Presentation on theme: "Mexico’s Tax reform impact for the future"— Presentation transcript:
1 Mexico’s Tax reform impact for the future Lourdes M. Quinn
2 Main impact for International Companies VAT Sales from a US entity to a Mexican residentVAT from a National supplier to a Mexican ManufacturerVAT payments in border cities.VAT in temporary importation unless a credit is obtained.VAT - IVALimitation to sales in MexicoLimitations in deductions for payroll.Incentives for Income Tax concludedIncrease administrative and internal controlINCOME TAX - ISRERP-MRP/ANNEX 24Increase administrative and internal control
5 Why VAT changed for IMMEX? OCDE VAT/GST GUIDELINES:Destination. Until 2010 the main rule was to tax the place where the last consumer was located.Neutrality.Definition of the place of taxation in the case of cross border trade in services and intangibles between B2B supplies.There are pending guidelines in the case of B2C supplies for cross border
6 Impact and effectsPurchases in Mexico are recommended to be conducted by using “Virtual Pedimentos” (customs declaration without presenting merchandise for customs clearance) When they are related to products that are used for the production process.Definitive importation will have an impact of 5% more going from 11% to 16% for consumables, spare parts, and other tools that the company is importing under definitive basis. This will have an effect in the importation of tools and other consumables under definitive basis.Time to go back to temporary importations for tools and spare parts?VATValue Added Tax Rate to 16%Leveling of VAT tax rate in border cities from 11% to 16%.Rates of 0% in certain products will remain the same.
7 VATIMMEX national companies (Ex Pitex) who were purchasing products from national suppliers will have to pay the VAT and make a credit to recover the VAT.This change affects Mexican Manufacturers who are exporting more than a 10% of their product.Also and as in the past, this makes a Mexican Manufacturer to find suppliers abroad since the VAT effect reduces the VAT burden.Mexican Manufacturer’s purchases to Mexican Suppliers - VAT zero effect no longer applicable
8 VAT FOR MEXICAN MANUFACTURERS (MM) WITH IMMEX CLIENT ABROADEXPORT VAT 0%VAT 16%SUPPLIERSMERCHANDISE MOVINGIMMEX MMRTSALE OF RAW MATERIALSALE OF FINISH PRODUCTSERVICE SALEVIRTUAL PEDIMENTOS
9 VAT TO RECOVER OR CREDIT VAT FOR MEXICAN MANUFACTURERS (MM) WITH IMMEX BEFORE AND AFTERVAT TO RECOVER OR CREDIT
10 VATThe sale was exempt before, the reform obligates to follow the rule of location of the goods when they are sold (consumer location).The incentive form the government is to pay and withhold the VAT with the following conditions:A Virtual Pedimento has to be filedIt has to be a sale within the supply chain for exportationA CFDI (Digital Fiscal Certificate) complementary should be issuedVAT in sales from a Foreign resident to an IMMEX now is subject to VAT, as an incentive the tax can be withheld.
11 SALE 0% SALE 16% EXPORT OF GOODS WITHHOLD VAT CLIENTCLIENT-SUPPLIERABROADMEXICAN SUPPLIERV1IMMEX MMV1EXPORT OF GOODSWITHHOLD VATMERCHANDISE MOVINGSALE OF RAW MATERIALVAT TEMPORARY IMPO 16%SALE OF FINISH PRODUCTSERVICE SALEVIRTUAL PEDIMENTOS
12 SALE 16% EXPORT RETURN OF GOODS WITHHOLD VAT CLIENT ABROADPARENT COMPANYPARENTCOMPANYEXPORTIMMEX MEXICOV1IMMEX MMV1IMMEX MEXICOV1-RTRETURN OF GOODSWITHHOLD VATMERCHANDISE MOVINGSALE OF RAW MATERIALVAT TEMPORARY IMPO 16%SALE OF FINISH PRODUCTSERVICE SALEVIRTUAL PEDIMENTOS
13 VAT SALES OF FOREIGN RESIDENT TO MEXICAN MANUFACTURERS (MM) BEFORE AND AFTER
14 VATThe sale remains exempt as before, this put in disadvantage the MM operations. Companies are consideringSales within corporations abroadVirtual Pedimento only in sales between foreign residents.Sales from a Foreign resident made the merchandise to be exported to a FTZExporting inbond Juarez re-importing it by Laredo (Article 59 CFF may affect those transactions)VAT in sales between foreign residents with transfers by IMMEX in Mexico did not changed.
