On October 11, 2023, the "DECREE granting tax incentives to key sectors of the export industry, consisting of the immediate deduction of investment in new fixed assets and an additional deduction for training expenses" was published in the Official Gazette of the Federation. The decree offers certain taxpayers the option to apply the provided incentives if they estimate that, in the fiscal years of 2023 and 2024, their income derived from the export of specific goods will represent at least 50% of their total income per fiscal year.
Beneficiary Taxpayers and Considered Goods
The Decree designates the following as beneficiaries of the tax incentives: (i) legal entities subject to the Simplified Trust Regime and (ii) individuals engaged in business and professional activities under the Income Tax Law, provided that they are engaged in the production, manufacturing, or industrial fabrication and export any of the following goods:
- Human and animal consumption food.
- Fertilizers and agrochemicals.
- Preparations and raw materials for the pharmaceutical industry.
- Electronic components, such as blank or preloaded cards, circuits, capacitors, resistors, connectors, semiconductors, coils, transformers, harnesses, and modems for computers and phones.
- Machinery for watches, measuring, control, and navigation instruments, and electronic medical equipment for medical use.
- Batteries, accumulators, electrical conductors, plugs, contacts, fuses, and accessories for electrical installations.
- Gasoline, hybrid, and alternative fuel engines for cars, vans, and trucks.
- 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.
- Internal combustion engines, turbines, and transmissions for aircraft.
- Non-electronic equipment, disposable material, and optical articles for medical use.
- Cinematographic or audiovisual works with copyright-protected content.
Nature of the Tax Incentive
Firstly, the Decree provides the option of an immediate deduction for the investment in new fixed assets acquired from October 12, 2023, until December 31, 2024. This deduction is to be made in the fiscal year of the investment at a specified percentage (depending on the type of asset) ranging from 56% to 89% of the original investment amount, replacing the percentages provided in the Income Tax Law under Articles 34, 35, and 209.
A specific requirement for benefiting from this deduction is to utilize the fixed assets for a minimum period of two years and maintain a record of the investments on which the taxpayer decided to apply the immediate deduction. This record should include supporting documentation demonstrating (i) the asset's connection to the activity in which it was used and (ii) the corresponding percentage data for deduction purposes, the applicable deduction year, and the date of sale, material loss, or utility of the asset.
The Decree also includes an additional incentive involving a deduction of 25% of the increase in the expenses incurred by taxpayers in 2023, 2024, and 2025 on employee training during those fiscal years. This increase is calculated as the difference between the expenses in the relevant fiscal year and the average of those expenses from 2020 to 2022.
Taxpayers seeking to benefit from this incentive must ensure that the "training" is related to technical or scientific knowledge relevant to their business activities and will only be considered for deduction purposes if provided to employees registered in the Mexican Institute of Social Security (IMSS). A specific record of the training should be maintained to justify this requirement.
To apply the incentives provided by the Decree, taxpayers must (i) be registered with the RFC and have a tax mailbox, (ii) possess a positive compliance opinion regarding tax obligations, (iii) not fall under any of the scenarios outlined in Articles 69, 69-B, and 69-B Bis of the Federal Fiscal Code, directly or through any shareholder, (iv) not be subject to a procedure for restricting the use of digital seal certificates or have had certificates canceled, and (v) submit a notice expressing the intention to apply the Decree's incentives within the following 30 calendar days of first applying these incentives.
Failure to meet the specific or general requirements outlined in the Decree will naturally require the taxpayer to pay the tax, penalties, interest, and will result in the nullification of the tax incentives.
In general, the Decree provides tax benefits to companies aiming to optimize their operations through a "nearshoring" strategy and to those already based in Mexico, belonging to critical sectors in the export industry. This fosters competition and investment in strategic sectors, contributing to the country's economic growth and strengthening Mexico's position on the international stage.
Link to the full text of the decree click here
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