On January 1, 2013, the Income Law for the Mexican Federation (hereinafter, the "ILF") for 2013 entered into force. As it does every year, in addition to setting out an estimate of the revenue that the Mexican state should receive during the forthcoming fiscal year, the ILF contemplates a series of amendments to Mexico's tax legislation in order to achieve this objective. The most relevant topics thereof are the following:
I. Income Tax Rate for Corporations and Individuals
In the Income Tax Law that entered into force in 2010, the income tax rate was increased from 28 to 30 percent. But it was also provided that for 2013, the tax rate would be reduced to 29 percent (and returned to 28 percent starting in 2014). However, pursuant to the ILF, the 2013 reduction has now been postponed until the 2014 fiscal year, hence maintaining the 30 percent rate for 2013. The 28 percent rate will then apply for 2015 and thereafter. Of course, these reductions could be postponed yet again.
II. Special Withholding Tax Rate for Certain Interest Payments
The ILF renewed a tax benefit that has been granted on an annual basis since 1999, consisting of a reduced withholding tax rate of 4.9 percent (less than the 10 percent tax rate established in the Income Tax Law) when interest is paid to certain qualified foreign banks and financial institutions, provided that the beneficiaries of such interest are resident in a country with which Mexico has a treaty in force. In order to enjoy this beneficial withholding tax rate, foreign banks and financial institutions must be registered with the Mexican tax authorities via a procedure that takes three to five months to complete.
III. Tax Amnesty / Cancellation of Tax Credits
The ILF established the cancellation of federal tax credits administered by the Tax Administration Service, compensatory quotas, accessories, formal fines, and inflationary updates as follows:
(i) 80 percent of tax credits attributable to fiscal years prior to 2007, and 100 percent of their surcharges, formal fines, and enforcement expenses derived therefrom, are canceled, provided that the amount not canceled is paid in full in a single installment. Fines for the failure to pay taxes are not canceled. Those taxpayers who are up to date with their tax obligations for 2009, 2010, and 2011, or are determined to be by the tax auditors, may obtain a remission of 100 percent of the aforesaid tax credits.
(ii) 100 percent of the surcharges and fines derived from tax credits with respect to compensatory quotas and federal tax contributions other than federal tax contributions withheld, transferred, or recovered for the fiscal years between 2007 and 2012 shall be canceled, provided that the amount not canceled is paid in full in a single installment. Fines for the failure to pay taxes are not canceled.
(iii) 60 percent of any formal fines imposed during the 2012 and 2013 fiscal years, for noncompliance with federal tax obligations other than payment obligations, except for those imposed for filing returns with tax losses, provided that they are paid within 30 days following notice thereof.
It should be noted that the Mexican tax authorities consider the amount of any tax benefits granted to a taxpayer as accruable income for income tax purposes. Hence, it is quite likely that the cancellation of the credits mentioned above will be treated in the same fashion.
Finally, since December 1, 2012, Mexico has had a new president. Thus, it is likely that during 2013, an "integral tax reform" will be submitted to the Mexican Congress, and it is probable that Mexico will see a major tax reform for 2014.
Jones Day has a highly experienced Tax Practice that can assist with any matter pertaining to this subject.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.