Corporate Income Tax Rates in Latin America: Identifying the Optimal Investment Destination

Many businesses opt for tax advisory services to avoid penalties and fines to ensure compliance with local regulations and maximize profits. This blog post will provide an overview of tax advisory services, the Latin American tax landscape. We will also explore some tax incentives and opportunities in Mexico and Colombia. This situation is because, Latin America is a promising destination for European investors, but especially for U.S. investors looking to expand their businesses abroad. However, it is vital to have a thorough understanding of the complexities of Latin American tax legislation, which can be challenging.

Latin American countries have different tax systems, regulations and compliance requirements. According to the World Bank, the average corporate tax rate in Latin America and the Caribbean was 30% in 2022, ranging from 30% in Mexico to 34% in Brazil. Latin American tax laws are notorious because they can be complex, and compliance can be time-consuming and costly for foreign investors.

However, there are also locations that have plenty of investment opportunities. With the right advice, the potential for profitability and higher returns is enormous.

List of Countries by Corporate Tax Rate

source: Trading Economics, March 2023

As evidenced, although taxes are relatively similar throughout Latin America, there are some subtle differences that can become the ideal strategy for expanding your business. So, at this point, tax advisory services are essential for foreign investors doing business in Latin America.

Tax advisors are experts in tax law and can help investors understand the local tax system, identify tax incentives and opportunities, and structure their business to minimize tax liabilities and maximize profits. According to a PwC – PricewaterhouseCoopers study, tax advisory services can help companies reduce their tax burden by up to 40%.

Mexico and Colombia are two territories with attractive tax systems for foreign investors. Here, some similarities and differences that will help to compare.

Colombia:

Stable economic and political environment ( we invite you to read our article What Does A Leftist President In Colombia Mean For Foreign Investors?)
Competitive corporate tax rate of 35% in 2023
Tax incentives for investment in priority sectors, such as infrastructure, renewable energy and technology
Free trade agreements with more than 60 countries
Strategic location, connecting North and South America

Mexico:

Economic reforms to improve transparency and efficiency of the tax system
Competitive corporate tax rate of 30% by 2023
Tax incentives for investment in priority sectors such as research and development and aerospace
Free trade agreements with more than 50 countries
Strategic location, connecting North and South America

Navigating tax legislation in Colombia and Mexico can be challenging for foreign investors. Paperwork, bureaucracy and lengthy processing times are some of the negative points encountered by some entrepreneurs.

Tax advisory services can help investors comply with local regulations and avoid penalties and fines. Below are some points where tax advisors can identify tax incentives and opportunities in Colombia and Mexico:

Colombia:

• Help investors understand the local tax system and comply with local regulations.
• Identify tax incentives and investment opportunities in priority sectors.
• Structuring the business to minimize tax liabilities and maximize benefits
• Provide guidance on transfer pricing and international tax planning.

Mexico:

• Help investors navigate the complex tax system and comply with local regulations.
• Identify tax incentives and investment opportunities in priority sectors
• Assisting with tax compliance, including VAT and payroll taxes
• Advising on transfer pricing and international tax planning

Ongresso assists your company in expanding in Latin America. Benefit from our vast experience in establishing legal entities in Latin America and our network of top tax and legal professionals to determine the right tax setup for your business.

We will compare corporate taxation (2023) in the locations where we have a presence so you can decide the best country to invest in.

Keep in mind that it is important to compare several aspects when deciding which is the most convenient country, do not be guided only by these percentages. We explain it to you, we will take an IT company as an example.

Corporate tax rates are one of the most significant factors, as they directly impact the company’s profitability. According to the table above, Chile has the lowest corporate tax rate of the four countries, making it an attractive option for investors looking to reduce their tax liabilities. However, tax rates are not the only consideration, and investors should also evaluate other factors, such as ease of doing business, labor costs, infrastructure and government incentives for IT companies.

Colombia has become a technology hub and is one of the fastest growing economies in Latin America. The government has recently launched several tax incentives aimed at attracting foreign investment in the IT sector. One of these incentives is the R&D tax credit, which means a 25% tax deduction for expenses incurred in the development of new technologies. In addition, the country has a stable political environment and a growing pool of qualified IT professionals.

Peru, for its part, offers several tax incentives for IT companies, such as a tax exemption for the import of IT equipment and a tax credit for R&D expenditures. However, the country’s corporate tax rate is very low. However, the country’s corporate tax rate is higher than Chile’s, which can affect a company’s bottom line.

Mexico has the second highest corporate tax rate of the four countries, but also offers several tax incentives for IT companies, such as a tax credit for R&D investments and a reduced tax rate for companies operating in specific regions. It is important to recognize that Mexico has a strong IT infrastructure, a large pool of skilled professionals and proximity to the United States, making it an attractive option for companies looking to expand into the North American market.

Video Recommended: Market Opportunities for IT Companies in Colombia

Navigating tax law in Colombia and Mexico can be challenging for foreign investors. Tax advisory services can help investors comply with local regulations and avoid penalties and fines. Tax advisors can also help investors identify tax incentives and opportunities and structure their business to minimize tax liabilities and maximize profits. Here are some examples of how tax advisory services can help investors in Colombia and Mexico:

Colombia:

• Help investors understand the local tax system and comply with local regulations
• Identify tax incentives and opportunities for investment in priority sectors
• Structure the business to minimize tax liabilities and maximize profits
• Provide guidance on transfer pricing and international tax planning

Mexico:

• Help investors navigate the complex tax system and comply with local regulations
• Identify tax incentives and opportunities for investment in priority sectors
• Assist with tax compliance, including VAT and payroll taxes
• Provide guidance on transfer pricing and international tax planning