Tax reform in Mexico and the December 26, 2013 presidential decree
In addition to the tax reform legislation passed in the autumn of 2013, additional provisions were established via a decree issued on December 26 by Mexican President Enrique Peña Nieto to offer additional benefits for the IMMEX industry through tax reform in Mexico. Its provisions went into effect on January 1 of the present calendar year.
The primary purpose for the presidential pronouncement was to foster continued international competitiveness for the maquiladora industry. It was also intended to clarify various issues with the new income tax law.
Tax reform in Mexico established new requirements through an income tax provision that established that a foreign resident receiving the services of a maquiladora must own at least 30% of the equipment used in production operations in order for that entity to qualify as a maquiladora for income tax and permanent establishment purposes. Additionally, companies were required to receive 100% of their revenues from maquiladora export operations in order to qualify for treatment as such. It further allowed employers to deduct up to 47% of the payments made to employees that are not taxable to employees.
These new requirements and standards were somewhat revised and clarified with Decree of December 26, however. The presidential pronouncement gives a two-year period for the foreign resident ownership clause to be implemented for companies that were operating as maquiladoras prior to December 31, 2009, effectively grandfathering them. It further allows for companies to qualify as maquiladoras, even if they receive revenues from other operations, provided that they clearly delineate these activities, keep revenues in separate accounts, and clearly inform the government about how the ratios were determined. Taking these actions will enable authorities to determine the correct amount of exempt salaries and benefits that should be exclusively allocated to the maquiladora activity. Additionally, under the decree related to broader tax reform in Mexico, maquiladoras will be allowed an additional deduction of 47% of the payments made to employees that are not taxable to the employees, so long as they are involved in maquiladora operations.
Additionally, legislated related to tax reform in Mexico mandated that Value Added Tax (VAT) be withheld from non-residents by IMMEX companies (or by Automotive Industry companies) based on the acquisition of temporarily imported goods. But Peña Nieto’s December 26th decree allows maquiladoras (and automotive Industry companies) to credit the withheld VAT within the same month of the VAT withholding, instead of doing so in the month after that in which the withheld VAT is paid to the tax authority.
Lastly, the presidential decree of late December 2013 repealed the income tax benefit granted under the Fox Decree of October 30, 2003 that provided a tax reduction for maquiladoras. When the tax reform in Mexico was enacted, many were unsure if it superseded the 2003 decree. The recent presidential decree of last year clarified that question by specifically eliminating the ability to reduce income tax for these amounts.