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International Businesses, Tax & Assurance Guidance

Mexico’s Proposed New Tax Reform

Posted on December 5, 2018 by

Carlos Calderon

Carlos Calderon

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As of December 1, 2018, Mexico will have officially elected President Andres Manuel Lopez Obrador. His campaign was focused on topics such as security, education and culture, fight against corruption, compliance with the law, and correct execution of economic resources, to name the most relevant.

On his commitment to managing economic resources, a new tax reform is expected to take place during the first half of his six-year term, once the new government is consolidated. The proposed tax policy includes these main economic measures:

  • Decrease of Value Added Tax (VAT) at the border, from 16% to 8%
    The proposal of 8% is applicable in the region of northern Mexico related to the activities and material delivery of goods or services made by residents of the region. The 8% value added tax is applicable when goods and services are temporarily rendered in the border region.
  • Decrease of the Federal Income Tax (FIT) for companies at the border region from 30% to 20%
    The income of Mexican residents, no matter the source, will decrease from the actual rate of 30% down to 20%. This proposal pretends to create a better business environment in the Northern region of Mexico to make this region more competitive.
  • Decrease of the Federal Income Tax from 30% to 24% to companies certified as sustainable or ecological
    This aspect of the proposal applies to companies certified as sustainable or ecological and who grant annual salary increases to all employees, equivalent to increase in productivity. The benefits from this proposal are to improve competitiveness in Mexico in relation with the tax reform in the USA, and to improve environmental competitiveness.
  • Discounts rates and 0% rates on Special Economic Zones
    There are five states within the national territory of Mexico designated as special zones: Lazaro Cardenas-La Union (Michoacan, Guerrero); Coatzacoalcos, Veracruz; Salinas Cruz, Oaxaca; Puerto de Chiapas, Chiapas. These zones will be subject to the following:

    • 100% discount on FIT for the first 10 years
    • 50% discount on FIT in the next 5 years
    • 0% rate on VAT tax on purchasing articles on national territory
    • 25% additional from deductible expense to those who train employees within a special economic zone applicable against income within the zone
    • Tax credit against FIT caused from the 50% of the employer contribution during the 10 first years and 25% during the subsequent 5 years

Clayton & McKervey expects additional changes to the above proposed tax reform as the new president takes office and works with his cabinet. Contact us with questions related to doing business in Mexico.

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Carlos Calderon

International Accounting & Tax Consultant – Mexico

Fluent in Spanish and dedicated to client growth, Carlos helps businesses expand to Mexico from the U.S. and abroad.

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