Tax incentives in force as of January 1, 2021

Below you will find the aspects that we consider most relevant of each of the Decrees: A. Decree amending the Decree of tax incentives for the northern border region As a preliminary matter, it is important to note that on December 31, 2018, the “Decree of tax incentives for the northern border region” was published in the DOF, whereby tax incentives were granted to taxpayers that, for at least 18 months, had a tax domicile, branch, agency or establishment within the northern border region. Such incentives consisted of a reduction of the tax burden of the Value Added Tax (“VAT”) and the Income Tax (“ISR”) of legal entities and individuals engaged in business activities whose income obtained from operations carried out within that region represents at least 90% of the taxpayer’s total income in the immediately preceding fiscal year. It was in force during fiscal years 2019 and 2020. Thus, by means of the amending Decree, the application of the tax incentives referred to in the preceding paragraph was extended until December 31, 2024. Additionally, certain articles of the Decree of tax incentives for the northern border region were amended, mainly to replace the authorization to apply them with a notice of registration in the corresponding registry, and to modify the periodicity of taxpayers’ participation in the verification program in charge of the Tax Administration Service (“SAT”) contemplated in said Decree. B. Decree of tax incentives for the southern border region I. Regarding ISR. By virtue of said Decree, a tax incentive is granted consisting of applying a tax credit equivalent to one third of the ISR accrued in the fiscal year or in the provisional payments, against the tax accrued in the same fiscal year or in the provisional payments of the same fiscal year, as applicable, in the proportion represented by the income obtained in the southern border region, with respect to the totality of the income obtained in the fiscal year or in the period corresponding to the provisional payments. The tax credit shall be determined by applying the percentage obtained pursuant to the preceding paragraph to one third of the ISR accrued in the fiscal year or in the provisional payments. It should be noted that the application of the tax incentive shall not give rise to any refund or offset different from that which would apply in the event that said benefit is not applied. For the purposes of this Decree, the southern border region is considered to be that which comprises the municipalities of Othón P. Blanco in the state of Quintana Roo; Palenque, Ocosingo, Benemérito de las Américas, Marqués de Comillas, Maravilla Tenejapa, Las Margaritas, La Trinitaria, Frontera Comalapa, Amatenango de la Frontera, Mazapa de Madero, Motozintla, Tapachula, Cacahoatán, Unión Juárez, Tuxtla Chico, Metapa, Frontera Hidalgo and Suchiate, in the state of Chiapas; Calakmul and Candelaria, in the state of Campeche, and Balancán and Tenosique, in the state of Tabasco (“Southern Border Region”). In general terms, the taxpayers that may apply the aforementioned incentive (provided that they do not fall within the cases excluded by the Decree itself) are individuals and legal entities resident in Mexico, as well as those resident abroad with a permanent establishment in Mexico, that receive income exclusively in the Southern Border Region. Such taxpayers must have their tax domicile in the Southern Border Region or have branches, agencies or any other establishment within the Southern Border Region. Likewise, it is established that taxpayers who intend to apply it must comply with certain requirements, including that of filing a notice with the SAT no later than March 31 of the fiscal year in question, in order to be registered in the registry of beneficiaries, in accordance with the general rules that the SAT issues for such purpose. II. Regarding VAT. A tax incentive is granted to taxpayers, individuals or legal entities, that transfer goods, render independent services or grant the temporary use or enjoyment of goods, in premises or establishments located in the Southern Border Region (provided that they do not fall within the cases excluded by the Decree itself) consisting of a tax credit equivalent to 50% of the 16% VAT rate. Taxpayers that opt to apply the tax incentive must comply with certain requirements such as (i) carrying out the material delivery of the goods or the rendering of the services in the Southern Border Region and (ii) filing a notice with the Tax Administration Service within the 30 calendar days following the entry into force of the Decree. Likewise, the cases in which said tax incentive shall not be applicable are indicated, to mention a few: when it concerns the transfer of real property or the transfer and granting of the temporary use and enjoyment of intangible goods or the rendering of digital services. It should be noted that the tax incentives provided in the Decree shall not be considered accruable income for ISR purposes. C. Decree of the Chetumal free zone By means of said Decree, the “Chetumal Border Region” is created, in the locality of Chetumal located in the municipality of Othón P. Blanco in the State of Quintana Roo, and various tax incentives are granted to promote consumption by favoring imports to said region. In this way, individuals and legal entities that are located and commercialize certain goods and/or services in the Chetumal Border Region may carry out the definitive importation of certain merchandise identified under various tariff classifications of the Schedule of the General Import and Export Duties Law, without payment of the general import duty. Only those individuals or legal entities (referred to as Companies of the Region) that hold a valid registration issued by the Ministry of Economy and are engaged in the following may enjoy this benefit: (i) Commercialization of food and groceries. (ii) Self-service stores. (iii) Commercialization of clothing, costume jewelry and clothing accessories. (iv) Commercialization of pharmaceutical products, eyewear and orthopedic articles. (v) Commercialization of machinery and equipment. (vi) Commercialization of construction materials. (vii) Restaurants and other establishments for the preparation of food and beverages. (viii) Hotels, motels and other temporary lodging services. (ix) Educational services. (x) Medical and hospital services. (xi) Cultural, sports and recreational entertainment services. (xii) Automobile repair and maintenance services. (xiii) Leasing of real property, machinery and equipment. In order to obtain registration as a Company of the Region, interested parties must file the corresponding application in writing with the Ministry of Economy, in the format and with the requirements established for such purpose. The resolution shall be issued within a maximum period of 5 business days, counted from the business day following the filing of the application, and the Ministry of Economy must consult with the SAT to confirm that the applicant does not fall within any of the cases referred to in the Decree that would preclude the granting of the corresponding registration. A tax incentive is also granted to individuals who leave the Chetumal Border Region and carry with them foreign merchandise, previously imported on a definitive basis to said Region, that does not form part of their luggage and whose value does not exceed 1,000 dollars of the United States of America or its equivalent in national currency. The incentive consists of a tax credit equivalent to 100% of the general import duty that would have to be paid for its importation to the rest of the national territory. In the event that the members of a family leave the Chetumal Border Region simultaneously in the same vehicle, the combined value of all passengers may not exceed 2,500 dollars of the United States of America or its equivalent in national currency, whose value shall be evidenced with the Digital Tax Receipt via Internet issued in said Region. Finally, a tax incentive is also granted to the Companies of the Region consisting of a tax credit equivalent to 100% of the corresponding customs processing fee, for the definitive importations of merchandise made to the Chetumal Border Region under the Decree, as well as that corresponding to the re-forwarding of the merchandise to the rest of the national territory, carried out in terms of the Customs Law. In any case, it is important to bear in mind that the aforementioned incentives may not be applied to operations that, in terms of customs legislation, are carried out by or through courier and parcel companies. This document is valid on the date of its issuance and its purpose is merely informative and not interpretative with respect to the information it contains. It is not an opinion, so it should not be considered as advice applicable to particular cases under any circumstance. Should you require professional advice regarding the topics included in the document, we would appreciate you contacting us directly. For additional information, contact our experts: Fernando Moreno, Partner: +52 (55) 5258 1008 | fmoreno@vwys.com.mx Luis Miguel Jiménez, Partner: +52 (55) 5258 1058 | lmjimenez@vwys.com.mx Jorge Díaz Carvajal, Associate: +52 (55) 5258 1008 | jdiaz@vwys.com.mx Diego Benítez, Associate: +52 (55) 5258 1008 | dbenitez@vwys.com.mx