estates have a tax exemption limit of $25,400. It should be noted that trusts and estates operate differently depending on your situation so the amount may vary.

I mentioned two of the most popular options you have as a taxpayer to pay less taxes. But you might also know that regarding your situation you might also have to pay additional taxes that the ones you are used to.

One of these taxes that you might have to pay is the kiddie tax. The kiddie tax’s purpose is to tax unearned income of a child at a marginal rate of what the parent is already paying that year in taxes. 

It does not matter if the child is or can be claimed as a dependent on the parent’s tax return, the kiddie tax needs to be paid. Children under the age of 19 and college students under the age of 24 are subjects of this tax. 

When I mention unearned income I am talking about income from assets that are not wages or salary. Unearned income that will have to be paid under the kiddie tax is dividends and interests obtained by the child. 

As you can see there are a number of tactics that you can use to pay less in taxes. I just mentioned two of the most famous ones, but depending on your situation you may apply for more. 

I hope you’ve found this article on standard deduction amounts, tax exemptions, and the kiddie tax to be helpful. For more information, or for assistance in tax matters contact us at info@premieroffshore.com or call us at (619) 483-1708

How to Open a Maquiladora in Mexico
Christian Reeves

How to Open a Maquiladora in Mexico

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My previous post was on how to start a general business in Mexico. In this section, I’ll focus on how to open a Maquiladora in Mexico. These Maquiladoras have huge economic importance for Mexico and the United States. Maquiladoras provide for hundreds of thousands of jobs for residents of border cities (on both sides of the border) and throughout Mexico. At one point in time, they helped to stabilize Mexico-USA relations.

Because of the massive deportations that occurred at the end of the Bracero Program in 1964 and Operation Wetback, a large number of factories were established along the US-Mexico border called maquiladoras to provide jobs for these newly relocated Mexicans.

The maquiladoras functioned as American assembly plants set up in Mexico’s border towns to provide jobs and a steady income for the deported. At the same time, they increased Mexico’s global exports and cemented the United States as its most important trading ally.

Maquiladoras made American companies competitive in global trade because Mexico’s wages were substantially lower than in the United States. The Maquiladora program strengthened the relationship between the United States and Mexico which at this point in time was quite strained.

Even though Maquiladoras have become ingrained in the lives of many Mexican and American citizens, many Americans fail to understand the economic advantage that opening an “offshore” assembly or repair plant in Mexico. 

  • Some refer to these plants as being offshore, as outside of the United States. The more modern definition is “near short” to leverage their proximity and ease of operation compared to more distant competitors like China and India. 

The IMMEX program allows US Companies to temporary import raw materials into Mexico for the preparation, repair, transformation of goods to be later exported to the United States as a final product. With this program, you make imports without paying the general import tax, value-added tax, and other compensatory payments. Then you export those finished products to the United States with no import duties or red tape.

To obtain the IMMEX program it is necessary to perform certain procedures fulfilling certain requirements, the applicant must have:

  • Advanced electronic signature certificate (SAT)
  • Federal taxpayer registration
  • Your tax domicile must be active and registered in the federal taxpayer registry.

In addition, the following documentation must be attached to the application for the procedure:

  1. Certified copy of the articles of incorporation of the company and, where appropriate, the modifications to it.
  2. Copy of the document that legally certifies the possession of the property where the operation of the IMMEX Program intends to take place, indicating the location of the property, attaching photographs of it. In the case of a lease or loan agreement, it must be proved that the contract establishes a minimum term of one year.
  3. Contract of maquila, orders of purchase that prove the existence of the project.
  4. Power of attorney (original or certified copy and simple copy); or exhibit a copy of the Unique Registry of Accredited Persons (RUPA).
  5. A written document by means of which the production process or the services which will fall under the guidelines of the program are detailed.
  6. A written document in which the detailed description of the production process or service is provided that includes the installed capacity of the plant to process the goods to be imported or to perform the objectives of the program. 
  7. Letter of conformity from the company or companies that will carry out the sub-manufacturing process where they express, under penalty of perjury and agree to joint and several liabilities for tax on temporarily imported goods (original).
  8. Additionally, for the IMMEX Business Controller Program modality, you must show:
  • Acts of Assembly stating the shareholding of the controlling company and the controlled companies (original and copy).
  • Certified entries in the shareholders’ registry book (copy)
  • The documentation referred to in points 1, 2 and 5 of this section, in addition to presenting a copy of the tax identification card. This documentation must be submitted to the controller and to each of the controlled companies.
  • The maquila contracts that each controlled company has with the controlling company or a maquila contract in which the obligations contracted must be established, both by the controlling company and by the controlled companies in relation to the objectives of the requested program, duly recorded before a Notary (original and copy)
  • Authorization as a certified company (copy), granted by the Ministry of Finance and Public Credit.
  1. Additionally for the modality of IMMEX Program for the use of a Third Party:
  • Letter of conformity from the company or companies that will carry out the process of tertiarization, where they manifest under protest, to tell the truth, the joint and several liability on temporarily imported goods (original).
  • The company or companies requesting the program under the Tertiarization modality must have the authorization as a certified company granted by the Ministry of Finance and Public Credit.
  1. If your maquiladora will operate in the textile sector other requests have to be met.
Setting up a business in Mexico
Christian Reeves

