Presentation on theme: "Mexico’s Tax reform impact for the future Lourdes M. Quinn."— Presentation transcript:
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 resident VAT from a National supplier to a Mexican Manufacturer VAT payments in border cities. VAT in temporary importation unless a credit is obtained. Limitation to sales in Mexico Limitations in deductions for payroll. Incentives for Income Tax concluded Increase administrative and internal control
Value added Tax Unexpected changes
4 Top Ten VAT RATES IN THE WORLD
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 VAT Value 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. Impact and effects Purchases 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?
7 VAT Mexican Manufacturer’s purchases to Mexican Suppliers - VAT zero effect no longer applicable IMMEX national companies (Ex Pitex) who were purchasing products from national suppliers will have to pay the VAT and make a credit to recover the VAT.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.
SUPPLIERS CLIENT ABROAD IMMEX MM RT MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS VAT FOR MEXICAN MANUFACTURERS (MM) WITH IMMEX
VAT FOR MEXICAN MANUFACTURERS (MM) WITH IMMEX BEFORE AND AFTER VAT TO RECOVER OR CREDIT
10 VAT VAT in sales from a Foreign resident to an IMMEX now is subject to VAT, as an incentive the tax can be withheld. The 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 filed It has to be a sale within the supply chain for exportation A CFDI (Digital Fiscal Certificate) complementary should be issued
CLIENT MEXICAN SUPPLIER V1 IMMEX MM V1 CLIENT-SUPPLIER ABROAD VAT TEMPORARY IMPO 16% MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS
PARENT COMPANY PARENT COMPANY IMMEX MEXICO V1 IMMEX MM V1 IMMEX MEXICO V1-RT CLIENT ABROAD VAT TEMPORARY IMPO 16% MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS
VAT SALES OF FOREIGN RESIDENT TO MEXICAN MANUFACTURERS (MM) BEFORE AND AFTER
14 VAT VAT in sales between foreign residents with transfers by IMMEX in Mexico did not changed. The sale remains exempt as before, this put in disadvantage the MM operations. Companies are considering Sales within corporations abroad Virtual Pedimento only in sales between foreign residents. Sales from a Foreign resident made the merchandise to be exported to a FTZ Exporting inbond Juarez re-importing it by Laredo (Article 59 CFF may affect those transactions)
PARENT COMPANY PARENT COMPANY IMMEX MEXICO V1 IMMEX MEXICO V1-RT VAT TEMPORARY IMPO 2015 MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS
16 VAT VAT for sales from a Mexican Supplier to a Foreign resident remains to 0% using a virtual pedimento. The sale remains exempt as before, is also a disadvantage for MM. Virtual pedimento has to be filed There is two Virtual Pedimentos A virtual exportation for the supplier. A virtual importation for the IMMEX No VAT would be paid or withheld in this transaction except for the VAT related to the temporary importation.
MEXICAN SUPPLIERV1 MATRIZ O «PARENT COMPANY» IMMEX V1-RT MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS
18 VAT VAT FOR TEMPORARY IMPORTATIONS WILL BE 16% TAXABLE IN Option: Certification levels A, AA and AAA. Or Bond. 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 return Basic requirements: Tax Compliance. Company, partners, shareholders, legal representatives, suppliers. More than 10 employees Productive process for exportation Annex 24
SUPPLIERS IMMEX MM RT &/OR SALE RT &/OR SALE MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS If the merchandise is exported a VAT return can be claimed, if the merchandise is sold in Mexico the VAT is credited
PARENT COMPANY IMMEX MEXICO V1 IMMEX MM V1 IMMEX MEXICO V1-RT VAT TEMPORARY IMPO 16% MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS VAT TEMPORARY IMPO 16% PARENT COMPANY VAT TEMPORARY IMPO 16%
MEXICAN SUPPLIERV1 MATRIZ O «PARENT COMPANY» IMMEX V1 VAT TEMPORARY IMPO 16% MERCHANDISE MOVING SALE OF RAW MATERIAL SALE OF FINISH PRODUCT SERVICE SALE VIRTUAL PEDIMENTOS
22 Scenario 1: Examples IMPORTATION for consumption 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. The VAT base include all customs expenses. NAFTA products don’t pay processing fee.
