A Presidential Decree establishing a new set of income tax and value-added tax (VAT) incentives in Mexico's North Border Region became effective on Jan. 1, 2019.

Income Tax

1. Individuals and legal entities that are residents in Mexico for tax purposes and non-Mexican residents with permanent establishments in Mexico:

a) that submit by March 31, 2019, an application for registration in the corresponding Registry of Beneficiaries (Registry) and are granted such registration

b) whose income obtained through activities within the North Border Region1 (Region) represent at least 90 percent of their total income, and

c) that provide evidence that their tax domicile, branch, agency or any other kind of establishment has been located within the Region at least during the 18 months prior to the filing of the application, or if such duration is less, that prove that they use "new" fixed assets in their operations and activities within the Region, and have sufficient economic, asset and facilities capacity

2. Taxpayers starting their activities in the Region that provide evidence of the fact that they will use "new" fixed assets to carry on their activities within the Region, estimate an annual income in such Region representing at least 90 percent of their total income, and have sufficient economic, asset and facilities' capacity.

Additionally, the eligible persons shall have their electronic signatures registered with the Mexican Revenue Service (SAT), access to their SAT-provided mail box and collaborate on a six-month basis with the SAT with real-time verification programs.

The taxpayers will be deemed registered in the Registry after being notified about SAT's favorable resolution, which will be issued in approximately one month and which must be renewed each year.

The SAT may issue certain additional miscellaneous regulations in connection with the aforementioned.

Among others, the following will not be eligible for the incentive:

  • credit institutions
  • suppliers of professional services
  • taxpayers who conduct activities through fideicomisos (i.e., Mexican trusts)
  • taxpayers, for their income from intangible assets or electronic commerce activities
  • taxpayers to whom omitted contributions have been determined
  • whoever outsources personnel
  • those who calculate their net taxable income under the Maquiladora regime

A tax credit equivalent to one-third of the income tax payable in the fiscal year or in the corresponding monthly payments, against the income tax payable in the same fiscal year or in the monthly payments made in such year, in the proportion that represents the Region's total revenues from taxpayers' total income in the fiscal year or the period corresponding to the monthly payments.

Value-Added Tax

1. Individuals and legal entities that meet the following requirements:

a) sell property, provide independent services or grant the temporary use or enjoyment of property from their premises or facilities located within the Region

b) conduct the actual delivery of property or provision of services within the Region

c) properly and duly file before the SAT notice regarding the application of the incentive before Jan. 31, 2019

d) meet certain requirements that the SAT may issue through miscellaneous regulations

2. Taxpayers that start their activities after Jan. 1, 2019, and file the notice of application of the incentive jointly with the registration in the Federal Taxpayers' Registry.

Among others, the following will not be eligible for the incentive:

  • sellers of real estate or intangible assets
  • suppliers of digital contents such as audio or video by means of the temporary download of electronic files
  • those with a final tax liability determined by the SAT
  • those who meet the presumption set out in Article 69-B of the Federal Tax Code

A credit equivalent to 50 percent directly applied upon the 16 percent VAT rate. Consequently, an 8 percent rate, instead of 16 percent, shall be applied to the value of the acts or activities set forth in the "Eligible Persons" section above.

Years Covered

The Decree will remain in force during 2019 and 2020.