October 21, 2014

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October 20, 2014

Mexico Tax Reform Bill 2014

On September 8th, 2013, the Executive Branch submitted before the Mexican Congress a tax reform bill for 2014 which anticipates the modification, repeal and enactment of several tax laws, the most relevant of which are discussed below:

Income Tax Law (LISR, for its acronym in Spanish)

The current Income Tax Law will be repealed and a new law will be enacted. A summary of some of the points that we consider most relevant includes:

a) Elimination of certain preferential tax regimes, such as the tax consolidation regime and the Real Estate Corporations Regime (SIBRAS, for its acronym in Spanish);

b) Taxation at the rate of 10% of dividends distributed by Mexican resident entities to its individual shareholders and non-Mexican shareholders and on gain realized from sales of shares on the Mexican stock exchange;

c) Increase of the individual income tax rate to 32% for individuals earning  more than $500,000 MXN per year;

d) Limitations on the allowable  deductions and exemptions (i.e., gain on sale of residential property);

e) Incorporation of a sole procedure for determining gain realized from the disposition of shares; and

f) Amendments to the foreign tax credit mechanism for non-Mexican income taxes paid in other jurisdictions.

Repeal of the Business Tax Law (Ley del Impuesto Empresarial a Tasa Unica, LIETU, for its acronym in Spanish).

a) Repeal of the Business Tax Law, which was a kind of alternative minimum tax.

Repeal of the Cash Deposits Tax Law (Ley del Impuesto a los Depósitos en Efectivo, LIDE, port s acronym in Spanish).

a) Repeal of the Cash Deposits Tax Law, which was a kind of controlling mechanism of the income tax.

Value Added Tax Law (LIVA, for its acronym in Spanish)

Highlights to the amendments of the Value Added Tax Law include:

a) Increase of the value added tax in the border areas from 11% to 16%;

b) Repeal of the exemption of value added tax on private educational and sale of residential real estate;

c) Proposal to tax goods which temporarily are introduced to produce, transform or repair goods which are part of import, export and manufacturing programs; fiscal warehousing programs to assemble and produce cars/vehicles, or for repair in fiscalized or strategic warehouses; and

d) Public transportation will be exempt of value added tax in urban, suburban and metropolitan areas.

Tax on Production and Service Law (LIEPS, for its acronym in Spanish)

Concerning the Production and Services Tax Law we highlight the following:

a) Incorporation of a special tax imposed on the sale and importation of  fossil fuels based on their carbon content (ecological tax);

b) Incorporation of a tax on pesticides  (ecological tax);

c) Based on specific production levels, producers and importers of flavored drinks, concentrates, powder, syrup, essences and flavored extracts containing any kind of sugar will be taxed; and

d) Temporary IMMEX imports, fiscal warehousing programs for car assembly, and fiscalized or strategic warehouses also will be subject to tax.

Federal Rights Law

Concerning fees collected by the Federal government we highlight that:

a) A special fee will be imposed on holders of mining concessions, and assignments to exploit minerals and substances regulated by the Mining Law;

b) An additional fee, consisting of 50% of the maximum quota that is set forth in the law, will be imposed on mining concessionaires that do not perform work, explorations or exploitations during a continuous two-year period within the first 11 years after the date in which the relevant license was awarded. Likewise, this quota will increase to 100% when the inactivity takes place on and from the 12th year. This fee shall be paid every six months; and

c) Imposition of an extraordinary fee is set forth on the income derived from the sale of gold, silver and platinum.

The tax bill reform submitted to the Congress is an integral reform of several laws which has high expectations and goals; we will follow its discussion and keep you informed. Due to its breadth, the bill is not discussed completely; however we will keep you updated on the ultimate outcome of this proposed legislation.

©2014 Greenberg Traurig, LLP. All rights reserved.

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About this Author

Diana S. Davis, Corporate Tax Attorney, Greenberg Traurig, Law Firm
Of Counsel

Diana S. Davis provides U.S. tax advice to international clients with regard to corporate tax matters, international acquisitions and reorganizations, structure of inbound and outbound transactions, tax advantaged treaty-based structures, international transportation, expatriation and withholding issues. She renders tax advice in connection with ownership structures for the development of energy projects in a number of Latin American jurisdictions. Diana is a native Spanish speaker and highly experienced in negotiating in both Spanish and English. She is knowledgeable in the tax systems of...

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