Tax Flash Note | Decree of fiscal incentives to key export sectors of the export industry

On October 11, 2023, the decree granting tax incentives to key sectors of the export industry was published in the Official Gazette of the Federation (DOF, by its acronym in Spanish ) consisting of the immediate deduction of investment in new fixed assets and the additional deduction for training expenses, which will enter into effect the day after its publication.

The Executive points out that it is feasible for companies to consider relocating part of their production to destinations close to the markets with which they operate, a strategy known as nearshoring; a situation that places Mexico in a favorable condition to be considered as an attractive destination for foreign direct investment. Therefore, it states that it is pertinent to grant tax benefits to companies that seek to optimize their operations through the nearshoring strategy and to those companies that are currently located in Mexico, which belong to sectors identified as key in the export industry, since this allows them to be in similar conditions and encourages competition and investment in strategic sectors.

The taxpayers who will be able to apply these tax incentives are the legal entities of the general regime and the simplified regime of trust, as well as the individuals who pay taxes in the regime of income from business and professional activities, as long as they are engaged in the production, elaboration, or industrial manufacturing of the goods indicated below, and also export them:

1. Products intended for human and animal consumption
2. Fertilizers and agrochemicals
3. Raw materials for the pharmaceutical industry and pharmaceutical preparations
4. Electronic components, such as single or charged boards, circuits, capacitors, capacitors, resistors, connectors and semiconductors, coils, transformers, harnesses, and modems for computer and telephone
5. Machinery for watches, measuring, control and navigation instruments, and electronic medical equipment, for medical use
6. Batteries, accumulators, batteries, electrical conduction cables, plugs, contacts, fuses and accessories for electrical installations
7. Gasoline, hybrid and alternative fuel engines for cars, vans and trucks
8. Electrical and electronic equipment, steering systems, suspension, brakes, transmission systems, seats, interior accessories and die-cut metal parts, for cars, vans, trucks, trains, ships and aircraft
9. Internal combustion engines, turbines and transmissions, for aircraft
10. Non-electronic equipment and apparatus for medical, dental and laboratory use, disposable material for medical use and optical articles for ophthalmic use

Similarly, it will be applicable to those engaged in the production of cinematographic or audiovisual works, whose content is protected by copyright under the terms of the applicable regulations, provided that these works are exported.

Additionally, taxpayers who intend to apply tax incentives must meet the following requirements:

1. Be registered in the Federal Taxpayers Registry (RFC, by its acronym in Spanish) and have enabled the tax mailbox, as well as register valid means of contact
   
2. Have a positive opinion of compliance with tax obligations
3. Submit a notice stating that they opt for the application of fiscal incentives, during the thirty calendar days immediately following the month in which they apply them for the first time. It is important to note that the notices must be submitted in a timely manner in order to apply the fiscal incentives

The fiscal incentives contemplated by the decree are:

Immediate deduction on new fixed assets

The incentive consists of choosing to make the immediate deduction of the investment in new fixed assets, acquired from October 12, 2023 until December 31, 2024, deducting in the year in which the investment is made, the amount that results from applying to the Original Investment Amount (MOI, by its acronym in Spanish), the percentages established in the decree, which range from 59% to 89%, depending on the type of good or according to the key activity in which they are used, instead of applying the rates established in the Income Tax Law (LISR, by its acronym in Spanish).

It will only be applicable with respect to those investments that taxpayers keep in use for a minimum period of two years immediately following the year in which their immediate deduction is made, except in the case of losses of property due to unforeseeable circumstances or force majeure.

It does not apply in the case of office furniture and equipment, automobiles powered by internal combustion engines, automobile armoring equipment and aircraft other than those engaged in agricultural aerofumigation. or any fixed asset not individually identifiable.

New goods are those that are used for the first time in Mexico.

Taxpayers may choose to apply the fiscal stimulus when they estimate that, during fiscal years 2023 and 2024, the amount of income from exports of goods or works will represent at least 50% of their total turnover in each year. In case the estimate is not met, they must cover the tax, the update and the corresponding surcharges, and the fiscal stimulus must be left without effect.

