Mexico Offers New Tax Cuts to Attract Nearshoring Investment
By RICARDO CASTILLO
A new federal decree to further entice direct foreign investment in for export manufacturing ventures was published on Wednesday, Oct. 11, in the Mexican government’s Official Gazette.
Under the decree, Mexico’s Tax Administration Service (SAT) of the Finance Secretariat announced that all new foreign for export assembly and manufacturing companies in 10 different sectors will receive ¿anywhere from a significant 56 percent to a whopping 89 percent deduction of their investment returns.
The only requisite for eligibility is that the investment must be made during the rest of 2023 or during 2024.
Finance Undersecretary Gabriel Yorio said in an X (Twitter) message that besides these significant stimuli, the government will guarantee an added 25 percent cut in the ensuing three years until 2028 for expenditures made on worker training.
The benefits will be applicable to taxpayers engaged in the production, processing or industrial manufacturing of the following items:
- Products intended for human and animal food;
- Fertilizers and agrochemicals;
- Raw materials for the pharmaceutical industry and pharmaceutical preparations;
- Electronic components, such as simple or loaded cards, circuits, capacitors, condensers, resistors, connectors and semiconductors, coils, transformers, harnesses and modems for computers and telephones;
- machinery for clocks, measuring, control and navigation instruments, and medical electronic equipment for medical use;
- batteries, accumulators, electrical conduction cables, plugs, contacts, fuses and accessories for electrical installations;
- gasoline, hybrid and alternative fuel engines for cars, vans and trucks;
- electrical and electronic equipment, steering systems, suspension, brakes, transmission systems, seats, interior fittings and stamped metal parts, for cars, vans, trucks, trains, ships and aircraft;
- internal combustion engines, turbines and transmissions for aircraft; and
- non-electronic equipment and apparatuses for medical, dental and laboratory use, disposable material for medical use and optical articles for ophthalmic use.
The decree also opens up the entire nation to fresh investments through municipalities and states to be covered by the benefits received.
Previously, it was only states along the U.S. border and southern border that enjoyed these privileges.
More specifically the decree states that those receiving the tax cut benefits will have to sell manufactured “automobiles, buses, cargo trucks, tractor-trucks, trailers and lift trucks” supplied by rechargeable electrical batteries.
It also includes tax cuts on general manufacturing and assembly, pickups, trains, ships and aircraft “so long as all these vehicles are electrically operated.”
This part of the decree seems to send specifically a message to Elon Musk’s ”Tesla,” which announced this year that it would build a $10 billion electric car manufacturing facility in Monterrey.
The Economy Secretariat announced recently that despite all the hoopla, Tesla had not yet applied for registration of the plant.
The announcement also aims to cater to other smaller investors that want to enter into the electric car manufacturing industry in Guadalajara.
In a previous interview, Yorio had stated that, as of September, 174 foreign companies had presented letters of intent of investment for export manufacturing, representing a total of $74 billion.
These type of investments inside Mexico are now known as “nearshoring.”
Investing companies seeking “nearshoring” benefits offered by the Mexican government through the Economy and Finance Secretariats must show accreditation that at least 50 percent of their revenue stems from exports.
Those receiving the benefit must also carry out strict accounting on the items on which the immediate deduction is applied to facilitate official taxation control by SAT.
The immediate objective by the government is to increase dollar.denominated revenues over the next year.