GlobalAutoTV
Click to watch Wim van Acker -
Click to watch Wim van Acker -
latin resources

Need an office in Mexico or Brazil? Office suites, meeting rooms, virtual offices, network access



free downloads
LATIN AMERICA: "Latin America PE heats up" report

LATIN AMERICA: "Latin America PE heats up" report. 4-page report by Ernst & Young.

proceed to download
eJournals




back to index backLATINtalk December,  2016


Mexican government proposes tax incentives on IT services and R&D activities for 2017

As part of the 2017 economic budget and proposed tax reform, the Mexican government intends to incentivize a couple of activities that may be intertwined: first, by allowing information technology (IT) services to qualify as an export subject to 0 percent value added tax (VAT), as opposed to the 16 percent general VAT rate; and second, by reintroducing a tax credit for research and development (R&D) activities carried out in the country.

0 percent VAT on IT services

Under Article 1 of the VAT Law, entities and individuals are subject to VAT when they carry out the following activities while in Mexican territory: 1) sale of goods; 2) rendering of independent personal services; 3) grant of temporary use and enjoyment of goods; or 4) import of goods or services.

The VAT is a turnover tax and is paid and credited by intermediaries until the goods or services reach the ultimate consumer. VAT paid by a company on the purchase of goods or services is generally allowed as a credit against the VAT collected from customers; as a result, the net tax paid to the government is the amount by which VAT collections on sales exceeds VAT paid on costs and expenses. If, in a given period, VAT paid to suppliers exceeds the VAT collected from customers, the excess may be carried forward to the following tax period; or, alternatively, the taxpayer may obtain a refund for such excess.  The credit procedure is capped to the percentage of activities subject to VAT.

Under existing VAT rules, IT services provided in Mexico, whether the beneficiary or recipient of the services is located there or elsewhere, would be subject to the general 16 percent VAT rate.  This is because they are provided in Mexico and do not fall within the definition of exportation of services.

In an effort to increase competitiveness in the market, however, the proposed 2017 tax reform provides that IT services rendered by Mexican taxpayers could qualify as an export subject to the 0 percent VAT rate, if the recipient of the services is a foreign resident.

The IT services that would qualify as an export are the following:

- Development, integration, and maintenance of applications or computer systems
- Processing, storage, and backup of information, as well as the management of databases
- Accommodation of data applications
- Modernization and optimization of information security systems and
- Ensuring operational continuity of the previously mentioned services.

The proposed reform sets out certain limitations that most likely will be addressed through regulations, among them:

- Technological infrastructure, human, and material resources should be located in Mexico
- IP addresses and Internet provider should be located in Mexico
- IP addresses and Internet provider of the service beneficiary should be located abroad
- The tax ID number of the service recipient that requested and paid for the services should be included
- Electronic payments from foreign financial institutions into Mexican banks should be demonstrated.

R&D tax credit is back

As part of the 2017 tax reform, the Mexican government is bringing back to life a tax incentive that was available up to 2008 and later changed to a cash type of grant for R&D activities.  The proposed incentive consists of a credit of 30 percent of qualified R&D expenses, aimed at encouraging investment in this area.

The Mexican government has significantly increased the total amount of the budget destined for this incentive to MX$1.5 trillion, with a cap of MX$50 million per taxpayer.

An Interinstitutional Committee (i.e., National Council for Sciences and Technology, Ministry of Finance, Ministry of Economy, and Ministry of Education) oversees the assignment of the funds, based upon the individual characteristics of each project presented.

Specifically, proposed Article 202 of the Mexican Income Tax Law (MITL) provides a tax incentive in the form of a credit of 30 percent on the average amount of R&D expenses incurred during the previous three years.  Moreover, the credit must be used within 10 years.  It is important to mention that this credit would not be considered as taxable income.

In general terms, in order to qualify for this incentive, the expenses must be incurred in Mexico, with the purpose of carrying out projects focused on the development of products, materials, or production processes that represent a scientific improvement or technological advance, according to regulations to be issued by the Interinstitutional Committee.

