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13 June 2023

Mexico offers tax incentives to taxpayers who perform productive economic activities in the States of Oaxaca and Veracruz

On 5 June 2023, a Presidential Decree (the Decree) was published in Mexico's Federal Official Gazette granting tax benefits to taxpayers who are domiciled, and carry out productive economic activities, within specific locations in the Isthmus of Tehuantepec designated by the Government as a "Welfare Development Corridor." 1 The Decree entered into force the following day.

The tax benefits granted in the Decree are as follows:

  • A tax credit equal to 100% of the income tax derived from the performance of productive economic activities within the approved Welfare Development Corridor, applicable during the first three fiscal years and 50% during the three subsequent fiscal years (this can be increased to 90%, if minimum employment levels, as defined based on the specific investment project, are exceeded)
  • Accelerated depreciation of 100% of the investments, during the first six years, in qualified new fixed assets used for the performance of productive economic activities; this benefit does not apply for office furniture and equipment, automobiles, and other non-individually identifiable assets
  • A tax credit equivalent to 100% of the value-added tax (VAT) to be paid for the qualified sale of goods, rendering of services or granting of the temporary use or enjoyment of goods within the Welfare Development Corridor; this benefit is granted for a four-year period

These tax benefits are available to taxpayers involved in performing productive economic activities in the following industries: (i) electricity and electronics, (ii) semiconductors, (iii) automotive (electromobility), (iii) auto parts and transportation equipment, (v) medical devices, (vi) pharmaceutical, (vii) agroindustry, (viii) electric power generation and distribution equipment (clean energy), (ix) machinery and equipment, (x) information and communication technologies, and (xi) metals and petrochemicals, among others.

To benefit from these tax incentives, a taxpayer must obtain a certificate issued by the Ministry of Ministry of Finance and Public Credit certifying compliance with certain requirements and submit documentation to support the investment project. Regulations for the application of these benefits should be issued by the Mexican tax authorities within 90 days. Note that taxpayers under the maquila regime, or those benefiting from other income tax incentives such as research and development and sporting activity, may not apply the tax incentives under this Decree.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young, LLP (United States), Latin America Business Center, New York

Ernst & Young LLP (United States), Latin America Business Center, Chicago

Ernst & Young LLP (United States), Latin America Business Center, Miami

Ernst & Young, LLP (United States), Latin America Business Center, San Diego

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

Ernst & Young Tax Co., Latin America Tax Desk, Japan & Asia Pacific

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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ENDNOTE

1 The Isthmus of Tehuantepec is a strategic region located between the States of Oaxaca and Veracruz in a corridor between the Pacific and Atlantic oceans. To date, the towns of Coatzacoalcos (Veracruz), Salina Cruz (Oaxaca), San Blas Atempa (Oaxaca), San Juan Evangelista (Veracruz) and Texistepec (Veracruz) are considered as a Welfare Development Corridor.

Document ID: 2023-1053

 

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