Nearshoring location Mexico: Regulation on significant special tax write-offs issued

published on 27 October 2023 | reading time approx. 2 minutes

On the 11 October 2023, the Mexican legislation issued a “Decree to grant tax incentives to key sectors of the export industry for the immediate deductibility of investments in new capital assets and additional deductibility of training costs”. The almost noiseless approval and the tax incentives included were surprising.

In the introduction of the decree, the legislation explains the legislation with the deliberate promotion of companies that operate within the framework of the nearshoring strategy. The intention is to promote the competitiveness of these export-orientated companies in certain key sectors. The aim of the decree is to strengthen Mexico as a workbench for the USA, create jobs and increase foreign direct investment.

Special depreciation for capital goods

Capital goods purchased from date the decree came into force until 31 December 2024 can be depreciated at a higher rate in the year of acquisition to reduce tax. The type of capital good is a determining factor; for example, electric vehicles can be depreciated at a rate of 86 percent in the year of acquisition, computers at a rate of 88 percent or machinery and equipment at 89 percent if the equipment is used in research or development.

If the capital good is not explicitly named as eligible in the decree, machinery and equipment used in certain sectors can be depreciated at higher rates. For example, equipment and machinery in the semiconductor industry can be depreciated at a rate of 56 percent in the year of acquisition; the pharmaceutical industry is also subsidised at the same rate. The automotive industry, aircraft industry, optical equipment and electronic components industry, as well as the food industry are also listed. In subsequent years, a further part of the acquisition costs can be depreciated according to a scheme specified in the decree.

For this purpose, the taxable company in question must first fulfil certain criteria, including an export quota of at least 50 percent. In addition, either the fixed capital goods or the economic sector must be eligible. Finally, in the case of depreciation, a separate list of fixed capital goods has to be kept.

It is interesting to observe that, contrary to its usual practice, the legislator is now giving taxpayers the option of taking special depreciation allowances into account in their monthly corporation tax prepayments.

Additional deductibility of training costs

The legislation gives taxable companies another attractive opportunity to consider possible training costs in excess of their expense amount as business expenses. The average of the training costs for the 2020, 2021 and 2022 fiscal years is calculated as a base value. If the training costs in one of the fiscal years 2023, 2024 or 2025 are higher than the base value, 25 percent of the excess amount can be additionally recognized as operating expenses.

The expenses are only eligible for training of employees who are registered within the Mexican social security institution. Furthermore, special registers of training measures with content and relevance for the activities specified in the regulation must be kept.

Check eligibility

A large number of companies benefit from the decree's provisions. The opportunities are profitable and optimize cash flow. It is now important that you check the eligibility of investments quickly and fulfil the requirements.