by – Lic. Leobardo Tenorio,
In short:
- 20% income tax rate in the Northern Border Region; IMMEX are not beneficiaries of the incentive.
- 8% value-added tax rate; the rate does not apply to imports, or alienation of immovable or intangible goods, as well as digital commerce.
- Optional – Assess implementation; assess requirements.
- It is not for everyone.
- Valid until 2020.
- Need to request authorization/file notices in order to receive the benefit.
The President of Mexico, Andrés Manuel Lopez-Obrador, published on December 31, 2018, the “Northern Border Region Tax Incentives Decree” (the “Decree”) that comprise municipalities located in the States of Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon and Tamaulipas (a list of the municipalities that are included in the Northern Border Region can be found in Appendix “A” of this document).
The Decree is valid for the fiscal years 2019 and 2020 (January 1st to December 31st ) it is optional.
Even when there are many questions about the implementation of the Decree, below you will find a summary:
The Decree consists of two incentives related to:
- Income tax, at a rate to 20%.
- Value added tax, at a rate of 8%.
Excluded from the Decree
In addition to those who are specifically excluded from the income tax incentive (as noted below), the following taxpayers are excluded from the Decree, that is, from both incentives (the “Excluded Taxpayers ”):
- Those who have a final tax assessment (that is, that such cannot be challenged).
- Those who have non-guaranteed tax assessments, even if such tax assessments can be challenged.
- Those who are considered as “unreachable”.
- Those who have a conviction for a tax offense.
- Those whom the tax authorities have forgiven any tax assessment.
- Those whom the tax authority, including its partners or shareholders, have presumed issue tax invoices without having any assets, personnel, infrastructure or material capacity, or that are unreachable.
- Those whom the tax authorities have determined conduct operations with the taxpayers described in the preceding paragraph.
- Those who have improperly transferred tax losses.
Incentives
Income Tax
(See Appendix “B”)
The Decree establishes a tax incentive equivalent to one-third of the income tax (“IT”) for the year or monthly tax returns related to income earned in the Northern Border Region (the “Border Region”) for certain persons carrying out business activities in the Border Region. That is, sets a rate of 20% for certain individuals and entities of the Border Region.
It is worth mentioning that the IMMEX companies, among others, are excluded from this tax incentive.
Value Added Tax
(See Appendix “C” )
The Decree establishes a reduction of 50% of the value added tax (“VAT”) in the sale of goods, rendering of services and use or enjoyment of goods when the material delivery of such goods is in the Border Region.
Excluded from the preferential rate of 8% are both imports of goods and services, as well as the sale of real property, intangibles, as well as the supply of digital content.
Optional
The application of the benefits of the Decree is optional. Each taxpayer who is eligible must analyze and decide if it applies for the incentive. Non-implementation will result in the loss of the right to apply for it.
The above, in the case of VAT, will result in having suppliers that will apply the 8% rate and others that will apply the 16% rate.
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Appendix “A”
MUNICIPIOS CONSIDERADOS DENTRO DE LA REGION FRONTERIZA NORTE /CITIES INCLUDED AS PART OF THE NORTHERN BORDER REGION
| Baja California | Sonora | Chihuahua |
| Todos los Municipios / All Cities | San Luis Río Colorado Puerto Peñasco General Plutarco Elías Calles Caborca Altar Sáric Nogales Santa Cruz Cananea Naco Agua Prieta | Janos Ascensión Juárez Praxedis G. Guerrero Guadalupe Coyame del Sotol Ojinaga Manuel Benavides |
| Coahuila | Nuevo León | Tamaulipas |
| Ocampo Acuña Zaragoza Jiménez Piedras Negras Nava Guerrero Hidalgo | Anáhuac | Nuevo Laredo Guerrero Mier Miguel Alemán Camargo Gustavo Díaz Ordaz Reynosa Río Bravo Valle Hermoso Matamoros |
Appendix “B”
Income Tax Incentive
In short:
- Rate of 20% on IT in the Border Region.
- Request authorization; annual term.
- Optional – Assess implementation.
- Not all are eligible. IMMEX companies were left out
What is the incentive?
It is a tax credit equivalent to one-third of the income tax for the year or monthly tax returns related to income earned in the Border Region. That is, it sets a rate of 20% for certain individuals and entities residing in the Border Region.
It has an annual term.
To whom is the incentive given?
The beneficiaries of the incentive are:
- For-profit entities.
- Entities organized by individuals who have opted for the accumulation of income by entities.
- Individuals with business activity.
