On December 31st, 2018, a Decree of fiscal stimuli for the Northern Border Region of Mexico was published in Official Federal Register (OFR), which enters into force on January 1st, 2019 and will be in effect during 2019 and 2020.
The aforementioned Decree forms part of the integral strategy of the Mexican government and establishes fiscal benefits consisting in a reduction of both the rate of Value Added Tax (VAT) as well as the Income Tax (IT) to companies and individuals with business activity, with the aim of promoting the generation of greater resources for investment, generating jobs and increasing the competitiveness of the Mexico´s northern border region.
The aforementioned fiscal incentives will be applied both to individuals and companies resident in Mexico and to residents abroad with permanent establishment in Mexico, who generate and receive income in the northern border region from business activities and which consist of the following reductions:
I. Income Tax (IT): tax credit equivalent to one third of the income tax (20%) caused in the fiscal year or in the provisional payments, which will be credited against the income tax caused in the same fiscal year in the provisional payments of the same fiscal year, as applicable;
II. Value Added Tax (VAT): credit equivalent to 50% of the rate to the value added tax, to those acts or activities of alienation of goods, rendering of independent services or granting the use or temporary enjoyment of goods, in the premises or establishments located within the northern border region.
In order to have access to the aforementioned tax benefits, the Decree establishes the following requirements that must be fulfilled by the interested individuals and companies:
o Proof of having a tax address, agency or establishment in the border region, with a minimum validity of 18 months, on the date of its application for registration in the “Register of beneficiaries of the stimulus for the northern border region.”
o In the case of new companies, they must verify that they have the economic capacity, new assets and facilities to carry out their activities and business operations in the northern border area, as well as estimate that their total income for the year in that region will represent the less 90% of total income for the year.
o Not having already granted a prior fiscal stimulus within the northern border region.
o Receive income generated in the northern border region and that they represent at least 90% of their total income in the immediately preceding fiscal year.
o Request the authority and be accepted, its registration in the “Register of beneficiaries of the stimulus for the northern border region.”
o Have an advanced electronic signature.
o Access to the Tax Box.
Once the registration request has been received, the authority has a period of 30 days to answer to it and, if favourable, make the registration in the “Register of beneficiaries of the stimulus for the northern border region. ”
The authorization issued by the authority with respect to the registration in the aforementioned list, will have an annual validity and this will have to be renewed by the interested parties once they accredit the fulfilment of the requirements, having as limit to present the request the term that is established for the presentation of the annual tax return for the immediately preceding tax year (March 31 of each fiscal year).
In relation to the fiscal stimulus related to the value added tax, the authority makes the following precisions:
Taxpayers may apply the stimulus provided they make the material delivery of the goods or the provision of services in the northern border region.
It is not applicable to VAT paid on imports of goods and services, since importers can recover the tax burden paid on importation through the mechanism of crediting the tax paid.
Nor is it applicable to the alienation of real estate as well as to the alienation of intangible assets or the supply of digital goods, such as audio and video.
Similarly, it is not applicable to taxpayers who have engaged in fraudulent behaviour to evade compliance with tax obligations.
Finally, it is established that the authority will issue General Rules for the correct application of this Decree, which we will inform you once they are published.
TMC Legal® professionals, we are at your disposal to support you with the interpretation and compliance with the aforementioned provisions.
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