Mexico is the latest country hoping to cash in on undeclared offshore assets through a generous tax amnesty, which promises to be a success on multiple accounts – with the domestic wealth industry set to benefit.
The amnesty, designed to incentivize the repatriation of funds kept abroad by Mexican taxpayers, will be open until mid-2017. Participants will be required to pay 8% tax on all repatriated funds, which will have to be invested in Mexico for at least two years.
Admittedly the timing seems odd. The amnesty came into effect just before Mexico joins 53 early adopter countries in automatically sharing financial information as part of the OECD’s Common Reporting Standard (CRS) in March 2017. And the 8% levied under the scheme seems negligible compared to Mexico’s 35% top tax rate plus the fines that would apply if any dubious funds were detected as part of the OECD’s automatic exchange of information.
Yet one of the few countries not part of the CRS is Mexico’s big neighbor to the north. The US is the biggest offshore destination worldwide, and is also a preferred destination among Mexican immigrants, suggesting that money flows (illicit or otherwise) are likely to be substantial. The US’s FATCA standard is already in place, but while reciprocal in the case of Mexico it has ultimately been designed to provide the US with information on the offshore holdings of US citizens.
In addition, it is unlikely that tax revenue is the Mexican government’s only aim. Funds repatriated as part of the amnesty have to be invested in Mexico for at least two years. This may be for the acquisition of fixed assets that are deductible for income tax purposes and used in the taxpayer’s income-generating activities, for example, or the acquisition of land or constructions located in Mexico. In any case, as fears are mounting that President Trump’s protectionist agenda will wreck Mexico’s industrial sector, the government will welcome any funds returning home to stimulate the local economy. Meanwhile Mexicans with investment or business interests in the US may now be more interested in repatriating funds, worrying about the future of their wealth in a country that has made noises about taxing remittances.
At any rate, money returning to Mexico is also good news for local wealth managers. If the amnesty proves as successful as others of recent years, wealth managers can expect to see the pool of assets up for grabs grow significantly. At the beginning of November 2016 the Brazilian government announced it had collected the equivalent of $15.8bn in taxes and fines under its tax amnesty, while $263bn in assets were declared during the first three months of Indonesia’s nine-month amnesty. While things may not look rosy for Mexico’s economy, 2017 could be a bumper year for local wealth managers.
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