Tecma University

Back to blog page

Tax incentives in Tijuana that are available to manufacturers and other businesses

Tax incentives in Tijuana that are available to manufacturers and other businesses

The Tecma Group speaks with Mexican attorney, Rafael Solorzano, about tax incentives available through the City of  Tijuana for manufacturers and other business operators.

Tecma Group of Companies:

Hello and welcome to another installation of Tecma Talk podcasts that we do for informational purposes on subjects that have to do, directly, with manufacturing in Mexico, as well as things that affect doing so. Today we are fortunate to have Rafael Solorzano with us. He is an attorney and business developer from Baja California. Today we are going to talk a bit about tax incentives in Tijuana that are available to manufacturers and other businesses.

Rafael, how are you?

Rafael Solorazano:

I am fine. Thank you for having me.

Tecma Group of Companies:

It’s a pleasure. As you know, the Tecma Group of Companies has recently started up operations in Tijuana and Baja California. Since we are operating in a relatively new geography, we thought it would be appropriate to inform listeners to our podcasts tax incentives and Tijuana, as well as other incentives that may be offered to businesses in the area. Before getting to the topic itself, tell us a little bit about yourself.

Rafael Solorzano:

My name, as you know, is Rafael Solorzano. I am a corporate attorney and a business developer. I have thirty-two years of experience. Over the past three years, however, I had the privilege of working for the City of Tijuana with the secretary of economic development. I was appointed to be the director of promotion for economic development. From December 1, 2010 until the end of

November 2013. I was in charge of developing and proposing economic policies to increase the competitivity of the City of Tijuana. Among the challenges that we faced was the development of policies to increase Tijuana’s economic competitivity. An achievement, in this regard, occurred on April 17, 2012, was the implementation of a defined program of tax incentives in Tijuana that are now available to manufacturers and other businesses.

Tecma Group of Companies:

That’s interesting, because we are going to talk about that in-depth. I was about to ask you if tax incentives in Tijuana were available. Essentially, in your introduction and the introduction that you provided about yourself, the answer to that question is, it seems, would be “yes.” Would that be correct?

Rafael Solorzano:

It is.

Tecma Group of Companies:

Can you tell us a little bit about the types of tax incentives in Tijuana that you worked on, and are getting implemented today, I would imagine?

Rafael Solorzano:

When I proposed the incentive program to the Tijuana City Council, I proposed the set of rules which are the regulations for competitivity and economic development for Tijuana. The City Council approved them on April 17, 2012. They were published in the State Official Gazette, thereby making them binding. As of that date, I have worked on twenty-two different requests by companies to receive tax incentives in Tijuana. Those incentives consist of tax and duty subsidies, which are normally paid by people in business.

Tecma Group of Companies:

Can you be a little bit more specific about that, please?

Rafael Solorzano:

Yes. Tijuana’s regulations for competitivity specify that companies which own the property on which they operate, or which demonstrate the intent to buy land and operate a business, be it manufacturing, commerce or services, they may apply for tax subsidies, incentives or relief through the City. What does a company, or an employer pay to the City? They pay taxes. For instance,  if you buy a property, you must pay two percent of the transaction value of that property to the City as a “land acquisition tax.” Two percent may not seem to be a lot of money, but if you are dealing with a transaction in which a company invests eleven million dollars in the purchase of a piece of land, you are liable to pay three hundred and twenty thousand dollars in taxes in land acquisition tax. One of the subsidies is land acquistion tax, and the other has to do with property taxes, and, lastly, the  groups or individuals that are seeking tax incentives in Tijuana can save on the payment of duties on public services and on licenses.

Tecma Group of Companies:

It seems in most instances, in areas that have developed similar policies, that businesses that are applying for those considerations and concessions are required to meet a certain set of criteria and conditions. What are the conditions that must be met to be awarded tax incentives in Tijuana?

Rafael Solorzano:

Fortunately, for the applicant, those conditions are outlined in the regulations. The City of Tijuana cannot change them arbitrarily. The conditions are:

  • Businesses use applications that are provided by the city;
  • Parties seeking tax incentives in Tijuana submit a letter citing their intention to do so, as well as the reasons that they believe they should be granted;
  • Companies seeking incentives must be job creators. The City needs and wants jobs.

On the last point, it is interesting to highlight that the City of Tijuana is not keenly interested in only the number of jobs, but also the quality of the jobs that are created. What I am saying is that the City’s focus is on attracting and retaining high-tech jobs. Yes, it’s interesting to have a combination of a good number of jobs and a good quality of jobs that require certain talents and skills.

Tecma Group of Companies:

Looking at the economy of Tijuana specifically, and in a broader sense, Baja California, when you speak about “high-tech” there certainly is a somewhat pronounced presence of high tech jobs and businesses in the aerospace industry and the medical device industry in Tijuana, in particular. Is that correct?

Rafael Solorzano:

It is. Yes.

Tecma Group of Companies:

So you see the well-defined, non-arbitrary and transparent tax incentives in Tijuana that have been put into place as a tool.  Will they successfully fulfill their purpose in attracting jobs? Because you have worked on twenty-two projects in which these incentives have been requested, so you’ve seen them work in action?

