MEXICAN BUSINESSES CAN FACE A TIGHT REPORTING DEADLINE FOR CTA

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U.S. rules on reporting certain owners of many companies can be tricky for Mexicans who lack the proper U.S. identification.

A new reporting rule of the U.S Corporate Transparency Act (CTA) could prove troublesome for Mexican owners and part-owners of U.S. businesses, among others.

New CTA requirements for the reporting of beneficial ownership information (BOI) mandate reporting requirements for domestic and foreign owners. All domestic and foreign entities formed or registered to do business in the U.S., unless exempted, must report information on all individuals with major ownership interests of the company. (“Domestic” entities are created by the filing with a secretary of state or similar office under the laws of a U.S. state or Indian tribe. “Foreign” entities are those formed under the laws of a country outside the U.S and registered to do business in any U.S. state or tribal jurisdiction.)

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) estimates that the rule will initially impact some 32.6 million companies and some 5 million new companies each decade after that. The goal in collecting the information, which will be stored on a non-public database accessible by international law enforcement and other officials, is to deter money laundering, especially by overseas entities.

The problem for affected Mexican owners and others with large financial interests in the U.S. stems in part from the reporting deadlines: Companies formed before this year have all of 2024 to report; companies formed this year have 90 days to report; companies formed after this year have only 30 days to report BOI. Failure to report can carry daily fines of some 600USD, and even imprisonment.

Simple form, complex application

An individual is a beneficial owner who exercises “substantial control” over a reporting company if he or she meets any of four general criteria: is a senior officer; has authority to appoint or remove certain officers or a majority of directors of the company; is an important decision-maker; or has any other form of substantial control over the company (a catch-all to make sure innovative or flexible corporate restructures report).

Companies are required to identify all individuals who own or control at least 25% of the ownership interests of the company. Ownership interest may include?equity, stock or voting rights; a capital or profit interest; convertible instruments; or options or other non-binding privileges to buy or sell any of the above, among others.

Information required from owners is straightforward: full legal name, DOB, current residential address, passport information and so on. FinCEN has estimated that providing information for both company and beneficial owner should take little more than an hour.

Many entities are exempt from reporting BOI, including large companies (more than 20 full-time employees in the U.S., more than $5 million in gross receipts or sales from sources inside America and an operating presence at a physical office in the U.S.) and businesses that are already highly regulated, such as banks, securities brokers and investment advisors, to name a few. (See a complete list here .)

Also required to report:

• Trusts with underlying U.S, entities. Mexican trustees, protectors and even investment advisors could be considered as having substantial control or ownership interests in a company that’s required to report. This can create problems for the many Mexican families who set up a trust with a protector, the latter believing he or she would have no direct liability.

• Community property. As Mexican community property law requires the signature of other spouse when community property is sold, a husband or wife whose spouse holds significant shares of a U.S. company may be deemed a joint beneficial owner of that company or companies and have to report. (FinCEN has issued no guidance on this yet.)

Some American taxpayers are challenging the constitutionality of the CTA. Though plaintiffs in some cases have had their reporting requirements put on hold, the consensus now is the reporting requirement will continue.

ID required

Reporting companies and other affected Mexican organizations must have personal and official identifying information for the beneficial owners. This generally involves a U.S. Internal Revenue Service (IRS) Individual Taxpayer Identification Number (ITIN), including an Employer Identification Number (EIN).

An ITIN, the IRS says, is a 9-digit tax processing number for certain resident and nonresident aliens, their spouses and their dependents. It’s available only to individuals who are required to have an ITIN for tax purposes but who don’t have, and aren’t eligible to obtain, a U.S. Social Security number. ITINs are issued regardless of immigration status.

Obtaining one is a matter of minutes for a holder of a U.S. Social Security number. A non-U.S. citizen can apply for an ITIN but the issuance of the number can take six or more weeks. If a Mexican citizen has 90 days to comply with BOI reporting, six or more weeks is plenty of time. But some companies have as few as 30 days to comply. Among other possible complications:

• Companies may have many management tiers to consult before the correct information is reported, potentially causing significantly more delay.
• Mexican companies with U.S. subsidiaries might have many beneficial owners. What level of scrutiny is needed?
• Data privacy laws vary greatly by country (Mexico has the Ley Federal de Protección de Datos Personales en Posesión de los Particulares, or “Federal Law on Protection of Personal Data Held by Individuals”). Companies will need to take the time establish policies to adhere to these laws.

Owners who will forming a reporting company should try in advance to obtain the U.S. ITIN. This year is recommended.

Obviously, BOI reporting can be a lot more complicated than one hour filling out a form – and penalties for tardy reporting are stiff. Mexican nationals who believe they will have to report BOI information under the American CTA should seek help immediately in obtaining their ITIN and other official identification.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author?

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA?Forty?Under 40 Award.?She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world's elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.?