How to Open a Business in Mexico

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After the Panama Papers, and because it became impossible to deal with banks in Panama, I moved Premier to Tijuana, Mexico in 2017. While the move was challenging, both from a quality of life and a business perspective, things are now running smoothly. 

Costs are down significantly compared in Panama, the availability of English speaking and well-educated workers is much better here, and our proximity to the United States and the ability to take meetings in Los Angeles and San Diego has improved sales. Our bottom line has grown significantly since the move and it was well worth the learning curve.

There are two groups that set up shop in Mexico. First, those who will open a physical office with employees in Mexico. Second, those that need a Mexican company and virtual office because they’re selling into Mexico. 

The second group is mostly US and Chinese companies selling through Amazon and other online platforms in Mexico. All of these websites now require a Mexican tax ID or RFC & SAT. To get these numbers you will need a Mexican corporation, a physical address (virtual office), and a local representative (local director / legal representative of the company). 

The first group covers a very wide range of clients. For example, entrepreneurs such as myself who moved to Mexico for lower costs and a better quality of life (to be on the fun side of the wall). Then there are the manufacturers or maquiladoras that move to Mexico for the trade benefits available when importing into the United States. Also, we get calls from all manner of business, such as tourism agencies, restaurants, clubs, service businesses, etc. 

So, without any more ado, here is how to set up a company or other business structure in Mexico. 

Opening a business is quite different in Mexico than it is in the United States. For instance, you rely entirely on a Notario to get the process started. A Notario in Mexico is not comparable to a Notary in the United States. The main difference being the importance and the power that a Notario held in Mexico. You will need to know this and other crucial details of you want to open a Corporation in Mexico. 

Opening a business in Mexico can be a complicated task. Even though in recent years Mexican Legislation has fastened the process, there is still a lot that needs to be done. Your company needs to have a stable planned structure before any of the governmental permits are requested. 

To register a business before the corresponding instances in Mexico it is necessary to carry out 7 or 8 procedures in different government institutions, which will take an approximate period of 8 days. The cost of making this record is 17.8% of the per capita income in Mexico, around 8,200 pesos.

In Mexico, as in many countries in Latin America, you will need the intervention of a Public Notary or Notario. The Notario is in charge of creating the Acta Constitutiva or Constitutive Act.
Basically, through this notarial act, the name and business of the new commercial entity is established, and at the same time, the business model is defined. There are a number of different business models in Mexico. 

The six types of companies or mercantile organizations in Mexico, to be analyzed are: Sociedad en nombre colectivo, Sociedad en Comandita Simple (S. en C.), Sociedad en Comandita por Acciones (S. en C. por A.), Sociedad de Limited Liability (S. de RL), Sociedad Anónima (SA), and Sociedad Cooperativa (SC). We will give a detailed description of each one in a different article. 

The steps you need to follow to open a business in Mexico are as follows: 

