Amendment Initiative to the Value Added Tax and Income Tax Acts
Amendment Initiative to the Value Added Tax and Income Tax Acts

General Background

The current legislature has published through the Parliamentary Gazette of Congress amendment initiatives regarding Value Added Tax (VAT) and Income Tax Act (ISR) proposed by several political parties.

In accordance with the grounds for aforesaid initiatives, the purpose thereof is to contribute to social, productive, commercial and industrial development, of the border regions of our country.
Due to the foregoing, below is a thorough explanation of the most relevant items regarding the content of the proposals on the tax provisions.

Income Tax Act (ISR)

    •  New Income Tax rate applicable for border regions.

An amendment is proposed to the Income Tax Act, creating a new reduced Income Tax rate of 20%, for individuals and artificial companies located at border regions.

Due to the foregoing, in the event the above is approved, there will be two different Income Tax rates in our country.

    •  Payment of exempt income to workers

There is a proposal to repeal the existing limitation to the law (53% or 47%) regarding the payment of exempt benefits made by the employer to employees, which cannot be 100% deductible.

Therefore, and through the grounds given, the objective is for mandatory and formal expenses upon the employer, which are derived from the Law, and individual contract, a collective labor agreement or custom, could be 100% deductible.

    •  Personal Deductions on Tuition

There is a proposal to add upper level education (Bachelor’s degrees) as part of personal deductions individuals are entitled to deduct from their annual tax return.

Value Added Tax (IVA)

    •  New VAT rate applicable to border regions

There is a proposal to reform Value Added Tax Act, in order to include a rate less than the rate of 16% we currently know, for those taxable activities upon residents at border regions, at a rate of 8% only for activities and services performed at the border regions.

On the other hand, and regarding importation activities, said rate shall apply provided the goods and services are sold or rendered in the same manner, at the border region.

In connection with the sale of real property at the border region, Value Added Tax shall be calculated applying the value established by this law, at a rate of 16 percent.

Border Region for Value Added Tax (IVA) and Income Tax (ISR) purposes

For the purposes of this initiatives regarding Income Tax and VAT, as of September 13, 2018, there are two proposals of border region, the first mentions the following should be deemed border region:

• The following states: Baja California, Baja California Sur and Quintana Roo, and the municipalities: Caborca and Cananea, Sonora.

•  The partial region of Sonora.

In addition, the second inititative upon this Law defines “border region” as:

•  The following states: Baja California and Baja California Sur; and

• Partial regions of the following states: Sonora, Chihuahua, Coahuila, Nuevo León and Tamaulipas.

As it may be observed, it will be important to be alert and wait for the resolutions regarding these initiatives, in order to define border regions to be taken into consideration for the purposes of these tax provisions.

In addition, we will be watching out for the next tax initiatives or changes on those already proposed that could be of interest to you.

If you need further information in this regard, please contact us and we will be glad to assist you on any concern or any other tax related issue.