How does the type of business entity affect the U.S. tax rates?
Many CEOs mistakenly think that the tax treaty between the U.S. and Mexico eliminates double taxation. That is only a partially true statement if you structure the venture properly. Mexico has a similar tax system to the U.S. and businesses are taxed at a fixed rate of 28 percent on net earnings. However, when you transfer the profits back to the U.S., now Uncle Sam wants to tax it again. The combined worldwide effective tax rate will differ depending upon whether earnings are transferred back to the U.S. as partnership distributions or as dividends. Here’s an example: If the Mexican company is operating under an S.A. structure and the U.S. parent company is structured as a partnership, you’ll currently pay U.S. federal taxes on any dividend income you bring into the U.S., on top of and after paying Mexican business taxes. If the Mexican company has been effectively structured as a pass-through entity and you repatriate Mexican profits, you’ll pay income taxes in the U.S. at the applic