15 NO VAT RETURN OF GOODS VAT TEMPORARY IMPO 2015 VAT EXEMPT V1 V1-RT PARENTCOMPANYPARENT COMPANYEXPORT 0%VAT EXEMPTIMMEX MEXICOV1IMMEX MEXICOV1-RTRETURN OF GOODSMERCHANDISE MOVINGSALE OF RAW MATERIALVAT TEMPORARY IMPO 2015SALE OF FINISH PRODUCTSERVICE SALEVIRTUAL PEDIMENTOS
16 VATThe sale remains exempt as before, is also a disadvantage for MM.Virtual pedimento has to be filedThere is two Virtual PedimentosA virtual exportation for the supplier.A virtual importation for the IMMEXNo VAT would be paid or withheld in this transaction except for the VAT related to the temporary importation.VAT for sales from a Mexican Supplier to a Foreign resident remains to 0% using a virtual pedimento.
17 VAT 0% ? IMPORT OF GOODS EXPORT OF SERVICES MATRIZ O«PARENT COMPANY»MEXICANSUPPLIERV1IMPORT OF GOODSEXPORT OF SERVICESMERCHANDISE MOVINGIMMEXV1-RTSALE OF RAW MATERIALSALE OF FINISH PRODUCTSERVICE SALEVIRTUAL PEDIMENTOS
18 VAT VAT FOR TEMPORARY IMPORTATIONS WILL BE 16% TAXABLE IN 2015. Conflicts on interfaces within ERP-MRP systems Annex 24.2014 option to obtain the certification.New type of reports to inform the credit applied and the balances pending to returnVAT FOR TEMPORARY IMPORTATIONS WILL BE 16% TAXABLE IN 2015.Option:Certification levels A, AA and AAA.Or Bond.Basic requirements:Tax Compliance. Company, partners, shareholders, legal representatives, suppliers.More than 10 employeesProductive process for exportationAnnex 24
19 If the merchandise is exported a VAT return can be claimed, if the merchandise is sold in Mexico the VAT is creditedVAT 16%SUPPLIERSMERCHANDISE MOVINGIMMEX MMRT &/OR SALESALE OF RAW MATERIALSALE OF FINISH PRODUCTSERVICE SALEVIRTUAL PEDIMENTOS
21 VAT 0% EXPORT IMPORT OF GOODS EXPORT OF SERVICES MATRIZ O«PARENT COMPANY»MEXICANSUPPLIERV1IMPORT OF GOODSEXPORT OF SERVICESMERCHANDISE MOVINGIMMEXV1SALE OF RAW MATERIALSALE OF FINISH PRODUCTVAT TEMPORARY IMPO 16%SERVICE SALEVIRTUAL PEDIMENTOS
22 Scenario 1: Examples IMPORTATION for consumption The VAT base include all customs expenses.Scenario 1: Examples IMPORTATION for consumptionNAFTA products don’t pay processing fee.Note that the VAT can be credit against the VAT transferred from the clients in a sale in Mexico. Duty and Processing fee (DTA) will be deductible.
23 Scenario 2: Example Bonded warehouse (Tax Deposit) TEMPORARY IMPORTATION Tax Deposit for general bonded warehouse was not affected by the VAT reformEntering into the bonded warehouse for general importation will not pay VAT on the temporary importation but the merchandise is subject to the “Carta Cupo”If the company imports the merchandise under quota they will not pay the VAT for temporary importation.