Rafael Solorzano:

Yes. The regulations specify that you have options to pursue to qualify for tax incentives in Tijuana in a points-based system. Companies that qualify need to do so with a minimum of fifteen points. For example, if you are setting up a new company for which you will be hiring fifty employees, there is a format that gives you a certain number of points. For instance, one to ten jobs will earn you two points. The more jobs created, the more points earned. An example of other means to increase the point score is to put training partnerships into place. The City of Tijuana is very interested in this. Companies that participate in the training of employees for jobs in aerospace, medical device manufacturing, electronics, wood-related production, automotive and auto parts and other areas will receive greater point counts. Often, the problems that students have is that, although they have graduated with a degree, they lack the experience necessary to step into a job. Those students that take part in an educational partnership have the opportunity to be trained in companies that may later retain them for employment. Even if they do not receive employment after training, they will be able to evidence that they do have some experience. That’s another plus. Companies receive points towards receiving tax incentives in Tijuana based upon the number of trainees that they have in their partnerships and programs.

Tecma Group of Companies:

Have you seen a willingness on the part of companies to pursue that particular condition? It is great thing to tie education directly to industry. Is this something that you have seen companies pursue?

Rafael Solarzano:

Yes. In most of the twenty-two cases that I have been involved in with companies requesting tax incentives in Tijuana, most of the firms already had the kind of partnerships in place that we are talking about. They did, however, widen them to include more students. We did not have to urge them to pursue this. They already are aware of the advantage of training to the students and to

the community. Not only are they getting people trained with the right skill sets, but also they are getting people who display the willingness to train in and master their craft, as well. To me that has been the broader benefit of the regulations to provide opportunities for both industry and trainees, as well.

Tecma Group of Companies

How long are tax incentives in Tijuana for manufacturers and other business kept in place? Do they last for a five year or a ten year period, for example?

Rafael Solorzano:

Yes, the benefits range from one to five years in duration. Regulations specify that they will be in place for a minimum of one year to a maximum of five. Of the twenty-two cases with which I have experience, a company was granted a one year benefit of fifty percent on property taxes and duties, specifically for public services and the renewal of licenses. In ninety to ninety-five percent of the cases of companies that requested tax incentives in Tijuana, they received a fifty percent savings on duties and property tax for a three year period. In a couple of cases, investors were granted three years of tax incentives in Tijuana, with an option to expand them to five. This offer to expand was contingent upon creating a specific number of jobs, sourcing inputs from local suppliers and compliance with local environmental controls.

Tecma Group of Companies:

Just to reiterate, a company can be awarded these particular incentives by the City of Tijuana during a one to five year window. Is that correct?

Rafael Solorzano:

Yes, it is.

Tecma Group of Companies:

We have talked about medical devices, aerospace and automotive, as well as other manufacturing activities, what other kinds of business can apply for the tax incentives in Tijuana that you have mentioned?

Rafael Solorzano:

Generically speaking, availability goes to manufacturing, commerce and services, tourism in particular. To give you an idea, of those twenty-twenty two companies that applied for incentives, sixty percent of applicants were manufacturing related projects, the others were principally construction companies that built high rises in Tijuana. These would be office buildings and hotels.

We are in the middle of a construction boom in Tijuana due to a boom in the maquiladoras, which draw people from many places in Mexico, as well as from foreign countries. It is the sentiment of many that the quality in the city is such that companies feel comfortable opening up offices in Tijuana so they do not have to waste a lot of time making the border crossing. The same is true with hotels, because Tijuana is known as a Mecca for medical tourism. It draws tens of thousands of people from the United States, Canada and other countries that come to have medical care provided and procedures performed on them. A number of companies that have sought tax incentives in Tijuana have constructed office buildings and hotels, as well. Incentives were also requested to build a couple of shopping malls. For Tijuana, these were really large investments. Tijuana is moving slowly and steadily, but it is a consequence of manufacturing having such a presence in Tijuana that is benefiting other sectors.

Tecma Group of Companies:

This has been a very informative discussion. I would venture to say that some of the listeners that have a desire or need to set up a business in Tijuana, whether it be manufacturing in the city or the other things that were mentioned in this discussion. You would be a good person for them to make contact with, given the fact that you have worked on twenty-two of these negotiations for incentives. Also, because you led the team that put together the package of incentives. Rafael if someone who is listening to this is looking at the possibility of making an investment in Tijuana, and wants to explore this subject further, how would they be able to get in contact with you to ask you for more information?

Rafael Solorzano:

Thank you for mentioning this. Yes, I would be very much pleased to field inquiries that listeners may have on the topic of tax incentives in Tijuana, or other issues dealing with investing in Mexico and manufacturing. Those who wish can send an email to my account, which is rafaelsolorzanom@gmail.com, or I can be reached on my cell phone, as well. The number is from the United States is 011-52-1-664-385-2925. I also can be contacted through my LinkedIn profile page.

Share

Join discussion in this post

Get in touch

Fill out the contact form. One of Tecma’s team of trusted professionals will contact you promptly about advantages of manufacturing in Mexico.

Get in touch

Subscribe to the Tecma News Brief

This quarterly publication will be populated with content that is useful and relevant to readers that are contemplating Mexico investments, have operations already within the Republic, as well as to other individuals that have an interest in Mexico and its manufacturing sector.