On 29 September 2017, the following Decrees were published in the Federal Official Gazette in connection with the Special Economic Zones (SEZs):
- Decree Declaring the Special Economic Zone of Puerto Chiapas;
- Decree Declaring the Special Economic Zone of Coatzacoalcos;
- Decree Declaring the Special Economic Zone of Lazaro Cardenas - La Union;
- Decree to include provisions to the Regulations of the Federal Law of Special Economic Zones;
- Decree issuing the internal regulations of the Federal Authority for the Development of the Special Economic Zones.
It is important to note that the SEZs are instruments created by the Mexican Congress and the Executive Power to delimit the geographic areas where several incentives are granted to taxpayers authorized to operate within such zones, in order to promote the economic development of the States that are more depressed economically. The incentives include mainly the following:
- Preferential Value Added Tax (VAT) treatment for activities undertaken within the SEZs (exempted or 0% VAT rated).
- Preferential regime for income tax purposes.
- Other incentives on customs and local state and municipal contributions.
The Executive Power has been developing within the previous year the creation of 9 specific zones: Lazaro Cardenas, Michoacán; Puerto Chiapas, Chiapas; Coatzacoalcos, Veracruz; Salina Cruz, Oaxaca; Puerto Progreso, Yucatan; as well as other locations in the States of Tabasco, Campeche, Hidalgo and Puebla. Consequently it is expected that in the following weeks new Decrees will be issued for the pending SEZs.
Below we provide a summary of the main aspects of each of the five different publications made in the Federal Official Gazette on September 29, 2017:
Decree to Include Other Provisions to the Regulations of the Federal Law of Special Economic Zones
The following sections where added to three specific provisions of the Regulations in order to mainly establish the following:
- The tax incentives will be granted exclusively to new investments with respect to fix assets, expenses, deferred expenses and other disbursements carried out for their first use in Mexico;
- Investments in the SEZs cannot imply the relocation or movement of investments already existing in other locations of the country;
- The SEZs must generate optimum level of employment and investment as established by the Ministry of Finance and Public Credit (Hacienda) and the Tax Administration Service (Tax Authority);
- Provides the maximum term for Hacienda and the Tax Authority to issue opinions concerning investment projects.
Decree Issuing the Internal Regulations of the Federal Authority for the Development of the Special Economic Zones
The Decree sets forth the authority that the Executive Secretary, the different Administrative Units, and their respective Directions will have for the planning, promotion, regulation, supervision, and verification with respect to the SEZs.
The different Administrative Units and their respective Directions will be responsible for the planning, promotion, regulatory and incentives processing, dispatch of legal issues of the SEZs, coordinate the different regions, manage the finances of the authority, among other.
Decree Declaring the SEZs of Puerto Chiapas, Coatzacoalcos and Lazaro Cárdenas
The official publications include three Decrees to create the SEZs corresponding to Puerto Chiapas, Coatzacoalcos and Lazaro Cardenas. In particular, such Declarations specify the extension of the plots of land under which the initial three SEZs were created, in order to be as follows:
- Puerto Chiapas, Chiapas:
- Total extension of the plot of land: 8,611 hectare
- Land extension of the initial SEZ: 523 hectares
- Lazaro Cardenas - La Union, Michoacán:
- Total extension of the plot of land: 8,483 hectares
- Land extension of the initial SEZ: 547 hectares
- Coatzacoalcos, Veracruz:
- Total extension of the plot of land: 12,846 hectares
- Land extension of the initial SEZ: 257 hectares
It is important to note that other SEZs may only be authorized within the geographic area of the plots of land already designated by the Executive Power, whether on private or public land located within the delimitated geographic area of such larger plots of land.
The Declarations grant the following tax incentives to taxpayers authorized to operate within the SEZs:
- Reduction of 100% of income tax triggered for a term of 10 years (tax credit);
- Reduction of 50% of income tax in the subsequent period of additional 5 years (tax credit);
- 0% VAT rate on the lease or sale of goods by domestic suppliers to taxpayers authorized to operate in the SEZ, provided that they have the proper documentation to evidence the introduction of goods into the corresponding SEZ;
- Taxpayers authorized to operate in the SEZ may request the refund of VAT paid to domestic suppliers which shifted VAT at the 16% rate instead of the 0% rate (if a taxpayer of a given SEZ operates outside of an SEZ, the shifted VAT will be credited against the operations performed outside the SEZ);
- 0% VAT rate on the sale of services to taxpayers authorized in an SEZ for concept of construction, management and maintenance of the SEZ, or for services related to the performance of productive activities in the SEZs.
