Mexico: Mexican tax reform proposal approved by the Mexican Congress

December 01 2013


David Cuellar		José Antonio González

As mentioned in the last month report, on September 8 2013 the executive branch of the Mexican government submitted to the Mexican House of Representatives the original tax reform package. The latter approved the package on October 17 2013, and finally on October 31 2013 the Mexican Congress approved the 2014 Mexican tax reform package. The new tax provisions will enter into force from January 2014, after its publication in the Mexican Official Gazette. Some of the most important amendments of the Mexican tax laws may be described as follows:

A new Mexican Income Tax Law will be enacted, so the current 2002 Income Tax Law will be repealed.
Flat Tax Law (IETU) and the Tax on Cash Deposits Law were repealed.
The corporate income tax rate will remain at 30%. However, top tax rate applicable to individuals will be increased from 30% to 35%. This is also the withholding tax rate applicable to some payments abroad.
10% income tax withholding is imposed on dividends distributed to resident individuals or foreign residents regarding profits generated as from 2014. Note that reduced withholding tax rates may apply through the application of tax treaties.
For treaty application, the Mexican tax authorities have the ability to request a foreign related party to provide a sworn statement, issued by its legal representative, stating that the item of income for which a treaty benefit would be claimed is subject to double taxation.
Specific limitation rules apply on the deductibility of technical assistance, interest and royalties, when those are paid to a foreign entity that controls or is controlled by the Mexican entity and certain conditions are met.
Deductions for tax-exempt salaries and benefits will be limited to 53% of such amounts, except when the employer reduces the employees' benefit package. In this last case, the deduction will be limited to 47%.
The option to depreciate certain assets on an accelerated basis was eliminated.
The existing tax consolidation regime is repealed. Taxpayers may elect to apply for a new tax consolidation regime that would allow a three-year income tax deferral period.
Several changes apply to the "Maquiladora" tax regime such as the definition of "Maquiladora operation". Now, revenues associated with productive activities must now be derived solely from Maquiladora activities. Also, the effective income tax rate on maquila profits will increase to 30%. Other transfer pricing and VAT changes are applicable for Maquiladoras.
Regarding VAT, the rate in the border zone will increase from 11% to 16%. The proposed VAT on mortgage interest, sales or leases of dwellings and tuition has been eliminated from the bill.
VAT Law will tax the alienation of goods located in Mexico, between a foreign resident and a "Maquiladora", at the regular 16% rate.
The filing of the statutory tax audit report (dictamen fiscal) will now be optional for specific taxpayers. Instead the taxpayers are obliged to provide certain information requested by the Mexican tax authorities.