23 Scenario 2: Example Bonded warehouse (Tax Deposit) TEMPORARY IMPORTATION Entering 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. Tax Deposit for general bonded warehouse was not affected by the VAT reform
24 Note that the VAT is exempted for 2014 and has to be paid in 2015, unless the company obtains a VAT certification (Trusted Taxpayer Certification) IMMEX do not pay VAT in 2014 IMMEX pay VAT in 2015 Certified IMMEX wont pay VAT IMMEX pay a reduced DTA Scenario 3: Example Importation by an IMMEX company – TEMPORARY IMPORTATION
INCOME TAX Less incentives, increase of regulations
CUSTOMS VALUATION X TARIFF RATE IGI Ad valorem Tariff classification Origin Qualification VAT INCOME TAX RELATED TO DEDUCTIONS 26 Income tax – VAT & Customs relations IMPORTS
COMMERCIAL VALUE X TARIFF RATE EXPORT DUTY USUALLY 0% FOR EXPORTS FROM MEXICO VAT SALE, RENT, SERVICES USUALLY 0% INCOME TAX RELATION WITH INCOME 27 Income tax – VAT & Customs relations EXPORTS
Fear to the Permanent Establishment. NO TAXATION LIMITED TAXATION TAX EVASION/ TAX FRAUD DOUBLE TAXATION GOVS SEEK FOR TAXATION DIFFERENCE ON TAXABLE BASE
29 INCOME TAX – Permanent establishment Foreign investment Export 100% Raw Material, Machinery and equipment owned by US resident Transformation process Unifies Article 33 of the DIMMEX CONTRACT Maquila Contract Transformation process also includes packaging, classifying other services No sales of the finish products Income from sale of scrap or other sources related to the IMMEX process is accepted but limited to a 10% Grandparent clause for ownership 30% of machinery is accepted DIEMSE
181 LISR.- A new definition for the IMMEX operation definition. : Requirements for Raw Material Art. 181 LISRART.33 DIMMEX Raw 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. SIMILAR Transformation do not include now developing of products and increasing of quality SIMILAR A 100% of total income should come from IMMEX services It was only 10% or 500K If a national content of raw material is incorporated it should be exported SIMILAR “New definition” of Maquila Operation
Machinery & Equipment Art. 181 LISRART.33 DIMMEX M&E should be property of the foreign resident, it cannot be previously owed by the IMMEX or any other related party. SIMILAR Similar Possibility to use M&E from a related party of the Foreign Resident abroad Not included Possibility to use M&E of the IMMEX or lease from a related party. Through IMMEX INCENTIVES At least a 30% of the M&E should be property of a Foreign Resident. Not applicable to IMMEX incorporated and registered before “New definition” of Maquila Operation
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 Method 182 LISR216-Bis Mark-up + 1% M&E de RE Not applicableApplicable Safe HarborApplicable ROANot ApplicableApplicable APA´sOptional Maquila options for Income Tax payment
Limited deduction Mexico Received recommendations published in July 2013, related to the BEPS Base erosion and profit shifting) Payments 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.
34 Other modifications: Impact on additional taxes: Tax on employees Limitation in deductions Social security regulations reform Notifications by electronic means Responsibility of Legal representatives, professionals and managers on tax fraud and tax penalties.
ERP MRP Annex 24 The puzzler of international companies
36 ERP-MRP/ Annex 24 The control of inventories and its connection to Income Tax and Value Added Tax Annex 24: ACCURATE BOM’S CONSTANT UPDATES AND MODIFICATIONS INCLUDING MATERIALS THAT ARE USUALLY OUT OF THE BOM’S CORRECT CUSTOMS VALUATION CONSIDEING ADDED VALUE UNIT MEASURES
37 ERP-MRP/ Annex 24 Why is important now? Why was important before Annex 24: Review of Regional Content Value for the qualification of Origin Review of the value of transactions, assets and movements on international transactions Source for government review on possible tax evasion in international operations Statistics and decision making
Recommended Actions Supporting our clients on Tax Impact
39 BE PROACTIVE NOT REACTIVE! Obtain NEEC Establishment of internal procedures Contracts with related parties Internal regulations and company’s policies Tax plan for operations in Mexico Seer for Amparo and tax defense on the following matters Limitation of deductions Limitation on VAT credit Uploading of accounting records Reviewing procedures and backup of customs valuation Contracts and suppliers tax compliance Annex 24 update and controls for VAT impact