As had been expected, the government’s economic package contains several tax proposals for consideration by Mexico’s Congress in coming weeks, including proposals to:
- Repeal the IETU (the single rate business tax)
- Repeal the IDE (the tax on cash deposits)
- Eliminate certain special tax regimes and deductions
Corporate tax rate, new tax on dividends
Among the corporate income tax proposals are measures that would:
- Impose a corporate income tax rate of 30%
- Repeal the current phase-down of the corporate income tax rate (i.e., 29% scheduled for 2014 and 28% for 2015 and later years)
- Impose an additional corporate income tax of 10% on profits and dividends paid to Mexican individuals and foreign residents
Foreign tax credit proposals
Several adjustments are being proposed to Mexico’s foreign tax credit regime. Some of the proposed changes would affect the foreign tax credit regime to reflect the newly proposed additional 10% tax on dividends.
The current tax consolidation regime would be repealed, with a five-year period for payment of any deferred tax provided. In its place, a new tax consolidated regime for entity grouping would allow groups to defer income tax for up to three years (considering, for these purposes, only the profits and losses of the entities that comprise the group).
Maquiladoras and IMMEX
The legislation proposes stricter requirements for entities seeking access to full Maquila regime benefits (e.g., transfer pricing relief, no permanent establishment, etc.). For instance, it has been proposed that the Maquila regime would only be applicable for entities that derive 90% or more of their income from exports.
Repeal of real estate property company incentives
The tax incentive regime currently available for real estate property companies (known by the Spanish acronym SIBRAS) would be repealed, reportedly to address tax base erosion concerns. Under the proposal, taxpayers that have applied for this incentive regime would be required to pay tax on any deferred capital gain no later than December 2016.
Proposals to limit deductions
- Payments made to related parties (residents either in Mexico or abroad) for which the income is not taxable or, if taxable, is subject to an effective tax rate of less than 75% of the tax that would have been paid in Mexico, would not be deductible.
- It has been proposed to repeal provisions allowing immediate and/or accelerated depreciation of investments.
- Construction and real estate companies would no longer be allowed to deduct estimated expenses of ongoing construction projects, and would be limited in the deduction of land costs at the time of acquisition.
- Banks currently can deduct increases made to their overall loss reserve, if not greater than 2.5% of the annual average of the portfolio. Similarly, insurance companies currently can deduct the amount of their risk reserves. Under the proposed legislation, effective from 2014, banks and insurance companies would no longer be able to deduct amounts made to reserves, but only deduct amounts of authorized write-offs.
The proposals would repeal the current 11% rate of value added tax (VAT), as applicable for the border region (the border between Mexico and the United States), and would impose the general VAT rate of 16%.
Another proposal would repeal the VAT exemptions currently available with respect to the temporary importation of goods, sales by foreign residents to maquiladoras, and goods kept in strategic bonded storage facilities—a change that would affect the maquiladora industry and would require tax to be paid up front, without the possibility of deferral.
Special tax on production and services
The legislation would impose a tax of MX $1 per liter for flavoring drinks, concentrates, powders, syrups, essences or flavor extracts, containing any type of added sugars.
Concerning the taxation of alcoholic beverages, it is proposed to make permanent the tax rates currently in effect, thus effectively eliminating a planned gradual rate reduction as planned under existing law provisions.
New taxes would be imposed, under an “ecological purpose” regime, to the import and sale of fossil fuels.
In the case of pesticides, the sale would be taxed at rates that range from 6% to 9%, depending on the level of toxicity.
Federal tax code
The legislation would provide an anti-abuse clause, allowing the tax authorities to challenge the tax effects of transactions that are seen as having no business purpose or reasons.
Read more information about the proposals in a September 2013 report (English) [PDF 84 KB] (or Spanish) prepared by KPMG tax professionals.
For more information, contact a tax professional with KPMG’s Mexico tax center:
Jose Manuel Ramírez
+1 212 872 6541