The information contained in this document is marketing material and for informational purposes only. The information contained in this document is presented without any warranty or representation as to its accuracy or completeness and all implied representations or warranties of any kind are hereby disclaimed. Recipients of this document, whether clients or otherwise, should not act or refrain from acting on the basis of any information included in this document without seeking appropriate professional advice. The provision of the information contained in this document does not establish any express or implied duty or obligation between Citco and any recipient and neither Citco nor any of its shareholders, members, directors, principals or personnel shall be responsible or liable for results arising from the use or reliance of the information contained in this document including, without limitation, any loss (whether direct, indirect, in contract, tort or otherwise) arising from any decision made or action taken by any party in reliance upon the information contained in this document. © The Citco Group Limited, December 2024.
Case Study: Ensuring UBO compliance in Mexico
Navigating Ultimate Beneficial Ownership (UBO) compliance in Mexico can be an onerous undertaking.
Unlike many other jurisdictions around the world – particularly in Europe where UBO reporting requirements have been long established and/or simplified – Mexico’s UBO laws are complex to interpret and apply, and the documentation involved is lengthy and cumbersome.
Earlier this year, Mercator’s UBO and Mexico experts completed an extensive UBO data collection and file compilation project for the Mexican subsidiaries of a British multinational oil and gas company headquartered in England.
Here we provide an overview of the legal requirements, the challenges and the key learnings for companies when approaching the UBO requirements in Mexico.
The Law
The 2022 Mexican Tax Reform introduced a new obligation into the Mexican Federal Tax Code for companies to identify and maintain personal information on their UBOs known as ‘controlling beneficiaries’.
This obligation came into effect on the 1st of January 2022. No specific deadline for compliance has been communicated but all companies have been encouraged to prepare their UBO information as soon as possible.
UBO information must be maintained as part of the entities accounting record but there is no requirement to file this information with the Mexican authorities.
If there is a change in the identity or participation of the beneficial owner, the entity must update the information within 15 days from the change.
The Risk of Non-Compliance
Mexico’s Tax Administration Service (SAT) can request a company’s full UBO file at any time. Companies are required to comply and share this information within 15 calendar days.
Failure to comply may result in fines of up to two million pesos per beneficial owner.
Furthermore, non-complying legal entities will be issued a negative (non-compliant) opinion regarding their tax obligations. This may give SAT the right to suspend or cancel the non-complying legal entity’s digital seals, which would prevent such entity from issuing invoices, causing business continuity issues.
The Challenges
1. The definition on who qualifies as beneficial owner is very broad.
The definition of a ‘controlling beneficiary’ under Article 32-B Quarter of the Federal Tax Code (the CFF) is very broad and can be subject to confusion.
The CFF defines a beneficial owner is an individual or group of individuals who:
- Benefits (directly or indirectly) from the activities carried out by any Mexican Entities/Vehicles
- Directly or indirectly, has and executes the rights of use or enjoyment of a good or service
- In whose name a transaction is performed
- Has control of the Mexican Entities/Vehicles
- The term control is defined as the power that an individual or group of individuals may have to: (i) Take decisions in shareholder meetings; (ii) Appoint the members of the board or the unique administrator; (iii) Own more than 15% of shares with voting rights; or (iv) Manage and design the strategy of the Mexican Entities/Vehicles
2. The list of required information and documentation is extensive.
Every entity must gather and maintain over thirty items of information on each of its beneficial owners.
This information includes: full name, aliases, date of birth, gender, nationality(ies), tax residence, tax ID number, marital status (with spouse’s ID and marital property regime), full contact information, and detailed information of each controlling beneficiary about their participation in the legal entity.
The Mercator Solution
Mercator’s UBO expert team first set about collecting the necessary details on the clients’ group structure and the local entity’s corporate structure, along with supporting documentation. This enabled us to correctly determine the relevant UBOs in line with Mexico’s criteria and definition.
Our team then collected all of the required personal information on beneficial owners, with regular touch points and status updates provided to the client’s inhouse team in order to clarify or request additional information.
For each entity, a specific 80-page file was provided containing:
- Legal Provisions
- Controlling Beneficiaries Information
- Criteria and procedures to determine the UBOs
- Mechanisms to identify, obtain and determine the UBOs
- Timelines
- Data of each individual
- Organization Structure
- Granted Authorities
The Result
At the end of the project, the client had the reassurance and documentation ready to demonstrate to the authorities their obligated entities had:
- Correctly identified their ultimate beneficial owner in line with local requirements
- Established internal control procedures to support and validate identification
“Thank you so very much for all of your hard work and proactivity. It has been an excellent service provided by you all.” – Subsidiary Governance Officer at British Multinational Oil & Gas Company
5 key steps for UBO reporting in Mexico
1. Collect all information on group structure. The first task is determining who are the controlling beneficiaries. List out all the requirements clearly along with what information is needed
2. Collect all information on individuals. Once you’ve correctly identified the relevant reportable individuals you can set about gathering the information required. List out all the documents clearly along with what information is needed and do this for each entity.
3. Structure your communications and filing system. The volume of information and document involved will be significant. Having a structured and set format for email chains / filing / documents provides consistency and enables easy access and review.
4. Make the most of available tools and technology. Rather than relying on manual and outdate excel sheets – explore smarter and efficient ways of collaborating, communicating and tracking. Mercator’s custom-built entity management platform – Entica® – houses a specifically designed module for large projects to keep a track of voluminous work, with live status updates and insights.
5. Go back and check! A UBO file preparation project can take months. Naturally some changes in formation will have changed along the way, therefore a final review amendment required before marking as complete is required.
Don’t forget – If there is a change in the identity or participation of the beneficial owner, the entity must update the information within 15 days from the change.
Ula Cekutyte
Legal Team Manager, Mercator by Citco, Citco Mercator, UAB
