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6.5. Deduction of Cross-Border Payments and Non-Deductible Expenses

Generally, all business expenses are allowed as a deduction if properly documented and incurred for the business, unless specifically disallowed.

The following expense types are not deductible or have limited deductibility for tax purposes:

  • Tax fines, penalties, and interest charges are not deductible;
  • Corporate tax, annual Property Tax (IUP) (except for companies engaged in real estate trading) are not deductible;
  • Illicit expenses are not deductible;
  • Depreciation and amortization exceeding the prescribed rates as per law are not deductible;
  • Health or personal injury insurance premiums, expenses or losses with respect to life insurance, contributions to pension funds or supplementary social security systems are not deductible, except when they are taxed under the individual tax code or when they are mandatory by law or contracts;
  • Net financing charges in excess of CVE 110 million (CVE 330 million prior to 2017) or 30% of EBIDTA, whichever is higher are not deductible (see Sec.13.2.);
  • 30% of specified expenses such as depreciation, rent, insurance, repairs, and fuel related to passenger or mixed-use vehicles are not deductible;
  • Payments made to foreign affiliates located in a favorable tax regime are not deductible except where it is a necessary cost and is within the reasonable limits;
  • Undocumented expenses are not deductible and are subject to a special stand-alone tax at the rate of 40% (see Sec. 8.1.1.);
  • 50% of representation expenses are not deductible and Expenses related to private cars are deductible with some limits. These expenses are subject to a special stand-alone tax at the rate of 10%, subject to certain conditions (see Sec. 8.1.1.).