Those who apply the stimulus, to determine the profit coefficient for provisional payments of Income Tax (ISR, by its acronym in Spanish) for 2024 or 2025, must add the fiscal profit or reduce the tax loss of the year 2023 or 2024, as the case may be, with the amount of the immediate deduction.

The amount of the immediate deduction made in the same year may be reduced from the tax profit determined for provisional payments. It must be reduced by equal parts in the provisional payments corresponding to the fiscal year, from the month in which the investment is made, cumulatively.

Taxpayers must keep a specific record of the investments for which they chose to apply the immediate deduction, containing the supporting documentation, describing the type of good in question, the relationship with its line of business or main activity, the specific process or activity in which the good was used,  the percentage that for purposes of the deduction corresponded to him, the year in which the deduction was applied and the date on which the good is alienated, is lost by fortuitous event or force majeure or ceases to be useful.

The original amount of the investment to which the immediate deduction percentage will be applied may be adjusted with inflation from the month in which the good was acquired until the last month of the first half of the period that elapses since the investment was made and until the end of the year.

In case of alienation of the goods, the total income received by the same, will be considered profit obtained.

On the other hand, when the goods are disposed of, lost or no longer useful, a deduction may be made for the amount resulting from applying to the adjusted MOI the percentages that result according to the number of years elapsed since the deduction was made and the percentage of immediate deduction applied, according to the tables shown in the decree.

Additional deduction of training expenses

The fiscal stimulus consists of an additional deduction equivalent to 25% of the increase in expenditure spent on training received by each of its workers in the year in question. It may be applied in the annual declaration of fiscal years 2023, 2024 and 2025.

The increase shall be the positive difference between the expenditure disbursed for training in the period in question and the average expenditure for the same concept in fiscal years 2020, 2021 and 2022, averaging even when no expenditure for training has been disbursed in those years.

The training will be that which provides technical or scientific knowledge related to the activity of the taxpayer.

The additional deduction will only be applicable with respect to training provided to its active workers registered with the Mexican Institute of Social Security (IMSS, by its acronym in Spanish).

If the additional deduction is not applied in the year in which the expenditure is made, the right to do so in subsequent years will be lost.

Taxpayers must make a specific record of the training granted to workers and indicate the supporting documentation, as well as describe what such training consisted of and the relationship it has with any of the activities for which the decree can be applied.

The incentives will not be cumulative for the purposes of the LISR and may not be applied by taxpayers who:

1. They are located in any of the cases established in article 69, penultimate paragraph, of the Tax Code of the Federation and whose name, denomination or corporate name and code in the RFC are contained in the publication of the website of the Tax Administration Service (SAT)
2. They do not rebut the presumption of non-existence of the transactions covered by their tax receipts and, therefore, they are definitively in that situation. Nor will it be applicable to taxpayers who have a partner or shareholder who is in the same case, as well as for taxpayers who have carried out operations with taxpayers that do not rebut the presumption of non-existence of the operations covered by their tax receipts, and have not accredited to the tax authorities that they actually acquired the goods or received the services covered by the corresponding digital tax receipts
3. The presumption of making the improper transfer of the right to reduce tax losses has been applied to them, once it has been published in the DOF and on the SAT website
4. Have firm tax credits, or that being enforceable, are not guaranteed or that the guarantee is insufficient
5. Do not comply with any of the requirements established in the Decree, including specific investment and training records
6. They are in liquidation exercise
7. They are in the procedure of temporary restriction of the use of digital stamps for the issuance of Digital Tax Receipts over the Internet (CFDI)
8. Have canceled the certificates issued by the SAT for the issuance of CFDI

Taxpayers who have applied the tax incentives and fail to comply with the established requirements, must cover the tax, the update and the corresponding surcharges, and must cancel the tax incentives.

The SAT may issue rules of a general nature necessary for the proper and correct application of the decree.

As always, the staff of  KPMG's Tax and Legal practice in  Mexico is at your service to analyze in detail the effects that the application of these provisions may have on your company.