- Additional deduction of 25% percent of the expense for the training of workers within the SEZ and which are duly registered in the Mexican Social Security Institute (IMSS); and,
- Tax credit to be claimed against income tax for a term of 10 years for an amount equivalent to 50% of the contribution paid on medical and maternity insurance, and equivalent to 25% for the subsequent five years.
The following are other general aspects included in the Decrees with respect to the tax incentives:
- The tax incentives shall be claimed on a yearly basis, and if a taxpayer fails to do so in a given year, it will forfeit its right to claim such incentive in another tax year. Also, the term to utilize the tax incentives starts from the year of issuance of the specific authorization;
- The tax incentives shall be limited to the operations performed within the SEZ, and it is not possible to extend such benefits to other operations carried out in another SEZ or outside of the SEZ;
- The payment of dividends to shareholders or partners will be subject to dividend withholding tax as prescribed in the corresponding income tax legislation;
- The provisions applicable to the preferential tax regimes continue to be applied to taxpayers authorized to operate within the SEZ;
- Authorized taxpayers must maintain the same number of registered workers or employees before the IMSS on every fiscal year in which the income tax incentives are applied;
- Operations among taxpayers authorized in the SEZs will be subject to a 0% VAT rate;
- Authorized taxpayers cannot undertake activities under the concept of a maquila operation for income tax purposes, resulting in the need of proper structuring of manufacturing operations to avoid a permanent establishment exposure and to have an efficient operation.
The Decrees set forth the specific rules of a newly created customs regime for the SEZs. This regime consists in the introduction of merchandise or goods into the SEZs for a limited term or period, whether domestic or foreign. The goods may only be introduced in the special customs regime to undertake the authorized economic activities for each different taxpayer, observing the following main characteristics:
- As the general principle, goods subject to the SEZs customs regime may continue therein for a term of 60 months;
- Machinery and equipment introduced into an SEZ may remain in such customs regime throughout the validity of the respective authorization;
- The introduction of goods into this regime exempts compliance with non-tariff regulations and restrictions, including Mexican official standards as published in the Federal Official Gazette;
- Domestic or nationalized goods destined to an SEZ will be deemed exported;
- Machinery and equipment may be extracted temporarily from the SEZ in order to subject such goods to repair or maintenance operations, including within the Mexican territory.
Goods introduced into an SEZ may be extracted for their: •Definitive importation (foreign goods),
- Definitive exportation (domestic goods);
- Return abroad (foreign goods);
- Reincorporation into domestic market (domestic goods);
- Transfer to another authorized taxpayer within the same SEZ or in another SEZ;
- In-bond transportation; and,
- Temporary importation by the so called IMMEX companies, delivery to bonded warehouses, transfer to a strategic tax precinct or a tax precinct for transformation; or repair activities.
With respect to the payment of import duties, VAT, governmental customs fees and excise tax, the following may be highlighted:
- Import duties are exempt, unless required under the terms of a free trade agreement entered by Mexico;
- In the event of missing or shortage of inventories subject to the SEZs, the corresponding levies shall be paid with respect to such missing goods or shortages;
- Duties will be exempt for shrinkage,
- Wastes resulting from productive activities will remain subject to the SEZ customs regimes and no import duties will be paid if they are destroyed;
- Taxpayers authorized to operate within the SEZ will pay the customs processing fees with certain fixed fees established in the Federal Fees Law;
- It is specified that under the SEZ customs regime, the special excise tax will remain to be triggered upon the entry or exit of goods from Mexican territory (there is no incentive on excise tax);
- The extraction of goods from the SEZs for their exportation or return abroad will be VAT exempt;
- The extraction of goods from an SEZ will be subject to the payment of the corresponding VAT (0% or 16% rate, as applicable) for their introduction into Mexico and not for their sale;
- It is established that VAT paid on introduction of goods into Mexican territory is creditable;
- VAT is exempted on operations for the transfer of goods from IMMEX companies, for their in-bond transportation, delivery to a bonded warehouse or transfer to a strategic tax precinct or a tax precinct for manufacturing or repair activities, provided that it maintains the proper documentation to evidence such operations.
The published Decrees make reference to the general rules on customs valuation as prescribed in the Customs Law. However, the Decree grants as a benefit the possibility to pay import duties only with respect to foreign goods or materials.
Import duties and VAT shall be paid upon extraction of goods from an SEZ, unless they are destined to another SEZ and the proper documentation is maintained to evidence such transaction.
Finally, if an SEZ authorization is cancelled, the import duties and other levies must be paid within a term of 60 calendar days counted from the date in which the cancelation is notified.