"Decree Tax Incentive in Northern Border Region"

(The  "Decree")

Last December 31, 2018, a DECREE was published in the Federal Official Gazette regarding Tax Incentives in the Northern Border Region; it is important to mention that the transitional provisions provide that de Decree will enter into force as of January 1, 2019 and will be in force throughout 2019 and 2020.

 

The Decree considers the following:

 

1. Northern Border Region definition:

Municipalities of Ensenada, Playas de Rosarito, Tijuana, Tecate and Mexicali Baja California State; San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco and Agua Prieta of Sonora State; Janos, Ascensión, Juárez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga and Manuel Benavides of Chihuahua State; Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero and Hidalgo of Coahuila de Zaragoza State; Anáhuac of  Nuevo León State, and Nuevo Laredo; Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso and Matamoros of Tamaulipas State.

 

2. To whom the Incentive on the Income Tax Law (“LISR”) is directed to?

To the Mexican and foreign Taxpayers who have their permanent establishment in Mexico and receive their income exclusively in the Northern Border Region under any of the following regimens:

 

  • Legal Entities subject to the General Regime (II Title of the LISR).

  • Individuals with Professional and Entrepreneurial Activity (Title IV Chapter II section I of the LISR).

  • Legal Entities who opted for income accumulations (Title VII, Chapter VIII of the LISR).

 

3. What is the Tax Incentive to the Income Tax about?

To apply a tax credit equal to the third part of the Income Tax caused in the fiscal year or in the provisional payments, against the Income Tax caused in the same fiscal year or in the provisional payments of the same fiscal years, as corresponds.

 

The above shall be applied in the proportion that represent the total income of the aforementioned Northern Border Region, of the total of the income of the Taxpayer obtained in the fiscal year or in the period corresponding to the provisional payments.

 

The aforementioned proportion will be calculated dividing the total income obtained by the Taxpayer in the Northern Border Region during the concerned period, between the total of income obtained during the same period; the ratio will multiply by one hundred and the result shall be expressed in percentage.

 

In order to calculate the total income, the income derived from the intangible goods shall be excluded as well as the corresponding to the e-commerce.

 

 

 

4. Which are the requirements to be met in order to benefit from the Income Tax Incentive?

 

  • That, at least 90% of the total income of the preceding fiscal year, is obtained in the Northern Border Region.

 

 

  • Register in the “Northern Border Region Incentive Beneficiary Registry” (“”).

 

  • Submit evidence of domicile, branch, agency or any other commercial establishment in the Northern Border Region for at least the last 18 months as of the date of registration before the PBERFN; and

 

  • Not benefit from another tax incentive.

 

  • Have FIEL (Electronic Signature) and a positive opinion of the compliance of the tax obligations (Article 7, section II of the Decree).

 

  • Have access to the Tax Mailbox ).

 

  • Collaborate every six months with the Tax Authorities (“”), participating in the Verification in Real Time Program of this non-concentrated administrative agency.

 

  • Submit the request before the PBERFN before March 31, 2019.

 

5. ¿Which Taxpayers are not subject to benefit from the Income Tax Incentive?

  • Those who pay taxes in the Title II, Chapter IV of the Income Tax Law, regarding the credit institutions, the insurance and bonds companies of the bonded warehouses, financial leasing companies, and credit unions.

 

  • Those who pay taxes in the optional Regime for groups of Companies.

 

  • The coordinated taxpayers.

  • Those in the agricultural, livestock, silvicultural, and fishing activities regime (Article 7, section IV of the Decree).

 

  • Tax Incorporation Regime.

  • The taxpayers whose income come from the provision of professional services in terms of the section II of the article 100 of the LISR (Income for the provision of professional service, the wages derived from an independent personal service and whose income is not set forth in the Chapter I of the Title IV of the LISR).
     

  • The taxpayers that determine its tax profit based on the articles 181 and 182 of the LISR (those who work in the maquila industry with certain legal characteristics).

 

  • Those who perform activities through Trusts.

 

  • The cooperative companies of production.

 

  • Those in any of cases set forth in the articles 69, 69-B and 69-B Bis of the Federal Tax Code (Companies with inexistent activities).

 

  • The income derived from the intangible goods.

 

  • The income derived from digital commerce activities, except for those set forth by the SAT.

 

  • Taxpayers providing personnel through labor subcontracting or considered intermediaries in the terms of the Federal Labor Law (Ley Federal del Trabajo (“LFT”)).

 

  • Taxpayers to whom verification attributions have been exercised (Article 42 to 70 of the Federal Tax Code (Tax Verification Attributions Authorities)).

 

  • Taxpayers that apply others tax treatments to grant benefits or tax incentives, including exemptions or subsidies.

 

  • Those in exercise of liquidation.

 

  • Legal entities whose partners or shareholders lose individually the legal authorization to pursue the Tax Incentives.

 

  • State’s Productive Companies and its corresponding productive subsidiaries.

 

  • Contractors in accordance with the Hydrocarbons Law.

 

 

6. Grounds for revocation of the Income Tax Incentives:

  • Not submitting the renewal authorization request, at the latest in the date of submission of the tax returns of the preceding fiscal year to which the renewal request is ask for.

 

  • Stop complying with the Decree’s requirements and the general rules issued by SAT.

 

  • Taxpayers who stop implementing the Tax Incentives due to revocation or having requested to SAT, in no case shall implement them again.

 

 

7. What benefit is obtained in matters of the Value-Added Tax (“VAT” ()?

  • To benefit from a TAX Incentive equal to 50% of the VAT rate.

 

 

8. Activities that benefits from Tax Incentives of 50% in terms of VAT.

  • Disposal of tangible goods.

 

  • Provision of independent services.

 

  • Granting of temporary use or benefit of assets, in the venues or establishments located in the North border Region.

 

9. Obligations in order to benefit from the VAT’s Tax Incentives.

  • Comply with the requirements that the Tax Authorities set forth through Miscellaneous Tax Resolution ().

 

  • Make the material delivery of goods or the provision of service in the North border Region.

 

  • Submit in a timely manner the Tax Incentives’ notice.

 

  • Submit the registration notice by the PBERFN at the time of registration of Federal Taxpayer Registry ().

 

10. How is applied the Tax Incentives in the case of VAT?

For the application of the Tax Incentives of the VAT, the tax credit shall be directly applied upon the 50% VAT rate, and the resulting diminished rate from applying the Tax Incentives shall be applied upon the acts and activities value (Article 10, second paragraph of the Decree).

 

We remain at your service in our address:

Rio Duero 31 Col. Cuauhtemoc, A.i.c. Cuauhtémoc,

C.P. 06500, Mexico City.

Main line: +52 55 5242.0771

Contact: Marcela Trujillo,

Managing Partner.

marcela.trujillo@rva.com.mx,