The advent of the United States-Mexico-Canada Agreement (USMCA), along with recent disruptions in global supply chains, has once again created opportunities to move businesses and manufacturing operations closer to the US, also known as proximity of union.
The Mexican government, through its Department of the Treasury, published an executive order to encourage investment in Mexico due to the proximity phenomenon through tax incentives for export-oriented industries.
The United States Trade Representative (USTR) has acknowledged that total US-Mexico trade in goods and services will exceed $864 billion in 2022, an all-time high. In 2023 (through July), Mexico has become the US’s largest total merchandise trade partner.
The executive order provides benefits to companies seeking to optimize their operations through outreach strategies and to those companies currently located in Mexico that belong to sectors identified as crucial in the export industry.
Main benefits
Accelerated depreciation
A tax incentive consisting of an accelerated depreciation of certain assets is granted to companies under the general legal regime or taxpayers under the simplified trust regime and individuals with business activities (hereinafter Beneficiary Taxpayers), when they are engaged in exporting, production, processing. or industrial production of the following goods:
- products intended for food for humans and animals
- fertilizers and agrochemicals
- raw materials for the pharmaceutical industry
- electronic components such as plain or loaded cards, circuits, capacitors, capacitors, resistors, connectors and semiconductors, coils, transformers, harnesses and modems for computers and telephones
- clockwork, measuring, control and navigation instruments and electronic medical equipment for medical use
- batteries, accumulators, electrical cables, contacts, fuses and accessories for electrical installations
- gasoline, hybrid and alternative fuel engines
- electrical and electronic equipment, steering systems, suspension, brakes, transmission systems, seats, interior accessories and stamped metal parts for certain vehicles
- internal combustion engines, turbines and transmissions for aircraft
- non-electronic medical, dental and laboratory equipment and supplies, medical disposables and optical articles for ophthalmic use
The incentive consists of the ability to make a larger immediate investment deduction on “new” fixed assets acquired on the effective date of the decree and until December 31, 2024. For purposes of the decree, new assets are considered as they are used for the first time in Mexico.
Some of the maximum allowable depreciation percentages by type of asset are as follows:
- 86 percent for certain transport powered by rechargeable electric batteries, electric motor or hydrogen engine
- 86 percent for airplanes used for agricultural aerial spraying
- 88 percent for desktop and laptop PCs, servers, printers, barcode scanners, digitizers, external storage drives, and computer network centers
- 89 percent for dies, grains, molds and tools
- 89 percent for machinery and equipment intended directly for new product research or technology development in the country
- 56 percent for machinery and equipment used in the production of pharmaceutical drugs, antiseptic products for pharmaceutical use and other substances, tablets and injectable actives
- 56 percent for machinery and equipment used in the manufacture of electron microscopes, electronic medical equipment, laboratory instruments and equipment, laboratory analysis, test and testing equipment and diagnostic and radiotherapy equipment
- 72 percent for machinery and equipment used in the manufacture of chemical products or in the manufacture of materials used in the manufacture and testing and packaging of electronic and semiconductor components
- 76 percent for machinery and equipment used in the manufacture of machinery and equipment used in the design, fabrication and production of electronic and semiconductor components in categories such as deposition, thermal processing, oxidation and diffusion, lithography, photoresist processing, cleaning and removal of materials, among others, for the production process of the electronic and semiconductor components industry
- 76 percent for machinery and equipment used in the design, manufacture and fabrication of electronic components such as simple or loaded cards, circuits, capacitors, capacitors, resistors, connectors and semiconductors, coils, transformers, modems for computers, and telephones and harnesses
- 80 percent for machinery and equipment used in the construction and assembly of sets in forums and locations for recording and photography
- 80 percent for machinery and equipment used in investment in visual effects and audio and video post-production equipment and equipment, as well as equipment for the production of costumes for props and special equipment for stage setting
- 83 percent for machinery and equipment used in the manufacture, assembly and transformation of magnetic components for hard drives and electronic cards, power supplies/adapters, batteries and liquid crystal displays for the computer industry
- 83 percent for machinery and equipment used in investment in recording equipment in any form, and professional lighting equipment for recording and photography
- 86 percent for machinery and equipment used in the manufacture, assembly and transformation of certain transport batteries, as long as they are electric
- 86 percent for machinery and equipment used in the production of certain transport powered by rechargeable electric batteries, or electric motors that also have an electric combustion engine or a hydrogen engine
- 86 percent for machinery and equipment used in the production of gasoline, hybrid and alternative fuel engines for certain vehicles
- 86 percent for machinery and equipment used in the manufacture of electrical and electronic equipment, steering, suspension and braking systems, transmission systems, seats and interior accessories and stamped metal parts for certain transport
- 88 percent for machinery and equipment used in the manufacture of certain products intended for human and animal consumption, boilers and water tanks
Based on this accelerated discount, the profit rate to be used in 2024 and 2025 and the interim payments will be modified. The aforementioned amount of the immediate deduction must be reduced in equal parts in the interim payments of the relevant fiscal year, which will begin in the month of making the investment.
When assets are transferred, lost or cease to be useful, a deduction may be made for the amount resulting from the application to the original investment amount minus the period between the month in which the asset was purchased and the last month of the first month. half of the period in which the deduction is made. The resulting percentages according to the number of years that have passed since the discount was made and the percentage of the immediate discount is applied to the asset in question, according to certain schemes established in the decree that depend on the percentage of depreciation.
training
Likewise, Beneficiary Taxpayers may apply on the annual tax return for fiscal years 2023, 2024 and 2025, a tax incentive consisting of an additional deduction equivalent to 25 percent of the increase in expenses incurred for the training received by each of the employees of them in the corresponding fiscal year. For these purposes, the increase shall be the positive difference between the expenditure incurred for training in the relevant fiscal year and the average expenditure incurred by the taxpayer for the same concept in fiscal years 2020, 2021 and 2022.
The training will provide technical or scientific knowledge related to the taxpayer’s activity.
Access to Benefit
Certain taxpayers, such as those listed on the tax authority’s “blacklist”, who have linked tax credits or who have limited digital stamps, among others, may not be Beneficiary Taxpayers.
Beneficiary taxpayers who decide to apply this benefit must notify the Tax Administration Service (Service tax administration or SAT) where they declare that they choose to apply it during the 30 calendar days immediately following the month in which they apply for the first time the aforementioned incentives.
Likewise, taxpayers must keep specific records of the investments for which they choose to apply the immediate deduction. These records should include supporting documentation, describe the type of asset, its relevance to their business or core activity, the specific use of the asset, the applicable discount percentage, the year in which the discount is applied and the date of sale, loss . due to unforeseen circumstances or when the asset ceases to be useful.
Final notes
The concrete circumstances of each taxpayer must be analyzed to determine the possibility of each taxpayer to qualify as a Benefited Taxpayer or if it would be possible to consider different legal actions to apply for such benefits. Please contact the authors for more information.
Holland & Knight Associates Cinthia Yohaina Hernández and Mariana Salinas, as well as Senior Policy Advisor Maite Laris, also contributed to this alert.
The information contained in this alert is for the education and general knowledge of our readers. It is not intended to be and should not be used as the sole source of information when analyzing and resolving a legal problem and should not be substituted for legal advice, which relies on a specific factual analysis. Additionally, the laws of each jurisdiction are different and constantly changing. This information is not intended to create, and its receipt does not constitute, an attorney-client relationship. If you have specific questions about a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.
