Tax incentives Decree for the Mexican Northern Border Region

On December 31st, 2018, a Decree granting tax incentives to taxpayers in the Mexican Northern Border Region (the “Decree”) was published on the Official Gazette. The Decree is meant to restore the investment and business productivity in the Mexican Northern Border Region (the “Border Region”) and improve the competitive conditions against the commercial market of the United States of America. Such Decree entered into force on January 1st, 2019 and will remain in force during 2019 and 2020.

The Decree includes a tax incentive that allows Mexican taxpayers (both individuals and legal entities), and foreign residents with a permanent establishment in Mexico to pay two thirds of the income tax (“IT”) applicable to the income obtained from activities carried out in the Border Region. Regarding value added tax (“VAT”), the Decree provides a tax incentive applicable to Mexican taxpayers that consists on granting a tax credit equivalent to a 50% of the VAT rate, so that the applicable rate to such taxpayers would be 8%.

Taxpayers that plan to benefit from the tax incentives for IT and VAT shall comply with a series of requirements contained in the Decree and in the rules that the Tax Administration Service (“SAT” as per its initials in Spanish) will publish (such rules have been released preliminarily in the draft of the Sixth Resolution of Modifications to the Tax Miscellaneous Resolution for 2018). It is worth mentioning that the requirements applicable to the IT incentive differ from the requirements applicable to the VAT incentive, in a way that there will be taxpayers who will be able to apply the IT incentive but not the VAT incentive, and vice versa.

The IT incentive established in the present Decree cannot be applied together with other tax treatments or incentives that grant tax benefits, including exemptions and subsidies. On the other hand, it should be noted that the taxpayers that apply the tax incentives of this Decree would not be obliged to file the tax incentive crediting notice referred to in article 25 of Federal Fiscal Code (“FFC”).