On December 28, 2018, the economic package for 2019 was
published on the Official Gazette of the Federation, effective
January 1, 2019.
The Federal Revenue Law for 2019 does not include any increase on existing taxes, the creation of new taxes or any other charges on the gasoline price.
Universal Offsetting Benefit Eliminated
One of the most significant changes is the elimination of the universal tax offset. This means that only the offset of favour balances made against payable amounts of the same tax will be applicable.
Therefore, any offset only will apply when referring to the same tax and shall not apply to third-party withholdings or other taxes.
The new rule states, however, that those receivable balances generated up until December 31, 2018, can still be offsetted against other federal taxes, except against any withholding tax, as mentioned above.
This represents an effect on the cash flow of companies that generate favour balances. Going forward, any receivable balance will have to be carried forward or requested as a refund—and the latter can take a few months to recover.
Specific rules for the IMMEX industry and others that generate large amounts of receivable VAT are expected but have not yet been announced.
Financial Institutions' Withholding Rate
The annual withholding rate applied to financial institutions that pay interest during 2019 will be 1.04 percent.
Money Laundering Prevention Self-Regulation Program
Mexico's Tax Administration Service (SAT), through a transitory provision, authorizes the implementation of self-regulating programs for those taxpayers who are in default in compliance with the obligations mentioned in the Federal Law for the Prevention and Identification of Transactions with Funds from an Unlawful Source (LFPIORPI).
It is important to consider that the SAT, under the benefit of this self-regulating program, shall not impose sanctions or, if the case may be, shall condone fines established in terms of the LFPIORPI, provided that the taxpayer updates any pending obligation and keeps in compliance during 2019.
The credit of the fiscal incentive that refers to the Special Tax for Products and Services (IEPS) will only be applicable against CIT during the 2019 annual tax return and not against the monthly income tax installment or other withholding taxes.
Border Zone Changes on Corporate Income Tax & Value-Added Tax
The benefits act applicable to the northern border zone of Mexico was published on December 31, 2018, on the Official Gazette of the Federation.
It contemplates a reduction of the CIT to an effective 20 percent rate and a reduction of the VAT to an effective 8 percent rate on the northern region of Mexico that includes the following cities:
Ensenada, Playas de Rosarito, Tijuana, Tecate y Mexicali in Baja California state; San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco y Agua Prieta in Sonora state; Janos, Ascensión, Juárez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga y Manuel Benavides from Chihuahua state; Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero e Hidalgo on Coahuila de Zaragoza state; Anáhuac from Nuevo León state & Nuevo Laredo; Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso y Matamoros on the state of Tamaulipas
However, according to the rules published by the authorities, taxpayers who are willing to apply this benefit must comply with certain requirements, some of which are listed below:
- Register before the new incentive beneficiary registry.
- Have a confirmed tax address in the region covered by the benefit for at least the previous 18 months.
- File a report of compliance before the tax authority.
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.