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Mexico Special Economic Zones Offer Real Investment Incentives

Author:Mr Raúl Morales
Profession:Chevez Ruiz Zamarripa
 
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Mexico has established seven special economic zones (SEZs) via special decrees and regulations with several more to come. Raúl Morales Medrano, partner at Chevez Ruiz Zamarripa, discusses the main benefits for taxpayers wanting to operate within these areas.

A special economic zone (SEZ) is defined as a specific geographical area in which special custom and/or tax regimes are applicable to attract investments. SEZs have been used in the past by several countries that can tell stories of success. The purpose of any government when creating a SEZ is to generate incentives for both domestic and international investors to invest in such areas with the final goal of creating infrastructure and growth.

Over the past century, China was one of the first countries to create SEZs in several regions that are now recognised as the cities that have contributed to China's growth and tangible integration in the international world of commerce. The Shenzhen special economic zone was established in 1979-80 and it successfully attracted both foreign and domestic investors over the years, until becoming one of the most commercially-active areas within China. This was achieved due to the market-oriented reforms that were enforced for the region, which were then replicated for other subsequent SEZs that have been created in China.

According to information published by the World Bank, SEZs have significantly contributed to China's development in the past 30 years, as they have acted as a catalyst for efficient allocation of domestic and international resources, and they have deepened economic opening by attracting international capital, technology and technical and managerial expertise stimulating industrial development and China's integration into the global economy. It is estimated that SEZs have generated 45% of total national foreign direct investments in China, and have created more than 30 million jobs over the years, which proves that SEZs are an alternative for growth and integration to the global economy if they are implemented properly.

Following China's and other countries' experiences, Mexico approved in 2016 a new legislation incorporating the legal framework for SEZs to be created in Mexico. The legislation passed considered that special legislation and incentives should be created so that Mexico should have SEZs up and running by the end 2018 or early 2019 (Ley Federal de Zonas Económicas Especiales).

The SEZs law provides for the general guidelines for the establishment and operation of these special regions at underdeveloped areas of Mexico that need support and incentives to grow. The law establishes that the analysis would be made to select the regions that should be declared SEZs, and that such areas would have to be considered as an investing priority for the development within Mexico. Following this rationale, the establishment of Mexican SEZs would only be allowed in areas located within the 10 most underdeveloped states of Mexico, and provided such zones have a strategic location for the development of certain economic activities. As provided by the law, a SEZ may only be established within municipalities with less than 500,000 habitants.

Once the analysis has been made and a region has been selected, a special decree would be issued to establish the limits of the SEZ and the incentives that would be applicable in each region.

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