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Tax Incentives In The Northern Border Region

Author:Mr Carlos Pérez-Chow
Profession:Ibarra, del Paso y Gallego S.C.

The insecurity and widespread violence that have characterized the northern border of Mexico (the "Border"),1have become one of the most urgent and important matters to be addressed by the Mexican government, as such problems have unleashed an economic slowdown along the 180 kilometers of the Border shared with the United States of America.

Murdering, kidnaping, thefts, corruption, lawlessness, drug trafficking, organized crime, among others, are some of the reasons why the International Institute for Strategic Studies placed Mexico second in terms of total estimated armed-conflict fatalities in 2016 only after Syria.

Thus, to address these matters the current Mexican administration is giving the first step to bring a solution. Last January 1st, 2019 the executive order of tax incentives in the Border (the "Executive Order") entered into force seeking to establish mechanisms that strengthen the economy of taxpayers in the Border by stimulating and increasing investments, as well as by promoting productivity and contributing with the creation of new employment sources.

This article discusses the general provisions2included in the Executive Order, as well as their application and effectiveness.

Tax benefits

The Executive Order, which will be in force during 2019 and 2020, establishes benefits pertaining to reduce the triggered income tax (Impuesto Sobre la Renta "ISR") by one third and the value added tax (Impuesto Sobre el Valor Agregado "VAT") rate from 16% to 8% within the Border, as explained bellow:

1Under the Executive Order, a taxpayer that receives at least 90% of its income from the Border, will be considered as a taxpayer that obtains its income exclusively from the Border.


As a rule, the incentive to ISR applies to individuals or legal entities residing in Mexico and to foreign residents with a permanent establishment in Mexico that obtain income exclusively from the Border1 and are taxed as: i) legal entities subject to the general regime; ii) legal entities that opted to exercise the optional tax regime of accumulated income; or iii)individuals with entrepreneurial and professional activities. This incentive consists in the application of a tax credit equivalent to one third party of the ISR caused in the tax year or in the provisional payments, against the ISR caused in the same tax year or in the same provisional payments.

For taxpayers to enjoy these benefits, they must prove that: i) their tax address is in the Border...

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