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On September 8th the Mexican Government presented the Economic Package for 2020 to the Congress, including a legislative initiative to reform various tax provisions (the “Reform”). Some of the proposals included therein would have an important impact -if approved- on some of the most common wealth planning solutions used by Mexican high net worth individuals (“HNWI”):

1. A change is proposed as to how to determine when a Mexican resident controls a foreign entity subject to Preferential Tax Regimes (or REFIPRES, its Spanish acronym) – i.e. when in the country of incorporation of the entity/vehicle the income is subject to no tax or tax below 75% of the tax which would pay in Mexico. Under the REFIPRES provisions, if a Mexican resident directly or indirectly controls an entity which generates more than 20% of its income through passive transactions (interests, dividends, capital gains, etc.), said Mexican resident needs to (i) annually subject that income to the Mexican Income Tax and (ii) declare each February any income generated in REFIPRES the previous year. It is proposed to broaden the concept of “effective control” in this context, making it harder to prove that Mexican residents do not control foreign entities in REFIPRES. Also, it is clearly established that for the purposes of assessing whether the income is subject to 75% of the Mexican tax (i.e. subject to REFIPRES), effective tax payable in Mexico shall be taken into account and 35% tax rate shall be considered in the case of individuals (not 30%).

2. In parallel to the provisions regarding REFIPRES, the introduction of new rules is being proposed to tax in Mexico income generated through foreign vehicles that do not have legal personality (i.e. trusts and partnerships) and foreign transparent entities (i.e. disregarded entities). If this measure is approved with its current wording Mexican residents will no longer be able to consider certain structures such as US limited liability companies (LLCs) or Canadian limited liability partnerships (LLPs) as transparent entities.

3. A new disclosure regime of “reportable schemes” is proposed (similar to DAC6 in Europe). Investment advisers and clients will need to provide information to the Mexican Tax Office on any schemes designed to obtain a tax advantage (including avoiding CRS reporting) and which fall under one or more of a lengthy list of vastly different situations, very broadly described.

4. Tax Office’s power to requalify transactions will be introduced in the Federal Tax Code. The tax authorities will be given the power to recharacterize or presume as non-existent for tax purposes, legal acts performed by taxpayers when, in their opinion, they lack a business reason (i.e. when the quantifiable economic (-not tax)- benefit, present or future, is lower than the tax benefit).


Although we will have to wait for the final approval of these changes and their final drafting, it can be anticipated that, as a consequence of the Reform, many Mexican HNWIs will need to re-assess their wealth structuring strategies. Many of those with wealth structured through trusts, LLCs, LLPs and other offshore vehicles will most certainly need to review these in order to preserve and ensure the tax efficiency of the solution.

Once approved (which should happen before October 31st), the new rules will enter into force on January 1st, 2020. And the reportable schemes to be disclosed under the new regime will be those designed, marketed, implemented or administered as from January 1st 2020 or older arrangements that have an impact as from such date.

In this changing environment, international life assurance will remain, if properly structured and substantiated, a robust, fully compliant and tax-efficient long term wealth planning solution providing:

  • Full Income Tax deferral on all income generated under the life contract.

  • Possibility to keep certain level of control on how the portfolio linked to the life contracts is managed.

  • Not considered a “reportable scheme” as its tax treatment directly derives from the simple application of Article 133 of the Mexican Income Tax Law (regarding tax treatment applicable to insurance contracts).

  • Protection against future creditors of the policyholder under the Luxembourg Insurance Contract Law provisions.

  • Wealth fully secured in case of bankruptcy of the custodian bank or the insurance company under the Luxembourg “Triangle of Security”.

  • Great flexibility to properly plan the client’s succession, and the transfer of the wealth to future generations (introducing age limitations for accessing the proceeds, appointing protectors for an organized passing of the wealth, etc.)

  • Access to international assets and institutional investments.

  • Portability of the contract in case of the policyholder’s relocation and possibility to design cross-border solutions for families with members spread across different countries.

If you have any questions or require further information regarding our solution for Mexican clients, please contact your usual Lombard International Assurance representative.

Pablo Peciña
Pablo Peciña

Associate Director - Wealth Planning
Lombard International Assurance