With the objective of making the northern border cities more competitive, the Mexican Government has pushed a series of measures to encourage business activity in 43 municipalities. These tax incentives went into effect in the earlier part of 2019. The Mexican government has implemented these tax incentives to attract both domestic and international investments.
On December 31, 2018, the “Decree on Tax Incentives for the Northern Border Regions” was published in Mexico. This has significant effect on the tax filings of companies based in this region. The tax credit is equivalent to one-third of the income tax incurred in a fiscal year and effectively reduces the tax rate to 8%. According to a 2017 study prepared by the International Institute for Strategic Studies, Mexico ranked second behind Syria on the list of “deadly conflict zones,” concentrated in the northern part of the country. Over time, this led to a loss of dynamism in economic activity. As a result, the Federal Government established various mechanisms to strengthen the economy stimulate investment, boost productivity, and aid in the creation of new sources of employment.
In effect companies and individuals in a previously economically stagnant region of the country are now able to benefit from various reduced tax rates and incentives, so that they can allocate more resources to invest and continue to stimulate the growth in the local economy .
It is important that taxpayers in Mexico and abroad with permanent residence in the country comply with the specifications required by the Federal Government. Non complying taxpayers are not eligible to benefit from the aforementioned income tax incentive. The minimum requisites for eligibility are as follows:
- 90% of total revenue must be income earned exclusively in the northern border region.
- Cannot benefit from enjoy any other fiscal stimulus.
- Fiscal residence must be in the northern border region, for at least the last eighteen months from the date of the application for registration.
- Must be under the following tax regimes: General Regime (Title II LISR), companies who opted for accumulation of income (Title VII, Chapter VIII LISR) and Natural persons with business and professional activity (Title IV, Chapter II, section I LISR). Have electronic signature and positive compliance with tax obligations.
- Startups will need to verify that they have economic capacity, and comply with the previous points. They must notify tax authorities within one month of registration.
- Apply for registration with the Tax Administration Service (SAT) in the recipients’ list of the stimulus, before the deadline of the 31st of March of the financial year concerned.
It is necessary to wait for the authority’s response which typically takes no more than one month after the date of the reception of the application. At any time the taxpayer may choose to no longer benefit from the tax inventive once approved by the authority.
Northern border area
The following municipalities are considered part of the northern border region:
Ensenada, Playas de Rosarito, Tijuana, Tecate y Mexicali del estado de Baja California; San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco y Agua Prieta del estado de Sonora; Janos, Ascensión, Juárez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga y Manuel Benavides del estado de Chihuahua; Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero e Hidalgo del estado de Coahuila de Zaragoza; Anáhuac del estado de Nuevo León, y Nuevo Laredo; Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso y Matamoros del estado de Tamaulipas.
The decree also outlines specific circumstances where the tax incentive is not applicable. For example:
- Taxpayers who have engaged in willful conduct to evade compliance with tax obligations..
- Taxpayers who are specifically listed in in the penultimate paragraph of article 69 of the Federation Tax Code and whose name, or company name and key in the federal taxpayer registry, are contained in the publication of the Tax Administration Service website.
- Taxpayers engaged in business through trusts.
- Taxpayers who supply staff through occupational outsourcing or consider the right intermediaries under the Federal Labour Act.
- Taxpayers who apply other tax treatments that grant tax benefits or stimulus, including exemptions or subsidies.
- The real estate and intangibles and digital content sales.
Advantageous tax conditions can be important for a company when choosing where to establish residency a country. Having an expert tax advisor in the country is fundamental.
 Official Journal of the Federation Published December 31, 2018