  1. Present a Request to the Ministry of Economicos (SE). The first step in creating a corporation is to submit a request to the Ministry of Economics where five possible corporate names in order of preference for the company. This is done to ensure that there is no company already established in the country or abroad with the same corporate name.
  2. Creation of the Acta Constitutiva (Constitutive Act). Once the Ministry of Economics gives the approval or delivers the proposals of available company names, the Constitutive Act must be drafted. This document is the one that gives life and which stipulates all the general and basic aspects of the company: company name, objective, type of company, administration, and control thereof, duration, etc. Once the company is created, the Constitutive Certificate must be notarized before a Notario.
  3. Registering the Business Address. You must register the address of your business. This can either be in the place where you are doing business and not just a registered agent for service of process. This address can be a full office or a virtual office. 
  4. Register before the Tax Administration Service (SAT). When the Constitutive Act is completely created and certified, the next step is a registration with the Tax Administration Service. The Tax Administration service is the equivalent of the IRS in the United States. From this register, the Tax Identification Number is obtained, which contains the Federal Taxpayer Identification Number (RFC).
  5. Register before the Public Registry of Property and Commerce. The next step is to appear before the Public Registry of Property and Commerce where the company and the location where the business will operate will be registered, as well as its purposes, objectives and commercial goals. For this process, the presentation of the Constitutive Act, the RFC, and the power of attorney that allows the legal representative to carry out the procedures of the company will be required. The power of attorney is also given by the Notario.
  6. Register before the Mexican Institute of Social Security (IMSS). When all of the above has been completed, the next step is to register before the Mexican Institute of Social Security. Even if it is a company in which only the employer exists as the only worker, it will be necessary for him to make his personal contributions to his Social Security accounts. Also, if you do not complete this process in time, you may be given a fine by the IMSS. 
  7. Only Applicable to Businesses that are Open to the Public. This step only applies to businesses that are going to be open to the public like a restaurant or a retail store, if you are opening an office, a call center, or a manufacturing business then you don’t have to worry about this step. Before you open your business to the public you are going to have to notify the government in order to obtain a municipal business license. At this step, you must also secure any other type of license that you might need in order to start operating. For example, if you are opening a business that is going to be making hazardous materials like chemicals you are going to have to apply for a number of distinct licenses. The same goes if you are opening a restaurant.
  8. Registering Employees. You must register all of your employees with the IMSS (Mexican Social Security Institute) and with INFONAVIT (Mexican Housing Fund). This is required by law. You must show in their paycheck the amount of money that is going to these two funds along with the local state taxes.
  9. Foreign Investment Registry if Applicable. This step only applies if one of the owners is a foreigner who does not have a permanent resident status. If this is the case then you must also register the business with the Registro Nacional de Inversión Extranjera. The government office that keeps track of all foreign investment coming into Mexico. This can be done by the Mexican national who you gave power of attorney to.
  10. Registration before any other applicable governmental institutions. Depending on the commercial activity that your corporation will be participating in, it may be required to register before different organisms, the most common being: Ministry of Health, Secretariat of Ecology and Environment, Mexican Institute of Intellectual Property, etc. 

It is highly advisable that when opening a corporation in Mexico you hire a group of experts. The process might seem long, but we can help you cut through the red tape and get up and running in the most efficient manner possible. 

tax rates 2020
Christian Reeves

IRS Releases Tax Rate Tables 2020 – Part 2

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Taxes are dreaded by a lot of Americans as they see them as this burden that needs to be tended to or it will cause mayhem, but I don’t believe they should be viewed like this. I may sound like a college professor telling his students to don’t wait until the last minute to study for the big test, but the same concept applies for taxes. 

Most Americans do not even know what tax bracket they fall under. I mentioned in the last article the taxes you have to pay as a couple, but even if you are married you have the option to pay for separate taxes filing separately.  

IRS professionals strongly advise couples to file their taxes jointly as there are many benefits and tax returns you can obtain from this, but there are situations when it is better for married couples to file separately such as: 

  • When you or your spouse have a large amount of out of pocket medical expenses
  • When both spouses work and earn approximately the same amount of money
  • Filing separately also cuts the deductions for IRA contributions and eliminates child tax credits among other tax breaks

Filing separately may look similar to filing jointly but do not get the both of them combined. If you and your spouse earn separately less than $9,875 you have to pay ten percent of your taxable income. 

Couples who separately earn between $9,876 and $40,125 have to pay $987.50 plus 12% of the amount over $9,875. The next tax bracket includes earnings between $40,126 and $85,525 which the amount to be paid is equal to $4,617.50 plus 22% of the amount over $40,125.

Going higher in the tax bracket, earning anywhere between $85,526 and $163,300 will lead you to pay $14,605.50 plus 24% of the amount over $85,525 in taxes. $163,301 to $207,350 is the next tax bracket which those who fall under this one has the pay the amount of $33,271.50 plus 32% of the amount over $163,300. 

As you can tell the amount differentiating the tax brackets is much lower than in those where the married couple files jointly. If you and your spouse earn $207,351 to $311,025 separately you will have to pay $47,367.50 plus 35% of the amount over $207,350. 

Finally, if your annual earnings is any amount above $311,026 the taxable income that you and your spouse has to pay is $83,653.75 plus 37% of the amount over $311,025. This is the final tax bracket for spouses filing separate tax reports. 

Another type of tax bracket that you might fall under depending on your situation is head of household. As head of household you file as an individual and you must meet certain requirements such as: 

  • Be unmarried or considered unmarried at the end of the year
  • Have paid more than half the cost of keeping up a home for the tax year
  • Have a qualifying child or dependent 

The tax bracket for head of household is as follows, if you earn below $14,100 dollars you get taxed 10% of your income. Following the first stage of the head of household income is for taxpayers who make anywhere between $14,101 and $53,700 who have to pay $1,410 plus 12% of the amount over $14,100. 

