Mexico: Tax provisions in economic package presented to Congress

Tax proposals presented to Mexico's Congress

Mexico’s Executive Branch on 8 September 2015 presented to the Mexican Congress an economic package for fiscal year 2016. In taking into consideration the “agreement for tax certainty,” there are no proposals for tax reform that would result in an increase in taxes or in the creation of new taxes. Instead, certain modifications have been proposed that would affect certain provisions of the 2014 tax reform. The Executive Branch’s economic package basically intends to establish measures to stimulate savings and investment, but also to modify the income tax law with certain amendments.

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Long-term savings instruments

To encourage savings, a proposal would repeal application of the annual personal deduction limit (an amount determined by comparing an amount equal to four minimum wages against 10% of the corresponding individual’s income) to contributions made by the individual taxpayer to certain long-term savings instruments such as personal retirement plans or certain voluntary contribution accounts.

Immediate deduction of investments

To encourage investments by small and medium size enterprises (SMEs) in the energy, infrastructure and transportation sectors, a measure proposes that for fiscal years 2016 and 2017, an immediate deduction would be available for investments made by enterprises with income up to MXN 50 million (approximately U.S. $3 million), and for certain investments in equipment that would expand the sector. To address the possible deferral of investment projects from 2015 to 2016, this measure would be available for investments made during the last four months of 2015.

This measure would not apply to vehicles, office equipment, armored cars, and airplanes (unless involved in agricultural spraying operations).

Thin capitalization exception for the electricity sector

Another proposal would remove from application of the thin capitalization rules those debts incurred with respect to investments made with respect to equipment or other infrastructure used for the generation of electricity. 

Reinvestment of earnings subject to the additional “dividends tax”

To encourage the reinvestment of earnings, a proposal would establish a tax credit for reinvested earnings generated from 1 January 2014 to 31 December 2016. The tax credit available under this measure would be determined based on the following percentages applied the distributed dividends:

  • For 2017 – 1%
  • For 2018 – 2%
  • For 2019 – 5%

Repatriation of funds from abroad

With the purpose of boosting the national savings, a proposal would establish a system for capital repatriation previously not reported in Mexico, including capital located in “tax havens.” The participants in this repatriation program would not be allowed any reduced rate of income tax with respect to the repatriated funds, but there would be deemed compliance with Mexico’s formal tax reporting requirements, and any taxes paid to the country where the funds were kept would be recognized, thereby allowing for a foreign tax credit against the amount of Mexican income tax owed.

This repatriation program would be available only during the first half of 2016 and would be subject to a condition that the taxpayers would have to be identified and that the repatriated funds would be invested for at least three years in fixed assets, with such investments made through institutions that are part of the financial system.

Social security payments, deductions limitation

A proposal would allow employers to claim deductions for certain payments of social security. The proposal would repeal the limits established by the income tax law with respect to non-unionized workers.

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