On December 31, 2018, a Decree regarding tax stimuli for the Northern Border Region was published on the Federal Official Gazette; this decree becomes applicable on January 1, 2019 and it is estimated to be for a term of 2019 and 2020.
The purpose of these benefits is to improve competitiveness of the states located on the northern border region of the country facing the market of the United States of America, as well as retain the consumer and reactivate the Mexican economy and therefore contribute to tax collection.
Benefits shall only be applicable to individuals and artificial companies residing in Mexico and residents abroad with a permanent establishment in the country; receiving income exclusively from the northern border region and executing the sale of goods, rendering of services or granting the use or enjoyment thereof at locations or establishments located on aforesaid region.
Said benefits consist on the following:
- Regarding Income Tax (ISR): a tax credit equal to a third of the income tax generated to be applied against Income Tax for the fiscal year or interim payments in proportion the income from the Northern Border Region represents from the total income for taxpayers during the fiscal year.
- Value Added Tax (VAT): a credit equal to 50% of the general tax rate, for simplification purposes, a reduced rate of 8% shall be applied to the value of these acts or activities.
The northern border zone this decree refers to includes the following states and municipalities:
- Baja California: Ensenada, Playas de Rosario, Tijuana and Mexicali.
- Sonora: San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco and Agua Prieta.
- Chihuahua: Janos, Ascensión, Juárez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga and Manuel Benavides.
- Coahuila de Zaragoza: Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero and Hidalgo.
- Nuevo León: Anáhuac.
- Tamaulipas: Nuevo Laredo, Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso and Matamoros.
Taxpayers are informed that when the stimulus is not applied when there is a tax payable, the right to apply the amount of said stimulus will be forfeited, even in subsequent interim payments and the tax return for the fiscal year.
There shall be no benefits when taxpayers carry out or benefit from the transaction tax authorities consider assumed or non-existing, without taxpayers being able to accredit them, as well as those taxpayers who are under the assumptions for the transfer of tax losses in an undue manner.
In addition, for the purpose of the income tax benefit, the benefits of this stimulus shall not be applied to taxpayers with the following activities or tax regime: groups of companies, coordinates, trust, tax incorporation regime, contract manufacturing companies, credit institutions, insurance and bond companies, general deposit warehouses, companies offering labor outsourcing and digital commerce, among others.
Recently, on January 7, 2019, tax authorities have published a draft for a Project of rules that are applicable to this benefit on their official website, which complement existing rules on the decree, and as a summary, they include the following:
Requirements for the application of the Income Tax stimulus:
- Request authorization before SAT no later than March 31, 2019; and request renewal thereof every year on the date the tax return for the fiscal year is to be filed.
- Income at this northern region represent at least 90% of its total income for the immediately previous year and no income derived from intangible assets shall be included, as well as those derived from electronic commerce;
- Accredit time at its tax address, branch office or establishment for 18 years prior to the registration application;
- Companies with a less period of time or of new creation may enjoy this benefit if they prove economic capacity, assets and facilities to execute their transactions at said region, as well as show new assets are being used, among other requirements.
- Have a current advanced electronic signature and a positive opinion regarding compliance with tax obligations.
- Have an active tax mailbox.
- Collaborate on a semi-annual basis with the verification in real time with authorities through a specific proceeding; in addition the authority may carry out validations in real time, whether at the domicile, branch office or establishment of the taxpayers or at SAT’s offices, which shall be informed through the tax mailbox and the taxpayer shall inform as to its consent or rejection.
SAT will rule as to the application for registration on the beneficiaries’ register no later than the following month, case contrary it shall be understood that it was rejected; in addition SAT may require from taxpayers, within a term of 5 days, the additional information and documentation granting a term of 5 days to respond, otherwise the proceeding will be deemed abandoned.
Requirements for the application of the VAT stimulus:
- Carry out the material delivery of the goods or rendering of services on the Northern Border Region.
- File the notice to apply for the tax stimulus no later than February 7, 2019, with a term starting to run on January 1, 2019;
- For the issuance of a CFDI with a reduced VAT rate, the option “VAT Credit applied at 50%” (“IVA Crédito aplicado del 50%”) shall be selected, to fill the attribute “RateFee” “TasaoCuota” on the CFDI, the issuance of these CFDI may be deferred for the period from January 1st through April 30, 2019, provided all CFDIs are issued on May 1, 2019.
Please contact us if you have any question or need any clarification in connection with this.