>
> Thanks for the info-- I am a regular reader of your
> creative columns and
> would appreciate some thoughts on the following:  I
> am a US Citizen and my
> wife
> is a Mexican Citizen.  We are both Permanent
> Residents in Canada.  We are
> about
> to open a company (based primarily in Mexico) that
> will sell (and buy)
> printed
> materials chiefly within the Mexican market-- what
> would be the best way for
> us
> to structure this company from a tax liability
> standpoint?
>
> ----- End forwarded message -----
>
>---------------------------------

david ingram replies:
One of my associates, David Holroyd lives in Mexico and works with me in
North Vancouver for five months a year.  He will be back with me on February
3rd this year.
I asked him to give an answer to your question.  Of course, as Canadian
residents, your Mexican business is taxable in Canada and as a US citizen
"you" must report in the US but can exempt up to $80,000 of earned income.
It is too difficult a situation to go ahead with without serious study,
David Holroyd's suggestions follow:
------------
-----Original Message-----
From: David Holroyd holroyd at centa.com
Sent: Wednesday, January 18, 2006 11:35 AM
To: taxman at centa.com
Subject: Re: FW: Mexican company owned by Canadian PRs (one US Citizen,
one Mex. Citizen)
As I wrote below, it seems very strange that he is
asking a minor question and ignoring a major question.
I chose to answer the major question first and the
answer to the minor question falls out automatically.
In working on a form that I have to send in I
discovered that the words on the form and the simple
definitions given, such as line e equals the sum of
lines a, b, and c minus line d do not match.
My response:
I am asking David Ingram to explain the Canadian
consequences and will confine myself to the Mexican
problems. It struck me immediately that you were
asking a minor question and ignoring the major
question, which is your legal status working in Mexico
for this business. Work permits are issued for very
specific reasons and these reasons are normally
interpreted very narrowly.
If you do not set this up correctly, anytime anyone is
upset at you, such as a competitor, a would-be
supplier, anyone who believes that you should have
offered him a job at a higher rate of pay, or someone
who believes that you were too unfriendly, or too
friendly, to his wife or daughter can simply pick up
the phone and call Immigration. They will send someone
to talk to you, and the final words could well be "And
don't come back!"
The only protection against this is to be completely
legal and the best way to do this is to specify, when
applying for your FM-3 migratory document, that you
want to go to Mexico "to assist my wife in her
businesses." It should say this right on your FM-3. I
know a man who has used this successfully for more
than 30 years. He is absolutely legal no matter what
he does. The downside is that he has to stay married
to the same woman. This presupposes that the business
is in her personal name and not a corporate name.
Please do not try to come as a tourist. It is tempting
but carries the risks I mentioned above.
As far as taxation goes, employment income for
individuals is taxed on a sliding scale. The maximum
rate for 2006 is 29%, which starts at about 110,000
pesos. From this you can subtract a basic subsidy,
which runs about 9000 pesos at 110,000 pesos income.
Your mortgage interest is deductible. If you
incorporate you will both pay this rate on your draws
and the corporation will also pay tax.
The Mexican tax system is slanted very heavily toward
business proprietors instead of employees. As nearly
as I can see, if your wife files as a proprietor of a
business her tax rate should be about 1.8 % of gross
revenue before any expenses but this varies depending
on the previous year's income and expenses.
Initially she will register as a small contributor.
There are three different sets of rules depending on
the annual sales.
I should warn you that the regulations are very
complex and often contradictory, and also that
accounting is the weak spot in the Mexican educational
system so it is very difficult to get accounting help.
The general principle stands, that proprietors pay
much less tax than employees. For all of these reasons
it appears that you would be much better off starting
the business as a proprietorship in your wife's name
with you acting as an unpaid assistant. If the
business prospers and grows you can of course change
at any time.
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
Home office at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 10 PM 7 days a week (please do not fax or phone
outside of those hours as this is a home office)
email to taxman at centa.com <mailto:taxman at centa.com>
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<http://www.david-ingram.com/>
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