Many Mexican entrepreneurs have heard that starting a business in Delaware (USA) is quick, cheap, and confidential. What few know is that, from a Mexican tax perspective, An LLC in Delaware can pose a tax risk, especially if it is used to receive income that does not accrue in Mexico.
In this article I explain why Delaware can be considered a Preferential Tax Regime (REFIPRE) by the SAT in accordance with article 176 of the Income Tax Law, and what implications it has for you if you are a tax resident in Mexico.
What is Delaware and why is it so popular for business creation?
Delaware is a U.S. state with a very flexible legal framework. The reasons why thousands of companies choose to incorporate there include:
- Fast, online incorporation
- It is not required to disclose the beneficial owners
- There are no state taxes if you do not physically operate in Delaware.
- Affordable maintenance (approximately USD $300 per year)
- Possibility of being treated as a transparent entity for tax purposes
This has led many Mexican businessmen to use LLCs in Delaware to receive payments from abroad, protect assets, or make investments. However, this may have tax consequences in Mexico.
When are you considered to be in a REFIPRE?
In Mexico, There is no list of countries or jurisdictions considered as REFIPRES. On the other hand, the Income Tax Law establishes a objective criterion:
Income is considered to be obtained through a REFIPRE when said income is subject to an effective ISR rate. lower than the 75% that would be caused in Mexico.
This means that An LLC in Delaware may fall under the REFIPRE assumption if the income it generates They do not pay income tax in the US nor do they accumulate correctly in Mexico.These types of structures often defer or avoid paying taxes, which is precisely what Mexican legislation seeks to prevent.
Tax consequences if you operate with an LLC in REFIPRE
If the SAT determines that you are earning income through a REFIPRE, you must comply with specific obligations, including:
- Accumulating income in Mexico, even if they have not been repatriated or distributed.
- Keep separate accounting records for those incomes.
- Submit informative returns, as established in article 178 of the LISR.
- Demonstrate the business reason that justifies the use of the structure (article 5-A of the Federal Tax Code).
In schemes where the LLC receives payments for services performed in Mexico and then transfers the funds as capital contributions or loans, the SAT may consider that there is a simulation or an undue tax advantage, especially if there is no real economic substance.
So you can't use an LLC in Delaware?
Yes, it can be done, but it must be done with caution. The use of international structures is not illegal, but it requires:
- Specialized tax consultancy in both Mexico and the U.S.
- Evaluate if there is obligation to accumulate income in Mexico.
- Check if there is real economic substance, not just on paper.
- Properly document the business reason, and have consistent contracts and evidence.
Conclusion
Delaware may be a valid option for expanding operations, but it can also become a red flag for the SAT if Mexican tax rules are not followed. The fact that there is no official list of REFIPRES doesn't mean the authority doesn't enforce the rules; it simply will. evaluating each case based on the effective tax rate and the economic substance of the transaction.
In Tax ID Mexico We help entrepreneurs properly structure their international operations and comply with Mexican tax regulations without compromising their business strategy.
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