In order to promote growth along Mexico’s northern border and make it an attractive business relocation option, a Presidential Decree published on December 31, 2018 created new income tax and value-added tax (VAT) incentives for taxpayers operating in this region of Mexico. This decree is effective January 1, 2019 and applies for 2019 and 2020.
The decree provides the following tax incentives for taxpayers operating in specific municipalities along the northern border region of Mexico:
- 20 percent income tax rate
- 8 percent VAT rate
Income from intangibles and digital commerce is not eligible for the incentive. The decree also excludes lending institutions, employee leasing companies, and maquiladoras from benefits. It would appear that shelter operations remain eligible for the benefits provided by the decree.
An 8 percent VAT rate applies to taxpayers who sell products or render services within the border region. VAT paid upon the importation of product into Mexico is not eligible for this reduced VAT rate.
In order to qualify for the decree’s benefits, a taxpayer needs to:
- Generate at least 90 percent of total revenue from the northern border region during the preceding year.
- Demonstrate tax residency in the border region for the previous 18 months.
Additional information regarding this decree is expected from Mexican tax authorities in the coming weeks, including details on how these incentives will be administered.
For more information or questions related to this decree, please contact our international consulting team.
