On June 5, 2023, the “Decree to promote the investment of taxpayers engaged in economically productive activities within the Development Poles for the Welfare of the Tehuantepec Isthmus” (the “Decree”) was published in the Official Gazette of the Federation (per its acronym in Spanish “DOF”).
The purpose of the Decree is to establish tax benefits for companies performing economically productive activities within the Development Poles for Welfare (the “Poles”), which consists of polygons in the Tehuantepec Isthmus, implementing incentives to attract investment for the economic and social development of the region.
To understand the scope of the Decree and its effects, it is necessary to point out that it is related to one of the main projects of the current Administration, starting with the creation of the Interoceanic Corridor of the Tehuantepec Isthmus (per its acronym in Spanish “CIIT“) according to a decree published in the Official Gazette of the Federation on June 14, 2019. The CIIT was created with the purpose to implement the Tehuantepec Isthmus Development Project (the “Isthmus Project“).
The Isthmus Project pretends the zone to be a global logistic platform, focused on manufacturing and transfer of merchandise between the Pacific and Atlantic oceans, seeking an economic and cultural development of the region, by using railway, port, airport, and roadway infrastructure, developed in the same region with the main objective for worldwide commerce, mainly with Asian countries.
In general terms, the purpose of the Decree is to encourage the investment and incorporation of companies engaged in productive economic activities within the Pole. Such productive activities include the electrical and electronic industry, semiconductors, automotive, auto parts and transportation equipment, medical devices, pharmaceutical, agricultural industry, distribution of electric energy, machinery and equipment, IT, metals and petrochemicals, as well as any additional industries that could be determined by the CIIT’s Board of Directors.
To encourage investment, several benefits are implemented for taxpayers, which are explained below:
A.- Income Tax
Regarding income tax (per its acronym in Spanish “ISR“), the tax benefit will be granted to individuals and legal entities, residents in Mexico, and foreign residents with a permanent establishment in the country, performing productive economic activities. This benefit consists of a tax credit that can be credited against the amount of ISR owed, determined in the corresponding fiscal year, meaning that the percentage of the granted credit will directly reduce the ISR payable by each taxpayer.
- During the first three (3) years the tax credit will be equivalent to a hundred percent (100%) of the corresponding ISR, starting from the fiscal year in which the taxpayers obtained the certification as proof of compliance with the requirements that will eventually be specified by the Secretary of Finance and Public Credit (per its acronym in Spanish “SHCP“).
- After the first three (3) years and for the following three (3) fiscal years the tax credit will be equivalent to fifty percent (50%) of the ISR, or up to ninety percent (90%) if minimum employment levels are exceeded. These employment levels will be determined by the SHCP.
- Article Seven of the Decree states that taxpayers benefiting from this incentive may immediately fully deduct the original amount invested in new fixed assets used within the Poles to perform their productive economic activities, instead of applying the maximum percentages authorized by the Income Tax Law.
New assets are considered as those used for the first time in Mexico, and the immediate deduction can be applied in the fiscal year in which the taxpayer started using them or, alternatively, in the following fiscal year.
It is worth mentioning that the decree establishes a series of guidelines applicable in case the assets are transferred in any way to a third party.
- If the amount of deductions exceeds the income, the difference will be considered a tax loss and can only be offset against the tax profit derived from the productive economic activities performed in the Poles. If taxpayers have income from several sources, they must separately determine the ISR for those incomes according to the provisions of the Income Tax Law, without being able to apply the tax benefit contained in the Decree.
Finally, the Decree states that if taxpayers are applying the mentioned tax benefits, the following cannot be simultaneously applied:
- Provisions applicable to maquiladora companies.
- Optional regime for groups of companies.
- Provisions applicable to trusts dedicated to acquiring or constructing real estate.
- Tax incentives for national film and theater production and distribution, research, and technology development, as well as high-performance sports.
B.- Value-Added Tax
Regarding the value-added tax (“VAT“), the Decree establishes a tax incentive that will be granted for four (4) years, starting from the effective applicable date of the Decree to taxpayers engaged in productive economic activities, selling goods, providing independent services, and granting the temporary use or enjoyment of goods to individuals engaged in productive economic activities within the Poles where they are located or in a different Pole.
The tax incentive consists of:
- Application of a tax credit equivalent to one hundred percent (100%) of the VAT payable for the sale of goods, provision of services, or granting of temporary use or exploitation of goods. This credit can be offset against the VAT payable for the mentioned activities.
This fiscal benefit will only be applicable if no amount of VAT is passed on to the acquirer of the goods or services and as long as the goods, services, or temporary use or exploitation of goods are used and utilized by the acquirers in productive economic activities within the Poles.
The Tax Administration Service will issue general rules that establish control over the transportation, entry, and transfer of the goods and operations mentioned. Failing to comply with these provisions will result in the payment of VAT regarding specific acts or activities.
If taxpayers do not apply this incentive in the corresponding monthly tax return, in the month in which they performed the aforementioned activities, they will lose the right to apply it for any other month.
To apply for ISR and VAT incentives, the following requirements must be met:
- Be up to date with tax obligations.
- Have a valid concession title or be the owner of a property within the Poles.
- Submit, if applicable, the investment project for which the concession title referred to in the previous fraction was granted.
- Have their tax address within the Pole where they carry out their economic productive activities.
All the above must be fulfilled per the guidelines that will be issued by the SHCP for this purpose.
The Decree also states that taxpayers must show progress with their Project, meeting the minimum employment levels determined by the SHCP, in accordance with the provisions of the Project and the economic activity being performed.
The SHCP will issue a certificate as proof of compliance with the requirements or, alternatively, a resolution of non-compliance, based on the opinion issued by the General Director of the CIIT. In this regard, the SHCP will publish on its website and update every six (6) months, in January and July of each year, the list of taxpayers engaged in economically productive activities within the Poles who were granted a certificate.
If any of the mentioned requirements are no longer met, the tax benefits and administrative facilities established in the Decree will cease to apply from the moment of non-compliance.
The full text of the Decree can be consulted through the following link: https://www.dof.gob.mx/nota_detalle.php?codigo=5691049&fecha=05/06/2023#gsc.tab=0
Rafael Tena C. rtena@acsan.mx
Luis Shahid Kanchi G. lkanchi@acsan.mx
