Santamarina y Steta
Campos Elíseos No. 345, floors 2, 3, 11
Col. Chapultepec Polanco
11560 México, D.F
Do tax authorities assess taxes, duties, or other impositions in connection with any of the following events and, if so, at what rates and under what circumstances?
Sales of Aircraft
Value added tax (“VAT”) is applicable on sales of aircraft in the following cases:
- When the sale occurs within the Mexican territory (i.e. when the aircraft is located in Mexico at the time of the sale or when the aircraft is delivered in Mexico).
- If the aircraft being sold has Mexican registration marks, regardless of the place in which the transfer occurs, provided that seller is a Mexican tax resident or a foreign resident with a permanent establishment in Mexico.
If aircraft is exported, then the sale is subject to 0% VAT. The general VAT rate is 16%.
Income obtained by a seller of aircraft may be subject to income taxes in Mexico only if seller is a Mexican tax resident or if it is a foreign resident with a permanent establishment in Mexico.
In such cases (when seller is a Mexican tax resident or a foreign resident with a permanent establishment in Mexico) income obtained by a seller of aircraft may also be subject to flat tax or IETU (Impuesto Empresarial a Tasa Única).
The flat tax is an alternative minimum tax that is payable only if it is greater than the taxpayer’s income tax liability. The flat tax is imposed on profits obtained by enterprises from the sale of goods, the rendering of independent services and the granting of the temporary use or enjoyment of goods. The flat tax is accounted on a cash basis and is calculated by applying a 17.5% rate to taxable profits (taxable income effectively collected less the authorized deductions effectively paid).
Finance leases are treated as a sale on credit. In such case, interest received by lessor may be subject to income tax withholding as explained further below –See: Taxes of loan payments and taxes on interest, and; Lease (Tax on payments other than income) –.
There used to be a federal tax on owners or users of vehicles, including aircraft, which was repealed as of January 1, 2012. Such tax has been replaced by local taxes which vary in each State in which a vehicle is registered. In the Federal District, the ownership, use or possession of aircraft with the following characteristics are exempted:
- Aircraft with capacity for 20 passengers or more destined to public transportation;
- One passenger single engine aircraft manufactured or adapted for fumigating, spraying or spreading liquids or solids with loading hopper.
Rental payments made in consideration for the right to use an aircraft may be subject to VAT and the corresponding income may be subject to income tax, as explained further below.
Finally, there are certain airport usage fees that may be applicable. The Airport Usage Fee or TUA (Tarifa de Uso de Aeropuerto), is a fee that is charged to departing and connecting passengers at an airport. It is charged by the airport operator to the airline carrier, and from the airline carrier to the passenger as part of the ticket cost.
Finance (mortgage tax, promissory note tax, conditional sale tax, tax on loan payments, tax on interest)
Mortgage tax – No, although there are certain recordation fees that may be charged by the corresponding Public Registry.
Promissory note – No.
Conditional Sales tax – No, although there are certain recordation fees that may be charged by the corresponding Public Registry.
Taxes of loan payments and taxes on interest –
Payments of principal on loans are not subject to taxes but payments of interest, and fees or commissions treated as interests accrued or payable in favour of a lender, may be subject to taxes.
Interest paid to, or accrued in favour of, Mexican resident taxpayers or foreign residents with a permanent establishment in Mexico, are subject to income tax in Mexico as ordinary income on an accrual basis. The applicable corporate income tax rate is 30% (it is expected that the income tax rate will be reduced to 29% in 2013 and to 28% in 2014). Generally, such tax is payable by the beneficiary thereof, but in certain cases the interest payer is required to withhold the corresponding tax on interests payments.
Interest paid to, or accrued in favour of, non-Mexican tax residents are subject to income tax withholding if: (i) borrower is a Mexican tax resident or a foreign resident with a permanent establishment in Mexico, or (ii) if the proceeds of the loan are invested or placed within the Mexican territory.
