Mexico’s Congress approved modifications to the following laws on October 30: The Income Tax Law (MITL), the Value Added Tax Law (VATL), the Excise Tax Law (IEPS) and the Federal License Law (LFD), and the Federal Fiscal Code (FFC) (together, ‘the 2020 Mexican Tax Reform’). Enactment of the 2020 Mexican Tax Reform will occur on its date of publication in the Official Federal Gazette. The 2020 Mexican Tax Reform will enter into effect January 1, 2020, unless an article expressly states a different effective date.
In general, the 2020 Mexican Tax Reform is meant to incorporate fundamentals of the OECD Base Erosion and Profit Shifting (BEPS) initiative. The economic context in which the 2020 Mexican Tax Reform was legislated assumes GDP growth of between 1.5% and 2.5%, and an increase in tax collection without the creation of new taxes. Modifications to the Mexican Tax Law most relevant for inbound investment into Mexico are summarized below.
Given the broad nature of the 2020 Mexican Tax Reform, taxpayers with a Mexican operation should review the impact of this reform before calendar year-end. Given the potential non-deductibility of any payment to a non-Mexican related party, the recipient’s tax treatment and level of relevant business activity become relevant in determining the Mexican tax treatment. Investments into Mexico through fiscally transparent entities will become subject to significantly different rules as of 2021.
Taxpayers should begin a review of these structures not only in light of the 2020 Mexican Tax Reform but also of the eventual application of the OECD’s multilateral instrument to the Mexican tax treaty network. Finally, digital commerce, in particular, will be subject to a robust set of new information gathering, reporting, and filing requirements, which may require the implementation of systems and processes within a relatively short time line.