The Mexican Operating Lease

Most lessors offer what we call a “Mexican” operating lease. This lease can be very tax efficient, but typically won't meet operating lease standards for accounting purposes. It is documented, though, in Mexico as an operating lease and meets operating lease standards for tax purposes. This means all the payments are fully deductible as rent under Mexican tax rules (though, as always, its best to confirm with your Mexican tax advisors to be sure the documentation meets the standards).

The payments generally fully amortize the principal and the lessor provides a separate bargain purchase option to a party related to the lessee. This is a very tax efficient structure as deducting the payments is far more valuable than the 10 year depreciation allowed for most manufacturing assets in Mexico.  When calculated on an after-tax basis, your interest cost is near or even below zero.