On December 28, 2018, the Federal Revenue Law for fiscal year 2019 was published in the Federal Official Gazette, effective as of January 1, 2019.
Said Law does not provide for new federal taxes or tax rate increases; also, tax laws were not subject to any tax reforms; and no âTax Amnestyâ was granted to taxpayers thereof.
Below you will find our comments regarding the substantial changes and additions to the respective tax provisions for fiscal year 2019.
TAX REFORMS FOR FISCAL YEAR 2019
Elimination of the benefit of offsetting recoverable balances from different tax liabilities
The option regarding the benefit of offsetting (on an âuniversal basisâ) applicable to recoverable balances derived from different federal tax liabilities (Income Tax VS Value Added Tax), whether from their own tax liability or from withholding taxes to third parties, was eliminated.
Therefore, effective fiscal year 2019, taxpayers will only be able to offset their recoverable balances against those they must pay for their own tax liabilities, including ancillary charges (restatement for inflation and surcharges).
Elimination of the benefit of offsetting recoverable balances derived from VAT
The option regarding the benefit of offsetting applicable value added tax (VAT) recoverable balances against balances derived from different federal tax liabilities (VAT VS Income Tax) was eliminated, effective fiscal year 2019; therefore, taxpayers will only be able to credit their recoverable balance against their own VAT payable in subsequent months until its exhaustion, or request for a tax refund in full on such recoverable balance.
Benefit of offsetting recoverable balances from different tax liabilities generated up to December 31, 2018
Notwithstanding the above, the Mexican tax authorities issued a new rule or criterion that grants taxpayers the possibility to apply in 2019 the benefit of offsetting recoverable balances from different tax liabilities (VAT VS Income Tax; Income Tax VS VAT) generated up to December 31, 2018, against those recoverable balances for which no offsetting has been made or no tax refund has been previously requested.
Therefore, based on such rule, taxpayers may offset recoverable balances from their own tax liabilities generated up to December 31, 2018, against those taxes they must pay for their own tax liabilities derived from different federal taxes generated in 2019, including ancillary charges.
Also, the possibility to offset withholding taxes to third parties against taxpayersâ own tax liabilities is eliminated.
Withholding tax rate on interests paid by financial entities
Effective January 1 2019, the annual income tax withholding rate applicable to interests paid by financial entities to individuals and companies residents in Mexico is increased from 0.46% in fiscal year 2018, to 1.04% for fiscal year 2019.
Tax incentives applicable to income tax and the excise tax (against annual corporate income tax applied by taxpayers of different sectors) are the same (as in 2018) and shall continue in effect for fiscal year 2019, upon compliance with the specific tax requirements, as provided for in the Federal Revenue Law.
âMoney Launderingâ self-regularization program
The Tax Administration Service (known as âSATâ) shall publish within 60 days a series of rules for the implementation of a âself-regularization programâ applicable to those taxpayers that carry out vulnerable activities, who have failed to comply with their obligations related to money laundering-prevention issues (known as âPLDâ) from July 1st 2013 through December 31st, 2018.
Accordingly, taxpayers shall be able to regularize themselves regarding the aforementioned obligations without any penalties on the incompliance period; as well as the forgiveness of fines already determined, provided that prior authorization is granted by the SAT to join the program.
TAX INCENTIVES FOR THE NORTHERN BORDER REGION
On December 31, 2018, the Decree of Tax Incentives of the Northern Region of Mexico was published in Official Gazette intending to promote and develop an economic plan for this zone of the country; such Decree provides for the reduction of the income tax at a rate of 20% (in general terms) and the value added tax at a rate of 8%, by means of a tax credit for such purposes, applicable to business activities carried out by individuals, companies and permanent establishments located in the specified territories.
These tax incentives are effective from January 1, 2019, and shall be in force in fiscal years 2019 and 2020.
For further information regarding the tax reforms earlier described for fiscal year 2019, please contact.