On September 8, 2015, the President sent to Congress the “Tax Bill” where some proposals are made to change current Mexican tax legislation. The main proposals are the following:
- Tax incentive for the reinvestment of profits
There is a new tax incentive applicable to Mexican resident shareholders in connection with dividends and profits generated in fiscal years 2014, 2015 and 2016, provided that such dividends and profits are reinvested, in turn, in the same Company. It is not clear, if this incentive apply to foreign resident shareholders.
The tax incentive consists of applying a tax credit against the additional tax on dividends and profits of 10% to be withheld. Such tax credit would be applicable as follows: (i) 1% on dividends or profits distributed in fiscal year 2017; (ii) 2% on dividends or profits distributed in fiscal year 2018; and 5% on dividends or profits distributed in fiscal year 2019 forward.
Below please find the following example:
The above-mentioned tax credit shall only apply in connection with dividends and profits distributed by companies whose shares are quoted through a stock market holding concession under the Law of the Securities Market.
Also, the aforementioned tax incentive will not be regarded as taxable revenue for Mexican resident individuals as their beneficiaries.
- Immediate deduction of investments
Another new tax incentive may be applied to Mexican resident companies and individuals engaged in business activities that in the immediate prior fiscal year obtained revenues up to 50 million pesos. Such incentive shall be applicable in all the Mexican territory.
The tax incentive consists of taking the immediate deduction of investments in new fixed assets in fiscal years 2016 and 2017; and also between September 1 and December 31, 2015. In this case, the maximum percentage of deduction range from 63 % up to 95% with regard to assets that were acquired in fiscal years 2015 and 2016; and such percentages will be decreased for fiscal year 2017.
The application of such tax incentive must observe the following:
- The respective percentage of deduction will be applied to the original amount of investment and will be restated by inflation.
- It can be subtracted proportionally in the calculation of the monthly provisional payments for determining the taxable income or tax base for the tax year.
- The tax incentive shall not be exercised in the case of:
- Furniture and office equipment
- Automobiles armoring equipment
- Any other fixed asset not individually identifiable
- Airplanes other than those engaged in crop dusting
- In case of sale or loss from an act of God or force majeure of the assets, the respective gain or loss must be determined according to the specific established procedure and the table based on the number of years elapsed.
Originally published by Garrido Licona, a fellow LEA Global member.