Financial leases are treated as a sale on credit, and interest derived therefrom is subject to income tax withholding at a 15% rate, when: (i) the aircraft is used in Mexico, (ii) rental payments are deducted in full or in part by a permanent establishment in Mexico of a foreign resident, or (iii) rental payments are made by a Mexican tax resident or by a foreign resident with a permanent establishment in Mexico.
Absent tax treaty provisions, the following withholding rates on interest payments apply when the recipient is a foreign resident:
|Type of Interest Rate||Rate|
|Interest paid to certain registered foreign banks; interest derived from publicly traded securities, and interest paid by banks, non-banks banks and other financial institutions, provided that certain requirements are met||4.9%|
|Interest paid to other registered foreign banks and financial institutions, interest derived from publicly traded securities, and interest paid by banks, non-banks banks and other financial institutions.||10%|
|Interests paid to foreign reinsurance companies or derived from finance leases.||15%|
|Interests paid to sellers of machinery in connection with a sale on credit||21%|
|General rate for all other types of interest paid to foreign tax residents||30%|
In certain cases VAT may be applicable on interests.
Lease (Tax on payments other than income)
VAT is applicable at a 16% rate on leases of aircraft when the aircraft is located within Mexican territory at the time of delivery to lessee.
If the aircraft is delivered to lessee outside of Mexico, then income received by lessor is not be subject to VAT, but lessee may be required to pay VAT on rent paid to lessor as an import of leased goods.
The taxation of lease income depends of the kind of lease. Finance leases are treated as a sale on credit for tax purposes. The difference between the total payments agreed under the finance lease and the price of the aircraft is considered interest and is taxed accordingly.
In operating leases, rental income is taxed as ordinary income.
Rental income obtained by a Mexican tax resident or by a foreign resident with a permanent establishment in Mexico is subject to flat tax or to income tax in Mexico as ordinary income.
Rental income received by a non-Mexican tax resident may be subject to income tax withholding in Mexico if the aircraft is used in Mexico in connection with an active trade or business. It is presumed that aircraft is used in Mexico in an active trade or business when lessee is a Mexican tax resident or a foreign resident with a permanent establishment in Mexico. The general withholding rate is 25% on gross income. Rental income derived from the lease of aircraft that has a concession or permit from the Mexican Federal Government to operate in Mexico is subject to a 5% withholding rate provided that aircraft is destined to public transport services.
As explained above, in certain cases rental and interest payments are subject to income tax withholding. In such cases, the withholding agent must withhold the corresponding tax on payments made to (or on interest accrued in favor of) its foreign-resident counterpart, and must remit the tax withheld to the tax authorities by filing a tax return.
Gross-up provisions are valid and enforceable in Mexico.
Dividends or branch profits are not subject to income tax withholding, although the distributing entity may be subject to an income tax on taxable distributions if dividends or branch profits are distributed in excess of its net earnings and profits (earnings and profit for which the distributing entity already paid corporate income tax).
Import taxes and Export Taxes
Import taxes may apply to the import of aircraft into Mexico, depending on applicable treaties. Also, the import of aircraft may be subject to VAT.
Aircraft destined for the use of airlines with concession or permit granted by the Federal Government and aircraft destined to public transportation of passengers may be imported on a temporary basis for a 10 year period, free of import taxes and free of VAT.
The export of aircraft is not subject to export taxes and is subject to a 0% VAT.
No, although registration fees for the service may apply.
FOR FURTHER INFORMATION: Please contact us and we would be pleased to assist.
DISCLAIMER: The above summary is intended to outline certain Mexican tax aspects relevant to the aviation industry but it is not a legal opinion on the matter. The analysis and comments contained in this document are based on legal provisions in force in Mexico on the date indicated in this document, which can be modified at any time thus affecting the validity of its content. Recipient should consult its own tax advisors concerning the actual tax consequences of its particular situation. Pursuant to article 89 of the Mexican Federal Tax Code, the recipient of this communication is hereby informed that any tax advice given herein is not intended or written to be used, and cannot be used, for the purpose of omitting, totally or partially, the payment of any contribution in violation of tax provisions and any advice contained herein may be contrary to the interpretation of the fiscal authorities