December 19, 2018 Mexican Executive branch proposes economic package for 2019 If enacted, the package would limit the ability of taxpayers to offset federal taxes against each other. Taxpayers should continue to monitor the progress of this package. On December 15, 2018, the Mexican Federal Executive branch proposed to Congress the economic package for 2019, which would modify the tax rules. Notably, the package does not include a tax amnesty. Previous administrations proposed a tax amnesty program after they took office. These changes and updates are subject to the approval of Congress. A more detailed analysis will be provided once the proposals are approved. Limitations to using overpayments to offset other taxes The package would eliminate the ability to offset federal taxes, such as income tax and value-added tax (VAT), against each other and to offset tax overpayments against taxes withheld. The package would only allow taxpayers to offset debts and interest that derive from the same tax with overpayments. For VAT, when having a VAT overpayment, the taxpayer would only be allowed to credit the overpayment against the corresponding tax in the following months or to request a refund of the overpayment. If the package is enacted, this limitation may trigger adverse cash flow implications for taxpayers that recurrently have VAT overpayments but cannot offset those overpayments against other taxes (e.g., income tax). Withholding rate for banks The package would increase the withholding rate that Mexican financial institutions apply to interest payments from 0.46% to 1.04%. Law for the Prevention of Money Laundering The package includes the Law for the Prevention of Money Laundering, which would allow the Mexican tax authorities to continue working on strengthening the general rules to prevent transactions with resources of illegal origin and the financing of terrorism. Also, the package would allow taxpayers that are not up to date with their obligations for the period from July 1, 2013 through December 31, 2018, to amend their tax returns without the imposition of fines, provided they obtain an authorization from the Mexican tax authorities and comply with their filing and payment obligations for 2019. VAT and income tax reduction for the northern border region The package for 2019 does not include a tax rate reduction for border zones. The Ministry of Finance, however, stated that it expects the Executive branch to issue a decree reducing the VAT rate from 16% to 8% and the corporate income tax rate from 30% to 20% for legal entities and individuals with business activity in the northern border region of Mexico. ———————————————
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