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New Tax Decree for the Northern Border Region in Mexico

New Tax Decree for the Northern Border Region in Mexico

On December 31, 2018, Mexican President Andres Manuel Lopez Obrador published a special decree some border adjustment tax) for businesses operating in the Northern Border Zone in Mexico, sometimes referred to as the “Free Zone.”

The new decree aims to attract new investments and create jobs. The new decree went into effect on January 1, 2019 and goes through the year 2020.

“It is a very important project for winning investment, creating jobs and taking advantage of the economic strength of the United States,” said President Lopez Obrador while visiting Monterrey, in the Northern Mexican state of Nuevo León.

Overview of New Incentives:

  • Creates a “free zone” along the U.S./Mexico border
  • Reduces income taxes from 30% to 20% (Not applicable to IMMEX companies) 
  • Halves the Value Added Tax (VAT) from 16% to 8%
  • Increases minimum wage to $176.72 pesos a day (approximately $8.80 dollars)
  • Matches fuel prices to US prices

What Municipalities are Included in the Northern Border Region?

Under the new decree, these are the affected municipalities.

Baja California:
Municipality of Ensenada, Playas de Rosarito, Tecate, Tijuana, and Mexicali 
Chihuahua:
Municipality of Janos, Ascensión, Juárez, Praxedis G. Guerrero, Guadalupe, Coyame del Sotol, Ojinaga and Manuel Benavides 
Coahuila:
Municipality of Ocampo, Acuña, Zaragoza, Jiménez, Piedras Negras, Nava, Guerrero and Hidalgo
Nuevo León:
Municipality of Anáhuac
Sonora:
Municipality of San Luis Río Colorado, Puerto Peñasco, General Plutarco Elías Calles, Caborca, Altar, Sáric, Nogales, Santa Cruz, Cananea, Naco and Agua Prieta
Tamaulipas:
Municipality of Nuevo Laredo, Guerrero, Mier, Miguel Alemán, Camargo, Gustavo Díaz Ordaz, Reynosa, Río Bravo, Valle Hermoso and Matamoros

How Changes to the VAT Will Impact Manufacturers?

Jose Luis Avendano, Director of Finance for Co-Production International, offered a preliminary analysis of how this will affect the VAT for manufacturers operating in the newly declared “free zone” in the Northern Border region. Some of the following may impact your cash flow tax.

  • Purchase of goods from businesses in the northern border region
    Example: Office, cleaning, packaging supplies, machinery parts, etc.
    Impact: The VAT is already at 8% since January 1st.
    (Cash flow positive impact)
    IMPORTANT NOTE: Vendors must be 100% in compliance with SAT (Mexican tax agency) and obtain written approval by this same government agency. 

  • Services
    Example: cleaning, professional services, technicians, security, etc.
    Impact: Reduction to 8%

  • Temporary Importations of goods
    Example: Raw material and Machinery
    Impact: stays exempt with the current VAT Certifications under the IMMEX program

  • Permanent imports
    Example: any goods
    Impact: will stay at 16%
    (will apply also in case of a change of regime from temporary to permanent)

Manufacturers Operating Under a Shelter Company in Mexico

Many manufacturers opt to expand manufacturing operations under a shelter services provider in Mexico to minimize risk and liability. Shelter company providers like Co-Production International make it their job to keep up with vendors, tax compliance and compliance with new regulations in Mexico on behalf of the manufacturer as a part of their contract.

For more information or any questions regarding the border tax adjutsment and manufacturing in Mexico dont hesitate in contacting us!

Ready To Establish Your Manufacturing Operation In Mexico?

Look No Further Than Our Team Of Specialists!

Whether you have questions about the process or are ready to get started, we're here to help.
Contact us today at (855) 480-0837 to learn how we can provide you with expert support every step of the way, from exploration to setup and beyond. With our extensive experience providing Shelter Services in Mexico, we'll ensure the success of your manufacturing operation in Mexico.
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Co-Production International, Inc. Administrative Service Provider San Diego, California
Sales and Consultation Inquiries:
Toll Free: 855.480.0837

ico flag usaUSA Corporate Office
Ph: 619.429.4344
8716 Sherwood Terrace
San Diego, CA 92154
USA

ico flag usaMéxico Corporate Office
Tel.: 664.454.3330
Boulevard Agua Caliente 4558
Int. 701, Colonia Aviación
C.P. 22014, Baja California
info@co-production.net

ico flag usa Monterrey Nuevo León Office
Av. Benito Juárez 1102 Col. Centro
Piso 4 Torre Sur, Oficina 432
Monterrey, Nuevo León 64000, Mexico
info@co-production.net

Co-Production International, Inc. Administrative Service Provider San Diego, California

ico flag usaUSA Corporate Office
Ph: 619.429.4344 / 855.480.0837
8716 Sherwood Terrace
San Diego, CA 92154 USA

ico flag usaMéxico Corporate Office
Tel.: 664.454.3330
Boulevard Agua Caliente 4558
Int. 701, Colonia Aviación
C.P. 22014, Baja California
info@co-production.net

ico flag usaMonterrey Nuevo León Office
Av. Benito Juárez 1102 Col. Centro
Piso 4 Torre Sur, Oficina 432
Monterrey, Nuevo León 64000, Mexico
info@co-production.net

ico flag usaUSA Corporate Office
Ph: 619.429.4344 / 855.480.0837
8716 Sherwood Terrace
San Diego, CA 92154 USA

ico flag usaMéxico Corporate Office
Tel.: 664.454.3330
Boulevard Agua Caliente 4558
Int. 701, Colonia Aviación
C.P. 22014, Baja California
info@co-production.net

ico flag usaMéxico Monterrey Office
Av. Benito Juárez 1102 Col. Centro
Piso 4 Torre Sur, Oficina 432
Monterrey, Nuevo León 64000, Mexico
info@co-production.net