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TAX REFORM 2017 MEXICO
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TAX REFORM 2017MEXICO
FEDERAL REVENUE LAW 2017
Public Revenues The bill forecasts revenues almost 4.9 trillion pesos.
Gross Domestic Product During 2017, Mexico’s GDP is expected to report annual growth between 2% and 3%, slightly above the growth expected in 2016. For purposes of estimating public finances, the law proposes to use a 2.5% growth rate.
Exchange RateThe law foresees an average exchange rate of 18.62 pesos per U.S. dollar.
InflationThe expected inflation for 2017 is 3%.
Oil Prices Oil is expected to have a price of 42 U.S. dollars per barrel.
SurchargesThe monthly surcharge rate (used to calculate additions to tax) continues unchanged from prior years—0.75% for payment extensions and 1.13% for late payment).
Tax IncentivesThe same incentives generally continue from prior years. However, diesel how includes biodiesel for purposes of taxpayers’ diesel credit under special production and services tax creditable against the income tax, in the case of fuel acquired for final consumption in machinery or in vehicles intended for the public and private passenger, freight and for tourism transportation.
Deduction of Employee Profit SharingThe Federal Revenue Law allows the deduction of statutory profit sharing paid, for purposes of monthly advanced income tax payments.
On October 26, 2016, the Mexican Senate approved the bill submitted by the Federal Executive Branch, as modified by the Chamber of Deputies, to amend, add and repeal various provisions of the Federal Revenue Law, the Income Tax Law, the Value Added Tax Law and the Federal Tax Code.
Key provisions of the tax reform bill include:
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Income Tax Withholding on InterestThe income tax withholding is increased from 0.5% to 0.58%, levied on interest-bearing capital deposited with the financial system. The calculation formula is also modified.
Gasoline and Diesel PricesThe Law contemplates liberating gasoline and diesel prices, in order that they may be determined according to market conditions and not centrally set for the year.
INCOME TAX LAW
TAX INCENTIVESThe following tax incentives are granted:
a) Electric vehicle charging equipmentThis tax incentive will be a 30% credit of the amount invested in charging equipment for electric vehicles in the tax year, provided that they are connected and fixed in public places. The credit may be applied in the year in which it is determined, or carried forward for the next 10 years.
Taxpayers may deduct up to deduct an amount of up to $285 pesos per day per automobile, for the temporary use or enjoyment of electric or hybrid vehicles. Investments in electric automobiles and hybrids may also be deducted, up to $250,000 pesos.
b) Technological research and development This incentive consists of a tax credit equal to 30% of R&D expenses and investments during the year, applicable against the income tax incurred in the year in which the credit is determined. The incentive is not includible income for income tax purposes. The total incentive cannot be more than $1.5 billion pesos for the year, and not more than $50 million pesos per taxpayer.
c) Performance sportsThis incentive consists of an income tax cred-it, which cannot exceed 10% of the income tax incurred in the year, for contributions made by taxpayers to investment projects in highly specialized sports infrastructure and facilities, as well as programs designed for the development, training and competition of Mexican performance athletes. This credit is not taxable income for income tax purposes. The amount of the incentive to be distributed will be a total of $400 million pesos, limited to $20 million pesos per taxpayer, investment project or program.
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d) Corporate tax incentiveThis tax incentive is an election that may be applied by entities made up solely of individuals, whose income in the immediately preceding tax year is not more than $5 million pesos, to include income and allow deductions on a cash basis.
A transitional provision states that taxpayers that elect this incentive, and which have undeducted inventories at December 31, 2016, should continue to apply the cost of sales approach until the inventory is depleted, considering the FIFO method. To deduct investments made through December 31, 2016, they should continue to apply the corresponding maximum deduction rates.
e) Theater production and other cultural activitiesThe amount of the tax incentive allowed for investment projects in domestic theater production is increased to $150 million pesos. The incentive is also extended to other projects, such as the visual arts, dance and music (specifically, orchestra conducting, instrumental performance and vocal concert music, and jazz).
DEDUCTIBLE DONATIONSThe following changes are made with respect to Non-Profit Organizations (NPO) authorized to receive deductible donations:
a) In the case of the revocation or renewal of authorizations, NPO’s have a period of 12 months to obtain a new authorization. If they fail to do so, they are required to transfer any resources not used in the furtherance of their corporate purpose to entities authorized to receive deductible donations, within a period of six months.
b) NPO’s are required to inform to the tax authorities of the amount and identification data of the assets, as well as the identity of the entities to which all of their assets were allocated.
c) As an additional requirement to obtain the NPO authorization, the nonprofit entities whose total income is more than $100 million pesos, or whose assets are in excess of $500 million pesos, must have a corporate governance structure and processes for the management and control of the entity itself.
HYDROCARBONSThe following amendments are proposed for the hydrocarbons sector:
a) Consideration in kind paid to the contractor pursuant to the Hydrocarbon Revenue Law is not includible income, provided that such consideration is not included in the deductible cost of sales when determining the income tax due, when such hydrocarbons are sold or transferred to a third party.
b) A 10% depreciation deduction will apply to the fixed infrastructure for hydrocarbon transportation, storage and processing on oil drilling platforms and vessels and hydrocarbon processing and storage vessels.
c) Taxpayers are required to keep the transfer pricing supporting documentation, in the case of assignees and contractors under the Hydrocarbon Revenue Law, regardless of their income level.
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PERSONAL RETIREMENT PLANSIn order to reduce administrative costs, the law proposes to allow personal retirement plans contracted not only on an individual basis, but also collective plans such as those established through unions or professional associations.
