On October 11, 2023, a decree was published in the Official Gazette of the Federation granting tax incentives to key sectors of the export industry in Mexico. This decree had been anticipated following statements made by the Deputy Secretary of Finance, Gabriel Yorio last month, where he announced that the federal government was about to issue decrees to provide tax incentives to key sectors of the industry, without these incentives being limited to a specific geographical area, as the goal is for them to benefit the entire country.
It is worth noting that this decree is being published in the economic and political context in which various companies are considering the relocation of supply chains and their operations, where Mexico plays a crucial role due to its geographical proximity to the United States, favorable tariff conditions, and the new rules of origin established in the USMCA (T-MEC), making Mexico an attractive destination for foreign direct investment. This practice is known as nearshoring.
Benefited Parties and Key Sectors
The decree, which will be in effect starting on October 12, 2023, is aimed at corporate taxpayers who fall under the General Regime and Simplified Trust Regime of the Income Tax Law (ITL), as well as individuals who fall under the business activities regime of said law (excluding individuals under the Simplified Trust Regime).
Among the key sectors identified in the decree are the semiconductor industry, the automotive industry (especially in electromobility), electrical and electronic sectors, medical devices and pharmaceuticals, agribusiness, human and animal food production, who produce, process, or manufacture and export such goods. The decree also includes the industry dedicated to the production of cinematographic or audiovisual works, provided that these works are exported.
Immediate Deduction of Assets
Taxpayers may choose to make an immediate deduction of the investment in new fixed assets acquired from October 12, 2023, until December 2024, deducting in the corresponding tax year the amount obtained by applying the percentages specified in the decree, rather than those stated in the ITL.
The immediate deduction percentages range from 56% to 89%, depending on the type of asset. Any percentage not deducted in the current year can be carried forward to subsequent years within certain limits.
To access this incentive, the following requirements must be met:
i. The tax incentive will apply if the revenue from the export of goods or works covered by the decree represents at least 50 percent of their total turnover in each fiscal year.
ii. It is only applicable to goods that are first used in Mexico and remain in use for a period of two years after the year in which the immediate deduction is made.
iii. The assets to which the incentive is applied must have the exclusive purpose of developing the activities specified in the decree.
iv. A record must be kept for each asset to which the incentive is applied, indicating the percentage used and the year of deduction, as well as keeping the documentation supporting the type of asset and its relationship with the company’s business and industrial process in which it was used.
The incentive does not apply to assets such as furniture and equipment, internal combustion engine vehicles, armored vehicles, or aircraft unrelated to agricultural fumigation.
The immediate deduction must be added to taxable income for the purpose of calculating the profit tax ratio. However, for advanced tax payments, the amount of the immediate deduction can be subtracted from the current year’s taxable income, in equal parts, starting from the date of the investment.
Additional Deduction for Training
This tax incentive consists of an additional deduction of 25% applicable to the increase in expenses incurred for worker training in the years 2023, 2024, and 2025.
For these purposes, the increase is the positive difference between the expenses for worker training in the current year and the average expenses for worker training during the years 2020, 2021, and 2022 (the average must be calculated even when no expenses were incurred in those years for worker training). This difference is then subject to a 25% deduction and can be considered as an additional deduction in the corresponding tax year.
The training concept is referred to provide technical or scientific knowledge to the workers related to the taxpayer’s activities.
For the application of this incentive, the following must be considered:
i. The additional deduction is only applicable to active workers registered with the Mexican Social Security Institute by the taxpayer seeking to apply the incentive.
ii. Those who do not apply the additional deduction in the year they incur training expenses will lose the right to do so in subsequent years.
iii. A specific record of the training provided to workers must be maintained, describing the content of the training and its relevance to the activities mentioned in the decree, along with supporting documentation.
iv. The tax incentive is not subject for income tax purposes.
Taxpayers who apply any of the tax incentives must:
i. Be registered with the Federal Taxpayer Registry, have an active tax mailbox, and register valid contact information in accordance with the Federal Tax Code (FTC).
ii. Have a positive opinion on tax compliance.
iii. Submit a notice indicating their intention to apply the tax incentives specified in the decree, which must be submitted within the 30 calendar days immediately following the month in which the tax incentives are first applied.
Taxpayers who do not submit the notice on time or fail to meet any of the specific requirements for each incentive must pay the tax, inflation charges, and surcharges when the tax incentives are no longer applicable.
The decree specifies a list of taxpayers who, should the conditions be met, will not be able to apply the above-mentioned tax incentives.
It is expected that the Tax Administration Service will issue miscellaneous rules for the proper and correct application of the decree.
At Skatt, we are convinced that we can assist our clients in the proper application of the decree’s benefits by carefully analyzing the provisions and providing the necessary recommendations for their correct interpretation and application.