Mexico tax reforms
By Enrique Perez Grovas and Irving Ulloa
President Lopez Obrador has an ambitious development plan that require significant financial resources; however, as committed during his campaign, no substantial tax reforms were enacted for 2019, but certain relevant changes were approved. A very general description is included bellow, so a detail analysis is recommended.
Limitation to offset overpayments
A highly controversial limitation to use recoverable balances to offset other taxes payable was included in the Federal Revenue Act approved by Congress. As of January, 2019, taxpayers would not be able to offset federal taxes, such as income tax and value added tax (VAT), against each other and to offset recoverable taxes against taxes withheld. This limitation may trigger adverse cash flow implications for taxpayers that recurrently have VAT overpayments. Administrative rules have been issued reducing the negative effect for recoverable balances generated prior to 2019.
Northern border zone incentives
A Presidential Decree with tax incentives during 2019 and 2020 for business operating in Mexico’s northern border zone was published on December, 31, 2018.
Qualified taxpayers that obtain income from activities carried exclusively in the northern border region are entitled to a credit equal to one third of the income tax due for the period, which will result in a 20% tax rate. The tax credit will also apply to monthly estimated tax payments, triggering a positive cash flow impact.
Qualified taxpayers must request enrolment in the list of beneficiaries of the northern border incentives no later than March 31, 2019. Rules to clarify the application of the income tax incentive were published by the tax authorities. Nevertheless, a case by case analysis will be necessary to confirm the applicability of the income tax credit as well as the computation methodology.
Value added tax
The Decree reduces the VAT rate on the northern border region from 16% to 8%. Incentive will be applicable for taxpayers that carry out sale of goods, rendering of independent services and grant temporary use or enjoyment of goods, within the Mexican northern border region. The incentive does not apply to real estate sales, on the provision of digital content through the download or temporary transfer of electronic data or the importation of goods.
In order to apply the described benefits, taxpayers must submit a notice of application of the tax incentive, no later than February 7, 2019.
Special tax incentive decree for interest on corporate debt bonds and IPOs
For Mexican entities to achieve competitive costs of financing, a special decree allowing Mexican taxpayers that are obliged to withhold income tax on interest payments for bonds issued through a Mexican stock exchange under terms of the Securities Market Law was published. Through this decree, a tax credit of the 100% of the withholding tax is granted.
For 2019, 2020 and 2021, a reduction in the capital gains tax rate to 10% is also granted when shares issued by companies resident in Mexico are sold through the stock exchanges in the case of an IPO. General rules for the correct application of the tax incentives should be published.
Mexico Power Industry: The end of Legados to push private markets
By Jose Antonio Prado, Carlos Ochoa and Alberto Esenaro Arteaga
The new Mexican Administration has started to study and make adjustments to energy policy and regulation. That work along with rulings from Energy Regulatory Commission (CRE) and Centro Nacional de Control de Energía (CENACE) is expected to adjust the landscape of the power market.
Legados, power plants grandfathered by Mexico's 2013 Power Reform, that do not achieve complete operation and allocation of total capacity during this year, will have to justify an extension or migrate to the new Electric Industry Law.
With these changes in the power market, it is expected that there will be an increase of investment and migration to private models for generating, delivering and selling power, leaving the government to certain niches to be defined by its six-year policy in current discussion.
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CENACE calls for medium-term auction
By José Antonio Postigo, Max Hernández-Ernult and Tania Trejo Gálvez
On December 20, 2018, the National Center of Energy Control ("CENACE") published the bidding call for the Medium Term Bidding SMP-1/2018 (the "Bidding").
The Bidding will be carried out with the purpose of assigning electricity coverage contracts for the purchase and sale of power and electricity. Any interested party, whether or not a participant in the wholesale electricity market, can participate by submitting offers to buy or sell. The Bidding will be carried out in accordance with the provisions of the Bidding Guidelines issued by CENACE, which will be published February 5, 2019.
In order to participate in the Bidding, it will be necessary to pay the registration fee (5,000 Investment Units plus VAT) to access the Bidding site and to have the right to participate in the meetings of clarification and other subsequent acts.
The beginning date of delivery of the power and energy products for the electric coverage contracts that will be assigned through the Bidding will be September 1, 2019.
For more details regarding the present bidding call, you may review the following link (in Spanish):
CENACE Convocatoria Subasta de Mediano Plazo »
Tax Incentives in the Northern Border Region
By Carlos Pérez-Chow
Few topics make headlines more frequently in the USA and Mexico than news from their shared border. Considering that president Donald Trump kept a government shutdown until recent days due to the lack of funding of his wall project along the border and that migrant caravans from Central America have and continue to reside in the Mexican border towns waiting to cross over as refugees, among other issues including drugs and weapons trafficking, it is no surprise that border related matters have become a cornerstone of the political and economic agenda of both countries.
This article focuses on the newest tax agenda of the current Mexican administration to boost the stranded economy at their side of the border, as a new measure to diminish the violence and bloodshed that have been on the rise in the last few years.