24 Certified IMMEX wont pay VAT IMMEX do not pay VAT in 2014Scenario 3: Example Importation by an IMMEX company – TEMPORARY IMPORTATIONIMMEX pay VAT in 2015Certified IMMEX wont pay VATIMMEX pay a reduced DTANote that the VAT is exempted for 2014 and has to be paid in 2015, unless the company obtains a VAT certification (Trusted Taxpayer Certification)
25 Less incentives, increase of regulations INCOME TAXLess incentives, increase of regulations
26 VAT Income tax – VAT & Customs relations IGI Ad valorem INCOME TAX RELATED TO DEDUCTIONSCUSTOMS VALUATIONXTARIFF RATEIGIVATIMPORTSAd valoremTariff classificationOrigin Qualification
27 SALE, RENT, SERVICES USUALLY 0% Income tax – VAT & Customs relationsEXPORTSINCOME TAXRELATION WITH INCOMECOMMERCIAL VALUEXTARIFF RATEEXPORT DUTYVATSALE, RENT, SERVICES USUALLY 0%USUALLY 0% FOR EXPORTS FROM MEXICO
28 DIFFERENCE ON TAXABLE BASE Fear to the Permanent Establishment.NO TAXATIONLIMITED TAXATIONTAX EVASION/TAX FRAUDDOUBLE TAXATIONGOVS SEEK FOR TAXATIONDIFFERENCE ON TAXABLE BASE
29 INCOME TAX – Permanent establishment Foreign investmentExport 100%Raw Material, Machinery and equipment owned by US residentTransformation processUnifies Article 33 of the DIMMEX CONTRACTMaquila ContractTransformation process also includes packaging, classifying other servicesNo sales of the finish productsIncome from sale of scrap or other sources related to the IMMEX process is accepted but limited to a 10%Grandparent clause for ownership30% of machinery is acceptedDIEMSE
30 “New definition” of Maquila Operation 181 LISR .- A new definition for the IMMEX operation definition. :Requirements for Raw MaterialArt. 181 LISRART.33 DIMMEXRaw material provided by the RA for transformation shall be imported temporarily and shall be return by direct or indirect exportation, except of waste and scrap. Raw Material can be owned by a third party client of the RA.SIMILARTransformation do not include now developing of products and increasing of qualityA 100% of total income should come from IMMEX servicesIt was only 10% or 500KIf a national content of raw material is incorporated it should be exported
31 “New definition” of Maquila Operation Machinery & Equipment Art. 181 LISRART.33 DIMMEXM&E should be property of the foreign resident, it cannot be previously owed by the IMMEX or any other related party.SIMILARSimilarPossibility to use M&E from a related party of the Foreign Resident abroadNot includedPossibility to use M&E of the IMMEX or lease from a related party.Through IMMEX INCENTIVESAt least a 30% of the M&E should be property of a Foreign Resident. Not applicable to IMMEX incorporated and registered before 2009.
32 Maquila options for Income Tax payment 182 LISR (Anterior 216-bis).- Reduction to two the former methods for IMMEX.DIEMSE obligation- June of the next Tax Year.Safe Harbor – It is considered the total profit even if it is major than the IMMEX operations.Transfer Price Method182 LISR216-BisMark-up + 1% M&E de RENot applicableApplicableSafe HarborROANot ApplicableAPA´sOptional
33 Limited deductionPayments made by taxpayers to related parties residing in Mexico or foreign residents when such payments are taxable to an income tax rate inferior than 75% of the one caused in Mexico. It will not be deductible the payments made by a Mexican Taxpayer to a related party in Mexico or in a foreign territory if such company is also making such deduction.Mexico Received recommendations published in July 2013, related to the BEPS Base erosion and profit shifting)
34 Other modifications: Impact on additional taxes: Tax on employees Limitation in deductionsSocial security regulations reformNotifications by electronic meansResponsibility of Legal representatives, professionals and managers on tax fraud and tax penalties.
35 The puzzler of international companies ERP MRP Annex 24The puzzler of international companies
36 ERP-MRP/ Annex 24Annex 24:ACCURATE BOM’SCONSTANT UPDATES AND MODIFICATIONSINCLUDING MATERIALS THAT ARE USUALLY OUT OF THE BOM’SCORRECT CUSTOMS VALUATIONCONSIDEING ADDED VALUEUNIT MEASURESThe control of inventories and its connection to Income Tax and Value Added Tax
37 ERP-MRP/ Annex 24 Annex 24: Why is important now? Review of Regional Content Value for the qualification of OriginReview of the value of transactions, assets and movements on international transactionsSource for government review on possible tax evasion in international operationsStatistics and decision makingWhy is important now?Why was important before
38 Supporting our clients on Tax Impact Recommended ActionsSupporting our clients on Tax Impact
39 BE PROACTIVE NOT REACTIVE! Obtain NEECEstablishment of internal proceduresContracts with related partiesInternal regulations and company’s policiesTax plan for operations in MexicoSeer for Amparo and tax defense on the following mattersLimitation of deductionsLimitation on VAT creditUploading of accounting recordsReviewing procedures and backup of customs valuationContracts and suppliers tax complianceAnnex 24 update and controls for VAT impact