As mentioned on our last newsletter, on December 31, 2018, a Decree on tax stimuli for the Northern Border region was published on the Federal Official Gazette (Diario Oficial de la Federación); it became applicable on January 1st, 2019, and it is expected to be valid for the 2019 and 2020 fiscal years.
Let’s review the benefits established on this decree.
Income Tax (Impuesto Sobre la Renta (ISR))
A tax credit equivalent to one third of Income Tax (ISR) generated to be applied against the Income Tax in the fiscal year or in advance payments, in the proportion in which the income from the Northern Border Area represent the taxpayer’s total income in the fiscal year.
Value Added Tax (VAT)
A credit equal to 50% of the general tax rate; for simplification purposes, the reduced rate of 8% shall apply over the value of acts or activities.
In our prior newsletter, we mentioned the authority had published, by means of a preliminary draft, rules applicable to this benefit, which complement those already existing on the decree. On January 30, these rules were officially published by the authorities on the Federal Official Gazette.
The following is a summary thereof:
Requirements for applying the Income Tax stimulus
• Request authorization from SAT no later than March 31, 2019; and renew this authorization each year no later than the date when the annual tax return is to be filed.
• Revenues at this northern zone must represent at least 90% of the total income for the immediately prior fiscal year and revenues derived from intangible assets shall not be included, as well as those derived from e-commerce;
• Prove having a tax address, branch office or establishment for 18 months prior to the registration application;
• Newer or recently created companies may enjoy this benefit if they prove economic capacity, assets and facilities for performing operations at said region, as well as proving new assets are being used, among other requirements.
• Have a current advanced electronic signature and a positive opinion as to compliance with tax obligations.
• Have an active tax mailbox.
• Cooperate semi-annually with the real-time verification by authorities through a specific procedure.
SAT will resolve the application for registration in the list of beneficiaries within the following month at the latest, otherwise it will be understood that the application was rejected. Likewise, SAT may require from the taxpayers, within 5 days, information and additional documentation, granting a period of 5 days to receive a reply otherwise the procedure will be considered as abandoned.
Requirements to apply to the VAT stimulus
• Execute the material delivery of the goods or rendering of services on the Northern Border Region.
• File a notice of tax stimulus application no later than February 7, 2019, the term shall commence on January 1, 2019;
It is important to mention that regarding taxpayers beginning activities after this decree becomes applicable, they shall file the notice thereof upon registration before the RFC in order to adhere to the stimulus.
Issuance of the CFDI applying the VAT stimulus
At the beginning of 2019, through the SAT’s website, the updated catalogs were published, so those taxpayers adhered to the stimulus are able to comply with the invoicing obligation applying the VAT benefit at the northern border region at the rate of 8%. The updated lists were: “Zip Codes”, “Rates or fees”, and “Product or service codes”, in which it is possible to validate whether the taxpayer is allowed to issue invoices with the benefit of the reduced rate.
In addition, the authority published instructions for completing the CFDI with the application of this stimulus, as well as a list of frequently asked questions for consulting purposes.
For the issuance of the CFDI at a VAT reduced rate, taxpayers shall choose the option “VAT credit applied for 50%” to complete the attribute “Rate or Fee” on the CFDI, allowing these CFDI to be deferred for the period from January 1st to April 30, 2019, provided all CFDI are issued no later than May 1, 2019.
Due to the changes regarding tax stimuli on the northern border region, SAT published on its website, on February 22, 2019, a new version of form A29 to generate the Informative Return on Transactions with Third Parties (Declaración Informativa de Operaciones con Terceros (DIOT)) version 1.2.1, this enables the adaptation of the form in order to inform the authority as to the value of the acts or activities paid and the non-creditable VAT amount paid (corresponding in proportion to the authorized deductions), subject to the stimulus for the northern border region.
Returns and payments
It is important to mention that SAT’s platform is currently updated as to the Return and Payment Services (Servicio de Declaraciones y Pagos (DyP)), this update includes stimuli for the Northern Border Region.
Some aspects not covered by the stimulus
One of the aspects not covered to date, is the adaptation to “Exhibit 7” which includes the determination of VAT balance in favor for the month, this form is one of the requirements for the procedure for refund and compensation, and it currently does not include the value of the acts or activities at a rate of 8%.
Furthermore, Exhibit 24 of the Miscellaneous Tax Resolution (Electronic Accounting) has not been amended, to include VAT paid and VAT collected at a rate of 8%. At this time, said list does not have this type of grouping digits.
On February 7, 2019, which was the deadline for taxpayers to file the notice as to the application of VAT stimulus, tax authorities have indicated, on press conferences, that in the next few days, the details regarding an extension on the filing of aforesaid notice will be published on SAT’s website: the tentative date thereof will be extended until May or June 2019.
As of this date, the extension mentioned above has not been published, therefore the notice cannot be filed as the term has expired.
We will be waiting for any publication from the tax authorities in connection with this and shall share this information with you.
Please contact us if you have any question or need any clarification regarding this matter.