Moving the corporate domicile and its tax impact in various Latin American countries
We analyse in detail the regulation and fiscal impact of redomiciliation in Chile, Colombia, Mexico, Peru and Uruguay.
A change of corporate domicile, or redomiciliation, which can be done to move a company's registered office from one jurisdiction to another with continuity for legal purposes, has become an increasingly common transaction – for multinational groups mainly – in the current economic context.
Some of the reasons behind multinational groups’ decisions to undertake, or at least consider, this type of processes are usually to adapt to more predictable regulatory frameworks, to reduce geopolitical risks or to ensure organizations’ operational or regulatory stability, by aligning them with the requirements of the business environment.
In this context, it is essential to approach this topic from a tax standpoint, because changing the corporate domicile implies a need to adapt to new tax frameworks, international legislation and compliance with tax transparency and fairness rules, such as those driven by the OECD. This analysis is particularly important in the context of a global landscape in which tax and regulatory policies are becoming increasingly complex.
The aim of this document is to explore briefly the main tax implications arising from redomiciliation in a number of Latin American countries, including Chile, Colombia, Mexico, Peru and Uruguay, and to provide a preliminary analysis that will enable companies to identify potential tax challenges and assess opportunities. In short, this document aims to provide readers with an overview of the key tax elements that must be considered in each of these countries, in order to identify common trends and specific local characteristics.
General elements of a redomiciliation
A redomiciliation may be inbound, where a company moves its domicile to a Latin American country, or outbound, where a domestic company moves its domicile to another country.
The ability to carry out an inbound or outbound redomiciliation varies according to the legislation of each country.
Some countries, such as Colombia, do not allow a redomiciliation as such, although alternative mechanisms may be used such as international mergers or spinoffs.
A redomiciliation generally implies that the company retains its legal personality, although it becomes subject to the legislation and tax system of the destination country.
Tax impact of a redomiciliation
A change of corporate domicile can have significant tax implications, for both the company and its shareholders.
In a few countries, such as Mexico, an outbound redomiciliation is treated as a liquidation for tax purposes, which may generate liability for capital gains tax.
In other countries, such as Peru, there is a clash between the principles applicable to inbound and outbound redomiciliations, which gives rise to uncertainty over its tax impact.
In Uruguay, the inbound redomiciliation is expressly regulated and its consequence is that the entity becomes subject to taxation as a Uruguayan tax resident.
The following sections contain a detailed analysis of the regulations and tax impact of a change of corporate domicile in each of the countries mentioned.