As you can see the difference between the amount of money in each stage of the tax bracket is quite far apart if you compare them to the other three that I have mentioned in this and the last article. 

A head of household who earns the amount of $53,701 to $85,500 has to pay $6,162 plus 22% of the amount over $53,700. If you earn anywhere between $85,501 and $163,300 then you have to pay $13,158 plus 24% of the amount over $85,500. 

Following those amounts, taxpayers who make $163,301 to $207,350 have to pay $31,830 plus 32% of the amount over $163,300. The next column of the tax bracket is for Americans whose income is a number between $207,351 and $518,400. If you fall under this column then you have to pay $45,926 plus 35% of the amount over $207,350. 

In the last column of the head of household bracket you will find that the last amount is $518,401 in order to calculate how much money you will have to pay if you are in this category, then you must add $154,793.50 plus 37% of the amount over $518,400. 

It is important to take into consideration that if you are a head of household who is receiving financial assistance toward your expenses from a parent or third party you can still qualify for this bracket as long as you prove that you are paying for 50% of your bills with your own capital.

Divorced parents can still fall under this category if your child lived in your home for more than half of the year. You can still file under head of household if the other parent has the right to claim the child as a dependent.

Filing as a head of household or as a separate married couple has a lot of layers and can get quite complicated at times. Please feel free to send us a message and we will help you through this complicated process. 

I hope you’ve found this article on the tax rate tables of 2020 to be helpful. For more information, or for assistance in tax matters contact us at info@banklicense.pro or call us at (619) 483-1708

tax rates
Christian Reeves

IRS Releases Tax Rate Tables 2020 – Part 1

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It’s that time of the year when the IRS releases its annual inflation adjustments. These adjustments calculate tax projections for the upcoming year and give taxpayers an estimate of what is to come regarding tax returns.

They include tax rate schedules, tax tables, and cost of living adjustments. It is important to mention that these are not the numbers and tables that you will use to prepare your taxes for 2019, but the ones that you will use to prepare for your 2020 tax returns in 2021. 

If you are not expecting any major changes in the next year then you should take these tax considerations at full, but if you are planning on getting married or starting a family then you can adjust these projections to best fit your needs and have a more accurate estimate of your tax payments. 

You will find the seven different tax brackets featured in 2020 which are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. You may also find a zero percent tax bracket, but that is a whole different story. 

For the average American who earns an income below ten thousand dollars (0-$9,875) the amount of tax that they will have to pay is 10%. This is in cases in which the taxpayer only works based on commission or has a part-time job. 

The most common tax bracket includes all taxpayers who earn anywhere from $9,876 to $40,125. The amount of tax that they will have to pay equals $987.50 plus 12% of the amount over $9,875. 

Next is for taxpayers who earn $40,126  to $85,525. In order to calculate how much you would have to pay in taxes, you must calculate $4,617.50 plus 22% of the amount over $40,125. Not that confusing or complicated if you think about it. 

You will see that the more money you earn the more you pay in taxes, that is how the fiscal system of the United States works and there is nothing you can do about it. If you earn anything from $85,526 to $163,300 you have to calculate $14,605.50 plus 24% of the amount over $85,525.

Moving up, if you are one of those fortunate Americans who earn the high volume income of $163,301 – $207,350 to figure out how much taxes you pay you will have to find the sum of $33,271.50 plus 32% of the amount over $163,300.

As you can tell the numbers continue to go up. Earning an income from $207,351 to $518,400 leads you to pay a total amount of taxes of $47,367.50 plus 35% of the amount over $207,350 US dollars. 

Finally, if you are a high earning income American the amount of taxes that you will have to pay is $156,235 plus 37% of the amount over $518,400. That is the highest amount of taxes that you will have to pay as an American. 

The numbers and the information that I gave you right now was only for individual taxpaying Americans. The situation is different for married individuals filing joint returns and surviving spouses. 

If the taxable income of you and your spouse is somewhere between zero and $19,750 you have to pay 10% on taxable income. When your earnings are $19,751 to $80,250 the amount that will be paid is $1,975 plus 12% of the amount over $19,750. 

Spouses earning $80,251 to $171,050 have to calculate $9,235 plus 22% of the amount over $80,250. An income of $171,051 to $326,600 will pay $29,211 plus 24% of the amount over $171,050. 

$326,601 to $414,700 has to figure out their taxes by adding up $66,543 plus 32% of the amount over $326,600. High earning couples who make anywhere from $414,701 to $622,050 have to pay $94,735 plus 35% of the amount over $414,700. 

