How was it established? What are the benefits? Who does it apply to? (8 Minute video worth your time)
Franklin provides a summary with important details relating to the new zone.
What is it?
The Economic Free Zone for the Northern border was implemented January 1, 2019 in 43 municipalities bordering the United States.
It offers benefits such as reducing the IVA tax (VAT) from 16% to 8%; and decrease the corporate income tax (ISR) from 30% to 20%, and doubling the daily minimum wage rate.
How was this new Economic Free Zone implemented?
This zone was created by Presidential Decree and is only valid for a 2 year period unless ratified by the Mexican Congress. (A decree is similar to an executive order in the USA, in other words it bypasses congress, congress then approves or disapproves later)
Most international companies base their decisions on a 5 year period. A 2 year trade zone period may not be sufficient to entice foreign company investment.
How does it work and who does the Economic Free Zone apply to?
IVA (Vat) tax from 16% to 8%:
The Decree DOES NOT lower the IVA (Value added tax) to 8%. The Decree offers a “fiscal incentive” to provide a “fiscal credit” for companies that sell tangible products. Those persons or companies can apply during January 2019 for this program with SAT and they can then charge 8% IVA and apply a fiscal credit for the remaining 8%
The program only applies to persons or companies selling “tangible products” only. It does not apply importations, real estate, intangible products, digital content, professional services and internet sales. Persons and companies must have at least 18 months in the region with 90% of their income in the border region.
ISR Corporate Income tax from 30% to 20%:
To whom does the income tax reduction apply? Individuals or companies with business activity the Northern border region.
The requirements are at least 18 months in the border region before the Decree was published. It applies to companies with income of 90% in the border zone. Applicants must apply for the program by the end of March 2019 – SAT will respond within 30 days.
Excluded from this program are: Maquiladoras, Financial institutions, production cooperatives, intangible products, internet commerce, outsourcing companies, those with problems with SAT, and companies in bankruptcy.
DOUBLING THE MINIMUM WAGE in the border region
From 88.36 MXN per day to 176.72 MXN
The minimum wage increase basically has no real effect in the border region in as much as the average wage before the increase is $1400 MXN to $1500 MXN per week. In other words, people have already been earning the amount equivalent to or more than the new minimum wage for the border region.
If you want an English version of the decree regarding the New Economic Free Zone in the border region of Mexico…we recommend that you visit
www.mexicanlaws.com a great web site for people who want to see the Mexican laws in English.
Presented by Franklin D. Frith II - General Manager / Principal for Human Resources Mexico S de RL.
The Most Trusted PEO in Mexico. The PEO used by the global PEO and International PEO.