- Residents abroad with a permanent establishment in the Border Region
Who, in addition:
- Are domiciled (tax address, branch, agency or establishment) in the Border Region for 18 months or more prior to the date of the filing of the application for the incentive. If approved, the taxpayer will be recorded in a registry of beneficiaries.
- Have obtained at least 90% of their total income in the immediately preceding tax year in the Border Region.
- Request authorization from the Tax Administration Service (“SAT”) to be recorded in the registry of beneficiaries before March 31st of the corresponding year.
- Have the advanced electronic signature.
- Have access to tax inbox, and
- Participate in SAT’s “real-time verification program”.
To whom was the incentive NOT given?
In addition to the Excluded Taxpayers, the following taxpayers are also excluded from the IT incentive:
- Those who apply other tax incentives or treatments that grant benefits (not exemplified nor defined in the Decree).
- Companies operating in the maquila/IMMEX regime.
- Banking institutions, insurance, surety, general deposit warehouse companies, financial leasing and credit unions.
- Those who obtain income through professional services.
- REIT or FIBRAS.
- Taxpayers in liquidation.
- Those who carry out agricultural, livestock, forestry or fisheries activities,
- Among others.
What income is not included in the incentive?
Revenue for intangibles or deriving from digital commerce.
If we have LESS than 18 months in the border Region or my entity was just formed, would I benefit from the incentive?
Yes, if you prove to have:
- A tax address (branch, agency or establishment) in the Border Region
- Economic capacity, assets, and facilities to develop business activities.
- “New assets of fixed assets”, and
- Have or estimate that more than 90% of your income will be in the Border Region.
How is the credit calculated?
Income tax credit will be for the amount resulting from multiplying a third part of the tax caused in the tax year or monthly tax returns by the proportion that represents the income earned in the Border Region (excluding income from the alienation of digital commerce and intangible goods) with respect to revenues earned in the year or period that corresponds.
How long can I apply the incentive?
For the fiscal year in which it is approved. If granted in 2019, renewal must be presented for 2020.
If a taxpayer was not eligible for 2019, it may request it in 2020.
Can you lose or forfeit the incentive?
Yes. You can lose the right to apply the inventive due to any of the following events:
- For not applying the incentive when you have the right to apply it.
- If the SAT revokes the right.
- If during the tax year of 2019 at least 90% of the income of the taxpayer ceased to be in the Border Region, therefore making it not eligible for 2020.
- If the above is considered on Excluded Taxpayer.
- If consent to participate in the SAT’s “real-time verification program” is not granted.
What if I lose the right to apply the incentive?
All of the benefits will be lost in the fiscal year in which it happens, and the taxpayer must, within the month following the loss of the incentive, file supplementary tax returns by paying the income tax without the incentive updated for inflation purposes and surcharges.
Appendix “C”
VAT tax incentive
In short:
- A rate of 8% for operations in the Border Region.
- Does not apply to imports, or alienation of real property or intangibles nor the delivery of digital content.
- Optional – Assess implementation. Due to this, there will be some suppliers that will apply an 8% rate and others that will apply a 16% rate.
What is the incentive?
Applying an 8% rate to the value of the following acts or activities carried out in the Border Region for:
- Sale of goods (when the material delivery of them is made in the Border Region). If the material delivery of the goods is made outside the Border Region, the 16% tax rate must be applied.
- Rendering of services (even though the Decree does define what should be interpreted as services being rendered in the Border Region), and
- Temporary use or enjoyment of goods.
Each taxpayer will have to decide if it applies or not the 8% rate to its operations.
To what operations does the 8% rate does NOT apply?
The 8% rate does not apply in the following operations:
- Sale of real property.
- Sale of intangible goods.
- Supply of digital content.
- Importation of goods or services, and
- Exportation of goods or services (which are taxed at 0%).
What should I do, in order to apply the rate of 8%?
- File the notice for the incentive of VAT no later than January 30, 2019.
- Issue electronic invoices applying the reduced rate.
What happens if I lose or I decide not to apply the rate of 8%?
The 16% rate will continue to apply.
Please note that this document is intended to be an alert and for informational purposes only. Thus, this document does not constitute any form of legal opinion or recommendation and should be used as a guide.
For specific questions, please contact us.
Leobardo Tenorio-Malof | ltenorio@tplegal.net
Héctor Torres-López | htorres@tplegal.net
Alejandro Pedrín | apedrin@tplegal.net
Mauricio Tortolero | mtortolero@tplegal.net
Daniel Gancz-Kahan | dgancz@tplegal.net
Alejandro Ceballos | aceballos@tplegal.net
