This is a Thought Leadership article which outlines Tax changes in Mexico for 2019.
On December 31st, 2018, a Decree granting tax incentives to taxpayers in the Mexican Northern Border Region was published on the Official Gazette. Such Decree entered into force on January 1st, 2019 and will remain in force during 2019 and 2020. “Northern Border Region” (NBR) includes several municipalities in the states of Baja California, Sonora, Chihuahua, Coahuila de Zaragoza, Nuevo León and Tamaulipas.
Income Tax Benefit
Individuals with entrepreneurial activities and legal entities, as well permanent establishments in Mexico, who receive income exclusively in the northern border region are granted a credit of one-third of the income tax payable applicable to the income obtained from activities carried out in the NBR, in the proportion that the region's income corresponds to the taxpayers' total income.
The Decree establishes that income is exclusively received in the NBR when the income obtained in that region represents at least 90% of the total income obtained by the taxpayer in the previous tax year.
Additionally, taxpayers must provide evidence that their tax domicile or branch has been located within the NBR for the previous 18 months and file for authorization no later than March 31st, 2019 in order to be registered in the "Registry of beneficiaries of the incentives for the NBR“. Registry must be renovated for 2020.
Among other taxpayers, the following taxpayers may not apply the benefits of the Decree: financial institutions, real estate trusts, maquiladoras, consolidated groups, taxpayers in the agricultural and related industries, taxpayers identified as issuing invoices without substance, taxpayers under audit or subject to certain action by the tax authorities, and taxpayers who supply outsourcing.
Source:Fiscal incentive decree for the northern border region, Official Federal Gazette, December 31, 2018.
Value Added Tax Benefit
The tax incentive equals to 50% of the Value Added Tax (VAT) and can be applied directly, which results in a VAT reduction from 16% to 8%.
Individuals and legal entities that carry out alienation of goods, rendering of services and leasing in the NBR, are subject to the benefits of the Decree.
To obtain the benefits of the Decree, taxpayers must deliver goods or render services in the aforesaid region and file a notice before February 7th, 2019.
Once 72 hours have elapsed after the filing of the notice, they may reflect the application of the benefit in the invoices issued.
Additionally, taxpayers may differ the issuance of invoices corresponding to the period of January 1st to April 30th, 2019, as long as before May 1st, 2019 all of the invoices with the benefit have been issued.
Among others, the following will not be eligible for the incentive: alienation of real estate or intangible assets, suppliers of digital contents such as audio or video and taxpayers under certain audit procedures by tax authorities.
The list of specific industries and taxpayers excluded from the income tax incentive does not apply to the VAT incentive
Source: Fiscal incentive decree for the northern border region, Official Federal Gazette, December 31, 2018.
For more information please contact Estefanía Pantoja Lahoz, Latin America Chief Regional Officer or one of the PrimeGlobal Latin America Tax Committee members below.
Ana Lourdes Ortiz
Ana Lourdes Ortiz
Managing and Tax Partner
Eduardo Pol Maldonado earned his bachelor’s degree in Public Accounting from Instituto Internacional de Estudios Superiores. He has over ten years’ experience as a tax advisor to national and international firms, specializing in the operations of the Maquiladora and Export Service Industry (IMMEX) and of nonresidents with a source of wealth in Mexico.
Managing and Tax partner at O&P Consultores Fiscales y Financieros S.C.
Tax advisor to INDEX Piedras Negras.
Tax advisor to INDEX Nuevo Laredo 2011-2013.
Tax committee member, Reynosa Association of Public Accountants.
Tax committee member, Northeast Zone of the Association of Public Accountants.
Professor of tax-related topics at Instituto Internacional de Estudios Superiores.