Although pre-approval is required from the Interinstitutional Committee, the mechanism should be fairly simple - a taxpayer takes a direct credit of 30 percent based on its costs incurred for the approved R&D projects against its income tax due at the end of the year.  In the past, the incentive was granted on a per-project basis; hence, a taxpayer could receive an incentive for multiple projects. This seems to be the case for the proposed rules.   

Moreover, in the past, the incentive was granted based on a first-come, first-served basis; thus, preparing in advance for the filings is critical to ensure ability to respond in a timely way, as is being in compliance with the requirements to be published through regulations.

Considerations


Companies could benefit by creating an IT services hub or shared services center (SCC) in Mexico, or by shifting or expanding some of their IT related activities into the country.  Mexico offers relatively low labor costs and a skilled workforce for IT related activities. This should be among the factors for multinationals to ponder, along with other considerations that could also confer benefits. Among these factors: domestic costs to be incurred under local currency, which has been devaluing recently; and income that could be invoiced in foreign currency, as it would be an exportation of services.

Further, many companies operating in Mexico and carrying out IT activities could benefit from R&D incentives and are not fully aware of how the tax credit would work. Even though the incentive is not received in cash, it could represent a significant reduction in future income taxes.

Source: DLA Piper
- GAI





previous page

go top
search our site


Loading

LATINtalk

Other articles from the same issue (December,  2016).

The Mexican Automotive Industry: Current Situation, Challenges and Opportunities
play read on

Government wants to make the competitive Brazilian automotive industry globally national production
play read on

GM Forecasts Brazil’s Auto Economy To Recover Starting In 2017
play read on

Mexico’s Auto Industry in Jeopardy as Trump Policies Could Wipe Out 1 Million Jobs
play read on

Parent companies aiding auto subsidiaries in Brazil
play read on

In-Vehicle Connectivity to Propel New Growth Opportunities for OEMs in Latin America
play read on

Portugal And Brazil Cooperate To Build An Affordable Electric Car
play read on

NAFTA and the New Trump Administration: Your Top Ten Questions Answered
play read on

With NAFTA on the Chopping Block, Implications For Nearshore IT Are Very Real
play read on

Mexico is third most dangerous country Risk analysis firm's index ranks Mexico as 'extreme risk'
play read on

Brazil: Company retrieves partial repayment from an employee in relation to his non-compete covenant
play read on

What’s on the minds of CEOs in Mexico
play read on

Industry Expert Talks About 3D Printing In Latin America: 'We Want Printers To Supplement Other Machines'
play read on

Getting Your Brazilian Documents as an Expat
play read on

Mexico M&As: The Trump Impact
play read on

Worst Case Scenario: How Mergers Go Wrong In Brazil
play read on

Argentina: New salary agreement for commerce and services employees
play read on

Mexican government proposes tax incentives on IT services and R&D activities for 2017
play read on

OECD optimistic about global growth; anticipates strong performance of Argentine economy next year
play read on

Doing Business in Argentina 2016 - Guide
play read on

Latin American exports downward trend is greater than in the rest of the world
play read on

Amendments to Argentine Employment Contract Law
play read on

Santander bank confident of Brazil's “rapid recovery”
play read on

Mexico Cost of Living Guide 2016
play read on

Getting Around in Mexico
play read on

NAFTA value falls 2.3 percent; freight has declined 20 of last 21 months
play read on

Unemployment in Brazil Reaches 11.8 Percent
play read on

Argentina's tax amnesty program “rescues” US$ 21.9bn including US$ 7.2bn in cash
play read on

Brazil loses 750,000 jobs in 10 months this year
play read on

Corporate Compliance and Responsibility – More than just words on paper
play read on


Our Free eJournals
GlobalAutoExperts

To visit GlobalAutoExperts Directory, click here.


©2008 GlobalAutoIndustry.com | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120