PSYCHOLOGIST AND DIETICIAN FEESThe fees paid for psychological and nutritional services may be deducted, provided that they are rendered by a licensed professional. This change is intended to encourage the population to use dietician services to improve their health, thereby reducing the incidence of chronic illnesses such as diabetes and cardiovascular disease.
LABOR OUTSOURCINGAs a deduction requirement, the principal must obtain a copy of the tax receipts for the salaries paid to the workers provided by the subcontracting service, as well as the return in which the tax withheld from such workers was paid and the payment of employer-employee contributions to the Mexican Social Security Institute.
ELECTRIC BICYCLES AND MOTORCYCLESA 25% deduction is allowed for conventional bikes and bicycles and motorcycles powered by rechargeable electric batteries.
OBLIGATION OF PUBLIC AGENCIES TO ISSUE DIGITAL TAX RECEIPTSThe federal government, the states, the municipalities and institutions required by law to deliver their excess operating income to the federal government are required to issue digital tax receipts via Internet with respect to any taxes, levies and fees charged and for any grants or incentives paid. They also must issue such receipts when they are required to do so on payments made to third parties.
The agencies will have a period of four months to comply with this requirement, after the tax amendment becomes effective.
NON-INCLUSION OF ECONOMIC SUPPORTEconomic or monetary support received by taxpayers through governmental budget programs are not includible income for tax purposes.
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VALUE ADDED TAX
Creditable VAT in Startup PeriodsIn the case of investments and expenses in preoperational periods, the VAT will be credited on the return for the first month in which taxable activities are carried out. However, the VAT refund may also be credited in the month after the expenses and investments are made, provided certain requirements are met.
A transitional provision establishes that for startup expenses incurred through 2016, the credit is subject to the provisions in effect through that year; i.e., the new provision applies with respect to investments made on or after January 1, 2017.
VAT Credit in Proportion to Preceding Tax YearTaxpayers are given the option to credit the VAT on investments based on a proportion determined with figures from the immediately preceding tax year. The creditable VAT is calculated with regard to the proportion in the period from the time activities begin to the month in which the tax is determined.
Next, an adjustment is made on the twelfth month’s return, to determine any differences that increase the creditable VAT or give rise to the repayment of the credited or over-refunded VAT.
A transitional provision provides that this will apply with respect to investments made on or after January 1, 2017.
Importation for the Use or Enjoyment of Goods Delivered AbroadThe VAT basis in this type of transaction will be the amount of consideration. No VAT will be paid when the tax has already been paid upon entering the country.
VAT Timing on the Importation of Services Rendered by Nonresidents and Used in National TerritoryThe VAT on imported services is incurred when the consideration service is actually paid.
Outsourcing ServicesIn the case of labor subcontracting services, to credit the VAT shifted by such services, the principal must obtain a copy of the contractor’s corresponding monthly return and acknowledgement of receipt of the VAT shifted, as well as the information reported to the Tax Administration Service (SAT).
The contractor, in turn, must report the VAT shifted to its clients and the VAT paid on the monthly return, on its VAT information return.
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Export of IT ServicesInformation technology services that are used abroad are deemed exported at the 0% rate. Certain requirements and control obligations will be established to apply the export rate. IT services include:
• Development, integration and maintenance of applications and computer systems.
• Data processing, storage, backup and management.
• Hosting of IT applications.
• Modernization and optimization of information security systems.
• Continuity in the operation of prior services.
If any of these services is applied or used in national territory, it is not deemed an exported service and the 0% rate cannot be applied accordingly.
FEDERAL TAX CODE
e-Signature Verification Services The SAT may provide the verification and authentication of advanced electronic signature certificates, in order for taxpayers to use their e-signatures as a form of authentication.
Expanded Use of Taxpayer MailboxThe “taxpayer mailbox” may be used by other authorities, and not just the SAT.
Taxpayer RegistrationLegal representatives (like partners and shareholders) must request registration in the Federal Taxpayer Registry (RFC) and obtain their e-signature.
The legal representative’s RFC should be entered on attested public documents
Cancellation of Digital Tax Receipts Digital tax receipts via Internet can only be canceled with the consent of the person to whom it was issued, according to the rules to be prescribed by the SAT. A transitional provision provides that this change will be effective starting May 1, 2017.
Tax Situation ReturnThe Tax Situation Information Return (known as the DISIF) is now part of the annual return, and no longer a separate information return, and should therefore be filed by the March deadline is every year.
The DISIF for 2016 is due no later than June 2017.
Certifying bodiesA new provision provides that the SAT may authorize entities to act as certifying bodies.
Powers of the Authorities The tax authorities have new powers to ensure that taxpayers, jointly liable parties or related persons have complied with their obligations under the authorizations, concessions, rosters, registrations or licenses set forth in the Customs Law.
Electronic AuditsThe electronic audit procedure is amended. The authority will now have 10 days to request additional information from the taxpayer, and 40 days to issue the respective ruling.
New Penalties
• When a person authorized to receive deductible donations is liquidated, the failure to allocate all Non-Profit Organizations (NPO) assets to another authorized entity is subject to a fine from $80,000.00 to $100,000.00.
• Failure to provide information regarding the identification of assets or entities to which assets have been allocated upon liquidation of the NPO is subject to a fine from $140,540.00 to $200,090.00.
• The fine for failure to meet the SAT’s technological specifications when submitting digital tax receipts is from $1.00 to $5.00, per document.
• Failure to keep the authorized NPO authorization available to the public is subject to a fine from $80,000.00 to $100,000.00.
This material has been prepared by our partners for general information purposes only, so it does not pretend to be relied upon as a professional
advice. Please refer to your advisors at Russell Bedford in case you need additional assistance.
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