Mexico’s tax framework remains stable since the last comprehensive reform went into effect in January 2014, even though an opposition party came into power in January 2018. Certain changes in fiscal policy were in fact expected at that time, but they did not occur.
Although 2018 saw no tax reform in Mexico, a number of reform proposals have been put forward by different parties. Of particular note are initiatives to tax inheritances and electronic commerce. Although neither of these two initiatives have become law, how lawmakers deal with these topics warrants close monitoring, since such taxes could be adopted in the medium term.
Electronic Tax Invoices (CFDI)
At the same time, to ensure full compliance with their obligations, Mexican taxpayers should review several changes to compliance issues in 2018. One such change is the new version 3.3 of the electronic tax billing system (CFDI), which includes new requirements for paying electronic bills, as well as the issuance of bills for partial payments. Since these rules have been rather complex for companies to follow and implement, taxpayers must pay particular attention to the changes.
In terms of international taxation, in 2018 Mexico entered into new double taxation avoidance treaties with Jamaica and Saudi Arabia.
Economic Package for fiscal year 2019
Now, with the new administration headed by President Andrés Manuel López Obrador in power, the 2019 economic package was approved on December 24, 2018. Although no new contributions or tax rate hikes were proposed, some potential changes should be looked at, as they could financially impact companies and individuals paying taxes in Mexico:
The possibility of offsetting balances of different taxes was repealed; now, taxpayers can only offset balances against amounts due for the same tax.
No-penalty amnesty measures were introduced to regularize compliance with anti-money laundering reporting obligations.
In addition, effective January 1, 2019, a number of tax incentives came into effect for individuals and companies residing in any of the municipalities on the country’s northern border.
Notably, the fiscal stimulus contemplates a decrease in the VAT rate from 16% to 8% and a lower corporate income tax rate, from 30% to 20%, subject to certain limitations. Likewise, some new benefits were rolled out for the financial sector, including a reduced withholding rate on interest paid on corporate bonds issued through the Mexican stock exchange and lower income tax rates on capital gains on IPOs, subject to certain conditions.
Nevertheless, to keep overall tax revenues strong, the tax authorities are expected to perform more tax audits looking at any omissions in tax payments.
The new administration is expected to perform electronic audits, which should enhance efficiency versus previous years. President Andrés Manuel López Obrador has also stated that he would encourage auditing a smaller number of randomly selected taxpayers through new rules that are yet to be defined.
T - MEC
On November 39, 2018, Mexico, the United States and Canada signed a new free trade agreement known as the United States – Mexico – Canada Agreement (USMCA), which replaces the North American Free Trade Agreement (NAFTA). Although the USMCA is still pending ratification by the congresses of the three North American countries, it is expected to take effect in mid-2019.
In light of the foregoing, it will be important to analyze the benefits, requirements and challenges involved in the USMCA’s trade provisions, as well as their possible implications in each particular case.