Congress Approves 2010 Federal Revenue Law - International Law Office

International Law Office

Corporate Tax - Mexico

Congress Approves 2010 Federal Revenue Law

December 04 2009

Income Tax
Cash Deposits
Excise and Telecommunications Taxes
Federal Tax Code Amendments
Flat-Rate Business Tax
Value-Added Tax


On September 8 2009 President Calderon presented a bill on the 2010 Federal Revenue Law and a package of other federal tax amendments to the Chamber of Deputies. After lengthy debates between the main political parties, the Senate approved the bills on November 6 2009 and submitted them to the president to be signed into law. Once this process is completed, the bills will be published in the Official Gazette.(1) Most of the provisions will enter into force on January 1 2010.

Income Tax

The new legislation raises the corporate tax rate from 28% to 30% for 2010, 2011 and 2012, then reduces it to 29% in 2013 and to 28% in 2014. Personal income tax rates will also rise from 28% to 30%. Moreover, the tax rate will rise for non-residents in respect of certain forms of income that are deemed to be from a Mexican source. This change will affect income derived from:

  • timeshare tourism services agreements;
  • the transfer of real estate within the Mexican territory;
  • the transfer of stock or securities representing legal title to assets that are taxed on a net basis;
  • equity derivatives;
  • gains by a non-resident through a Mexican non-profit organization;
  • royalties paid for the use of, or the right to use, patents, trademarks, brands or other intellectual property for use in marketing;
  • construction, installation, maintenance or assembly services in respect of real estate (including related inspection and supervisory activities);
  • artistic or sporting activities or the production of public performances;
  • the waiver of debt;
  • the granting of a right to participate in a business or investment or a payment to execute or participate in legal transactions;
  • indemnifications for consequential damages or liquidated damages clauses; and
  • the transfer of goodwill.

The increase will also affect certain forms of interest.

Other forms of income
Income is deemed to be subject to a preferential tax regime when it is taxed in a foreign jurisdiction at an effective tax rate that is less than 75% of the Mexican income tax rate. Therefore, the acceptable effective rate will rise from 21% to 22.5% for 2010, 2011 and 2012, before falling to 21.75% for 2013 and returning to 21% in 2014.

Consolidation regime
Tax consolidation benefits will be recaptured every five years. A transitional regime has been created for recapturing benefits accrued between 2004 and 2008.

Interest calculation scheme
A new interest calculation scheme provides a simpler way to calculate real accruable interest. Financial institutions will withhold income tax on the actual interest paid to investors, as opposed to applying the rate set forth in the law to the principal component.

Withholding tax rate on interest
The 4.9% reduced withholding tax rate on interest applicable to foreign financial entities has been extended to the end of 2010. This rate applies to interest: (i) paid to non-residents and obtained from publicly offered investment instruments (or from profits on the transfer thereof) or credits charged to credit institutions or auxiliary credit institutions or placed through banks or brokerage houses in a jurisdiction with which Mexico has a double taxation treaty; and (ii) paid to non-resident financial institutions in whose capital stock the government has an interest, provided that the applicable requirements are observed.

Tax incentives
Incentives granted for expenses and investment attributed to technological development and research will be scrapped. Parties that have already received such benefits must apply certain transitional rules.

Cash Deposits

Due to the government's success in raising revenue from the taxation of cash deposits, the deposit tax rate will rise from 2% to 3% and the threshold for exemption will fall from Ps25,000 to Ps15,000.

Excise and Telecommunications Taxes

The excise tax on alcoholic beverages, cigars and gambling will be raised. Furthermore, telecommunications services (except for interconnection, rural and public telephone services and internet services) will be taxed at 3%.

Federal Tax Code Amendments

Congress has approved changes to:

  • tax audits and the authorities' review and enforcement powers;
  • operational procedures; and
  • the issuance of digital invoices.

Flat-Rate Business Tax

For fiscal year 2010 the net operating losses derived from the determination of the flat-rate business tax cannot be credited against the income tax incurred in the same fiscal year.

Value-Added Tax

The general rate and border zone rate of value-added tax will rise from 15% to 16% and from 10% to 11%, respectively. The increase in rates may affect transactions performed before 2010.

For further information on this topic please contact Christian R Natera at Natera y Espinosa SC by telephone (+52 55 5249 4400), fax (+52 55 5249 4401) or email (cnatera@natera.com.mx).

Endnotes

(1) Some bills have already been published.


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