Mexico: tax reform package for 2014 – approved

November 12, 2013

On 31 October 2013, a tax reform package, including all the modifications made by the Senate, was approved by the Chamber of Deputies.

The main provisions are summarized below and will be applicable as from                    1 January 2014.

Income tax

  • A new Income Tax Law has been enacted
  • The corporate tax rate will remain at 30%
  • The foreign tax credit computation procedure will be modified
  • Interest, technical assistance and royalties payments made to non-resident related parties will be non-deductible in certain cases
  • A 10% withholding tax will be introduced on dividends paid by Mexican companies to resident individuals and non-residents in general. The withholding tax will only be applicable to profits generated as from 2014
  • Accelerated tax depreciation for investments will be abolished
  • The group taxation regime will be repealed. Transitory provisions include the procedure to pay the tax deferred during the period of consolidation
  • An optional group taxation regime will be introduced. It will allow deferral of tax during a three-year period
  • 47% (53% under certain conditions) of the exempt compensation amount paid to employees will be deductible for employers
  • The procedure to calculate the employees’ profit sharing will be modified
  • A new “incorporation regime” will replace the simplified regime and that of the small taxpayers. Individuals who carry out business activities, alienation of goods or provision of services that do not require an academic degree may opt to pay the tax under this regime, provided that the annual income of the previous year does not exceed MXN2 million
  • Capital gains derived from the alienation of shares listed on the Mexican stock exchange (currently exempt) will be subject to a 10% tax rate
  • The maximum tax rate for individuals will be increased from 30% to 35%
  • Personal deductions will be allowed for up to four annual minimum salaries or 10% of the total income (including exempt income) of the individual, whichever is lower
  • The maquila regime will be modified. It will only apply to entities that derive all their income from maquila activities and to the extent that certain requirements are met
  • The real estate investment entities regime will be abolished
  • Some modifications will be introduced to the real estate investment trust regime
  • The withholding tax applicable to Mexican-source income obtained by non-residents will be increased from 30% to 35%
  • The 4.9% withholding tax will be applicable on interest paid to non-resident banks, provided that the bank is the beneficial owner of the interest and it is resident in a country with which Mexico has a tax treaty in force

Value added tax

  • The reduced rate applicable in the “border zone” will be increased from 11% to 16%
  • Chewing gum and pet food will be subject to the general rate of 16%
  • The exemption applicable to transactions carried out by entities with an IMMEX program will be abolished. Nevertheless, these entities may request a certification to credit 100% of the tax paid
  • Temporary import related to maquila transactions or any other export program will be subject to tax

Excise duties

  • Fossil fuels and pesticides will be subject to tax
  • Soft drinks will be taxed (MXN 1 per litre)
  • High caloric food will be subject to an 8% tax rate

Other taxes

The business flat rate tax and the tax on cash deposits will be repealed.

Other measures

The tax audit report will remain an option for corporations and individuals that carry out business activities if any of the following conditions were met in the previous year:

  • The taxable gross income was higher than MXN100 million
  • The amount of assets was higher than MXN79 million
  • The number of employees was at least 300

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