For those high earning couples who make a combined amount of more than $622,051 the amount that they have to pay equals $167,307.50 plus 37% of the amount over $518,400. Hopefully, you are part of this tax bracket. 

There are many ways in which the amount of taxes that you have to pay may vary. A list of many factors to consider that may change how much you pay or in which tax bracket you fall under. 

Every taxpayer is in a very unique situation tax-wise, ad there are a ton of factors to consider before your accountant or you puts you in your corresponding tax bracket. Being 100% transparent is necessary for all matters involving taxes. 

After all, every taxpayer has the right to find ways to pay the least amount of taxes possible. This might sound a tad illicit, but you must remember that there is a sentence in a proper tax document that includes that very phrase.

If you need help with any topic involving your taxes and ways in which you may reduce the percentage that you pay please feel free to contact us. We will be your trusted guide in these matters.

I hope you’ve found this article on the tax rate tables of 2020 to be helpful. For more information, or for assistance in tax matters contact us at info@premieroffshore.com or call us at (619) 483-1708

trust and estate tax
Christian Reeves

Trust and Estate Tax Bracket 2020

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Before I begin to explain the amount of money that is included in the tax bracket for trusts and estates for the year 2020 I will explain a few things about what it entails as I believe that many Americans just see this listed on their tax sheet and have never considered if they can take advantage of it. 

In simplest terms, a trust is a fiduciary relationship between three different parties in which the head of the trust transfers property or assets to a second party for the benefit of the third party or beneficiary. 

An estate, as defined by texts of law, is the amount of money a person has accumulated whether he is alive or dead. It is the sum of all of the assets, property, legal rights, and any other source of income he has or is still accumulating. 

Trusts and estates have to pay taxes on the amount of income that they earn. Even if the person who owns the trust or estate is dead, taxes have to be paid. Any and all income must be reported to the proper authorities by the person who is controlling the trust or the estate. 

Same as in individuals and married couples who file annual tax reports, so do trusts and estates. They pay different taxes depending on the amount of money that they report on a yearly basis. 

In many cases, money that you inherit or are given through a trust will never have to pay taxes, such as when you are given stocks by a family member. You don’t have to pay taxes on those stocks until you sell them. 

Same goes for real estate, nothing is paid in taxes until it is sold. You have the option of paying income tax on interest right now or postponing the bill until you cash in the real estate or the bonds that you might have inherited. 

A trust needs to file a return if it has a gross income of more than $600 year during the full tax year or if there is any taxable income. Another reason why you might need to file a return on a trust is if there is a nonresident alien beneficiary. 

An estate needs to file a return if it also has a gross income of $600 or more or if a person in the estate is a nonresident alien beneficiary. The category where you will find trusts and estates is the K-1, 1041 income report. 

Income taxes are only paid if the assets inside the trust or estate are distributed among different parties. Capital gains and losses stay in the trust as they are part of the whole, this can be arranged to be distributed but it needs to be mentioned in the constitution of the trust. 

You must also explain in detail how the trust must be divided and report all income on the 1041. The amount each person gets must be shown. It is important that every one of these dividends is shown to the IRS. 

Trusts and estates also have a tax bracket on how their taxes work. As they function in a completely different way than regular individual taxpayers and married couples they have different columns depending on the amount of taxable income. 

If the taxable income in your trust or estate is under $2,600 then you are taxed for 10%. You can see that the amount that is taxed for trusts and estates is much lower than those in the other tax brackets. 

Taxable income that you get from your trust that is anywhere between $2,601 and $9,450 is taxed by calculating $260 plus 24% of the amount over $2,600. The next column is for people who hold trusts and estates and have a taxable income of $9,451 to $12,950, you will have to pay $1,904 plus 35% of the amount over $9,450. 

Finally, the last column of the tax bracket for people who are in trusts or in an estate which is for those who make more than $12,951 have to calculate $3,129 plus 37% of the amount over $12,950.

By these numbers alone you will see how beneficial it is for your tax planning to have a trust or an estate. While other tax brackets reach their final column with $518,000 and a 37% income tax, trust reach it with $12,750. 

For joint married couples the amount is $612,350 divided into two if they are filing separate reports. Few Americans know that they can use trusts and estates for lowering their taxable income, among other things. 

Trusts and estates can be used to benefit your children. It is a huge misconception that trusts and estates are only for the rich. There is a lot that goes into establishing a trust or an estate so don’t hesitate to send us a message so we can help you establish the trust or estate that best fits your needs. 

I hope you’ve found this article on trusts and estates and their tax bracket for 2020 to be helpful. For more information, or for assistance in international tax