The October 11, 2023 Mexican Federal Official Gazette contains the “Decree granting tax incentives to key sectors of the export industry consisting of the immediate deduction of the investment in new fixed assets and the additional deduction of training expenses” (hereinafter, the “Decree”), effective as of October 12, 2023. This Decree grants tax incentives for companies that relocate part of their production to destinations close to the markets with which they operate in Mexico, e.g., for the companies’ strategy known as “nearshoring”.
The Decree grants tax incentives for fiscal years 2023 and 2024 to: (i) those companies taxed under the general corporate income tax regime provided for in the Mexican Income Tax Law, (ii) companies taxed under the simplified tax regime (régimen simplificado de confianza), and (iii) individuals engaged in business and professional activities, specifically those in certain sectors identified as “key” for the export industry:
- Human and animal food.
- Fertilizers and agrochemicals.
- Pharmaceutical industry.
- Electrical and electronics industry.
- Automotive industry.
- Medical devices.
- Film and audiovisual industry.
Regarding the film and audiovisual industry, the tax incentive shall be granted provided that the content of the film and audiovisual works is protected by copyright and such works are exported, since the purpose is to promote the dissemination of such works abroad.
This tax incentive shall not be applicable to taxpayers that:
- Are listed and considered in any of the cases provided for in Articles 69, 69-B and 69-B Bis of the Mexican Federal Tax Code and have not disproved the presumptions, as the case may be.
- Have tax assessments against them.
- Are in the process of liquidation.
- Are in the temporary restriction procedure for the use of digital stamps for the issuance of digital tax receipts (“CFDI”, due to its Spanish acronym).
- Have been cancelled the digital stamps for the issuance of CFDI.
- Do not comply with the requirements of the Decree.
The Decree provides two tax incentives for taxpayers in the “key” sectors:
- Deduction of fixed assets.
- Additional deduction for training expenses.
1.Deduction of fixed assets.
The tax incentive granted to the exporting industries mentioned above shall be applicable to the investment of new fixed assets, carried out as of October 12, 2023, and until December 31, 2024, as long as they are intended to be used in the development of such “key” activities. The Decree considers “new assets” to be those that are used for the first time in Mexico.
Therefore, an immediate deduction is allowed in the provisional income tax payments applicable to the year in which the investment is carried out, provided that such investments are maintained in use for a minimum two (2) year period. The foregoing is not applicable in the case of office furniture and equipment, automobiles propelled by internal combustion engines, automobile armoring equipment, any fixed asset that is not individually identifiable, nor in the case of airplanes other than those used for agricultural aerial spraying.
In order to qualify for this tax incentive, taxpayers should maintain a specific record of the investments for which the immediate deduction was applied, which should include the supporting evidence that proves the materiality of the transaction. Such deduction shall be considered for value added tax purposes as a fully deductible expense, provided that the requirements of the Mexican Income Tax Law are complied with.
2.Additional deduction for training expenses.
The Decree grants taxpayers an additional tax incentive comprised of a deduction of 25% (twenty-five percent) of the increase in the expenses incurred for training their employees. The increase is defined as the positive difference between the average base of the expenses incurred during fiscal years 2020, 2021, and 2022, and the expenses incurred during fiscal years 2023, 2024, and 2025.
The deduction for this tax incentive shall only be applicable for the training of active workers who are registered with the Mexican Social Security Institute and provided that the taxpayers have a specific record of the training provided, as well as the supporting evidence that proves the materiality.
Taxpayers interested in applying the corresponding income tax deductions should:
- Be registered in the Mexican Federal Taxpayers’ Registry.
- Have their tax mailbox enabled.
- Have a positive opinion of compliance with tax obligations.
- Submit a notice during the thirty (30) calendar days following the month in which the incentives are applied for the first time, stating that they opt to apply the tax incentives of the Decree.
The purpose of the Decree is to enhance Mexico’s competitive advantages in order to promote greater investment, promote competitiveness, innovation, and investment in technology and attract foreign investment.
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