New tax incentives for key sectors of the export industry

On October 11, 2023, the Ministry of Finance published a decree in the Federal Official Gazette implementing new federal tax incentives derived from the nearshoring strategy, targeted to specific export industries in Mexico (the “Decree”). The incentives consist of a) an immediate percentage deduction of investments made in new fixed assets acquired from October 12, 2023, to December 31, 2024; and b) an extra percentage deduction for training expenses, as detailed below.

The Decree Is aimed at companies and individuals engaged in the production, processing, or industrial manufacturing of the products mentioned below, provided they are also exported (the “Eligible Taxpayers”):

1. Products for human and animal
2. Fertilizers and
3. Raw materials for the pharmaceutical industry and pharmaceutical
4. Electronic components such as simple or loaded cards, circuits, capacitors, condensers, resistors, connectors and semiconductors, coils, transformers, harnesses and modems for computers and phones.
5. Machinery for clocks, measuring instruments, control and navigation devices, and electronic medical equipment for medical use.
6. Batteries, accumulators, electricity conduct cables, plugs, contacts, fuses, and accessories for electrical installations.
7. Gasoline, hybrid, and alternative fuel engines for cars, vans, and
8. Electrical and electronic equipment, steering systems, suspension, brakes, transmission systems, seats, interior accessories, and stamped metal parts for cars, vans, trucks, trains, ships and aircraft.
9. Internal combustion engines, turbines, and transmissions for
10. Non-electronic equipment and devices for medical, dental, and laboratory use, disposable medical materials and optical products for ophthalmic use.

In addition, the incentives apply to Eligible Taxpayers dedicated to the production of cinematographic or audiovisual works protected by copyright under the terms of the applicable regulations, provided that these works are exported.

a) Immediate deduction

This incentive allows the Eligible Taxpayers to choose an immediate deduction of the investment made on new fixed assets by deducting the amount that results from applying the deductible percentage, as established in the Decree, to the original amount of the investment. The percentages established in the Decree range from 59% to 89%, depending on the type of product of the key export activity, rather than the rates established in the Income Tax Law.

The Eligible Taxpayers can choose to apply this tax incentive when they estimate that during a fiscal year, be it 2023 and/or 2024, the amount of income sourced from the export of the products will represent at least 50% of their total earnings for each year. If this expectation is not fulfilled then the Eligible Taxpayer will lose the tax benefit and they will need to pay the regular tax, actualizations, and related fees, and the tax benefit will not be applicable.

This tax incentive is only applicable to the assets that are used for a minimum of two years following the year in which the deduction is made, except if those assets are lost due to force majeure or acts of God, in terms of article 37 of the Income Tax Law.

This tax incentive is not applicable to office assets and equipment, automobiles powered by internal combustion engines, vehicle armoring equipment or fixed assets that are not individually identifiable, as well as aircrafts other than those used for agricultural aerial spraying.

The Eligible Taxpayers shall keep record of the investments for which the tax incentive was applied, including the supporting documentation evidencing the investments, the description of the assets, the relationship between the assets and the business, the process or specific activity in which the asset was used, the deduction percentage, the fiscal year in which the deduction was applied and the date on which the assets will be transferred, lost by force majeure or acts of God or otherwise ceases to be useful.

b) Tax Incentive for Trainings

This tax incentive consists of an additional deduction on the annual tax return for fiscal years 2023, 2024 and 2025 equivalent to 25% of the increase in employee training expenses of the Eligible Taxpayers, provided that such training provides employees with technical and/or scientific knowledge related to the business of the Eligible Taxpayer and that the employees are registered with the Social Security Institute in Mexico.

Eligible Taxpayers must keep records of the trainings, including supporting documentation to evidence the training and its description, as well as the relation between the Trainor and the business of the Eligible Taxpayer.

Important Considerations

Eligible Taxpayers who intend to apply for the tax incentives set forth in the Decree, within the 30 (thirty) calendar days following the month in which the incentives should apply for the first time, have to register in the taxpayers registry (“RFC” for its initials in Spanish), ensure their tax mailbox is enabled, file the favorable tax opinion issued by the tax authority, and submit the corresponding notice stating that they choose to apply the tax incentives, among other compliance requirements with tax regulations.

Finally, the Decree establishes that those taxpayers who, among other cases, fall into one of the cases referred to in article 69 of the Federal Tax Code, or who have operations with listed taxpayers, have uncontestable tax credits or tax credits that are not duly guaranteed, are in the liquidation process, have had their digital seals temporarily restricted or canceled, or do not have investment or training records, cannot apply for these tax incentives.

We at Sánchez Vebber, S.C. are at your service to answer any questions or provide any assistance related to the Decree.

For further detail, you can consult the Decree in Spanish at: https://www.dof.gob.mx/nota_detalle.php?codigo=5704676&fecha=11/10/2023#gsc.tab=0