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New Immigration Policy Program Seeks to Restructure Mexico's National Institute of Migration
By Mónica Schiaffino and Carola Vidal
On December 19, 2018, Mexico's Secretary of Interior and the Commissioner of the National Institute of Migration (“INM” for its acronym in Spanish) announced the “Migration Policy Program 2018-2024,” an initiative to restructure and modernize the INM. The main objectives of the program are to enhance respect for immigrants’ human rights, regulate mobility across the Central American and southeastern Mexican regions, guarantee the transparency of the immigration process, and prioritize the interests and repatriation of Mexicans living abroad.
To this end, Mexico's immigration regulations and procedures will be amended to implement the principles of transparency, certainty of outcomes of immigration processes, legality, efficiency and respect for human rights. The INM will establish strategies for safe, orderly and regular mobility from Central America, adjusting the current criteria for the issuance of tourist visas, border employee cards, and regional visitor cards.
The program will also adopt strategies to help foreigners residing in Mexico become fully integrated—socially and economically— into Mexican society, as well as to enhance their contribution to the country’s development. Likewise, policies will be implemented to attract Mexicans living abroad and foreigners who possess a high level of training and specialty in the scientific, professional and artistic fields.
Mexico's New Minimum Wages and Geographical Zones Confirmed
By Monica Schiaffino and Tania Terrazas
On December 26, 2018, Mexico's National Minimum Wage Commission (“CONASAMI” for its acronym in Spanish) published in the Official Gazette of the Federation its resolution establishing the new general and professional minimum wages, effective January 1, 2019, and confirming the new geographical regions for minimum wage purposes.
The two geographical zones are as follows:
- Northern Border’s Free Zone includes (i) Baja California: Ensenada, Playas de Rosarito, Tijuana, Tecate and Mexicali; (ii) Sonora: San Luis Rio Colorado, Puerto Peñasco, General Plutarco Elias Calles, Caborca, Altar, Saric, Nogales, Santa Cruz, Cananea, Naco and Agua Prieta; (iii) Chihuahua: Janos, Ascension, Juarez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinagua and Manuel Benavides; (iv) Coahuila: Ocampo, Acuña, Zaragoza, Jimenez, Piedras Negras, Nava, Guerrero and Hidalgo; (v) Nuevo Leon: Anahuac; and (vi) Tamaulipas: Nuevo Laredo, Guerrero, Mier, Miguel Aleman, Camargo, Gustavo Diaz Ordaz, Reynosa, Río Bravo, Valle Hermoso and Matamoros.
- General Minimum Wage Zone comprises the rest of the municipalities in Mexico.
The minimum wage in the Northern Border’s Free Zone will be $176.72 Mexican pesos per daily work shift, while the minimum wage for the General Minimum Wage Zone will be $102.68 Mexican pesos per daily work shift.
In addition, the CONASAMI published a list of the minimum daily wages per profession and wage zone.
Mexico: Senate Passes Bill Granting School-Related Leave to Working Parents
By Rogelio Alanis Robles
On December 5, 2018, Mexico's Senate Joint Commissions on Education and Legislative Studies approved a bill to amend the Education General Law and the Federal Labor Law to grant working parents the legal right to take time off from work to participate in their children’s school activities. This initiative—pending approval by Mexico's House of Representatives—would require the Ministry of Labor to implement the necessary regulations to allow flexibility for working parents to take school-related leave without being required to make up that time so long as they provide proof of such school activities.
Although the bill's legislative language does not specify the length of the leave, its frequency, eligibility to take such leave, or compensation, the intent is based on American jurisprudence, as some U.S. states provide for unpaid leaves of absence for school-related activities with monthly or yearly caps.
Having received approval from the majority of the Senate, this bill now moves to the House of Representatives for final review before it is submitted to the President for enactment into law and publication in the Federation’s Official Gazette. If the bill is approved as-is, within six months the Ministry of Labor will be required to publish the necessary regulations to implement the changes to Mexico's work scheduling laws.
Littler Mexico will continue monitoring and reporting on any significant legislative developments on this topic.
Mexico: New Regulations to Prevent and Address Psychological Risks in the Workplace
By David E. Leal González and Ignacio D. Bermúdez Elizondo
On October 23, 2018, Mexico’s Labor Ministry (known as “STPS” for its acronym in Spanish)1 published in its Official Gazette of the Federation regulations requiring all employers in Mexico to identify, analyze and prevent work-related psychological risks.2 The new regulations will become effective on October 23, 2019, with some special provisions coming into effect on October 23, 2020.
Under the regulations, employers must establish, implement, maintain and disseminate a policy for the prevention of psychological risks3 in the workplace. The policy must inform employees of the employer’s adopted measures to prevent psychological risks and procedures for filing a complaint.
Additionally, employers must identify, evaluate and analyze psychological risks within the organizational environment, adopt measures to prevent and control psychological risks, address any acts of violence, and promote a healthy organizational environment.
Employers must refer employees who suffer severe traumatic events during work or related to their job, or who were exposed to work-related violence or other psychological risks, to the relevant private or public social security institution or the employer’s private medical institution, so the employees can receive medical or professional attention and undergo medical and psychological examinations.
In turn, employees are required to prevent and control the psychological risks and cooperate to create a healthy work environment. Employers must keep a record of compliance and will be subject to inspections by the STPS.