Nearshoring in Mexico: tax incentives and other benefits

According to the Mexican Economy Ministry, during 2023 the direct foreign investment increased 36.058 billion USD.  

According to the Organisation for Economic Cooperation and Development, among its members, Mexico is the sixth country that attracts most foreign direct investment. 

The nearshoring boom landed in Mexico during 2023, with a 2.17% increase in the direct foreign investment, that equals 36.058 billion USD¹. 

The sectors with the highest growing rate were: 

• Manufacturing – with the 50.14% of the new investments. 

• Financial services – with the 19.95% of the total investments. 

The United States remains as the most relevant investor for Mexico with a 37.83% of the foreign investment followed by Spain (10.47%) and Canada (9.63%). 

Access to skilled labor, proximity to the United States, one of the most extensive networks of free trade agreements are some of the competitive advantages that Mexico offers to foreign investors. However, little is said about the tax benefits that Mexico offers to its taxpayers. 

Tax incentives in Mexico 

In Mexico, the tax incentives are granted by several means including presidential decrees, the Mexican Internal Revenue Law or the specifics tax laws. 

According to several court rulings, tax incentives share the same nature as subsidies or allowances; this means that their main purpose is to promote the economic development in specific regions or economic sector considered as strategic. Here are some examples: 

1. IMMEX program 

An economic program focused on the mainly exporting entities. Allows them to temporary import inventories, equipment and other assets. Requires effective and accurate inventory controls as well as, the commitment to perform annual foreign sales of more than US$ 500,000, or at least 10% of its total sales. 

2. Maquiladora program 

It is a special regime granted by the Mexican Income Tax Law, its main purpose is allowing the manufacture of goods without a permanent import to Mexico and grants a relief from the triggering of a Permanent Establishment in Mexico. It is necessary to comply with several requirements including: 

• The Mexican entity should have entered into a maquiladora agreement with a related party abroad

• All the income must derive from the maquiladora activities

• At least 30% of the machinery and equipment shall be owned by the resident abroad

• The maquiladora is NOT allowed to perform sales within Mexican territory

It is worth mentioning that the annual income tax must be determined by applying a Safe Harbor methodology, and the tax base must be at least 6.5% of adjust costs and expenses or the6.9% of the net assets used in the maquiladora operation, whichever is higher. 

3. “Nearshoring” decree 

Published in the Mexican Official Gazette in October 2023. Its targets are the sectors of food, agriculture, pharmaceutical, medical equipment, electrical equipment and components, automotive and auto parts, motion picture industries.  The principal benefits of the decree are: 

• The deduction in a single fiscal year of a proportion of investments in new fixed assets (applying rates from 56% to 89%)

• At least 50% of the income should derive from export activities

• An additional deduction of 25% of the incremental training expenses. Those benefits are applicable in 2023, 2024 and 2025 based on the average training expenses of 2020, 2021 and 2022. 

4. Fuel acquisitions 

Established in the Mexican Internal Revenue Law, this measure provides an additional deduction for those taxpayers that acquire fossil fuels to be used in their productive processes without being combusted.  

The tax incentive will be an amount equal to the excise tax paid on the acquisition of fuels and will be credited against the annual income tax payable in the year of acquisition.  

5. Income Tax Law 

Additionally, Mexican Income Tax Law provides several tax benefits that are aimed to promote artistic, scientific and sports activities: 

All of them require the approval of a special committee and are limited to certain number of beneficiaries per fiscal year. 

The specifics for the approval are different for each incentive, and the most relevant is the one for research and development (R&D). 

The benefit consists in an additional deduction of 30% of the amount of R&D expenditures exceeding the average R&D expenditure of the previous three years. Knowing the potential tax incentives that Mexico grants could be a significant advantage for those Groups that remain analysing the possibility of performedchoosing to locate their new investments in Mexico. 

The incentives mentioned above are granted on a Federal level, Mexican States are also able to establish their own incentives in respect of local taxes such as, payroll taxes, real property acquisitions or other benefits. 

If you would like to discuss the opportunities available through the Mexican business tax environment, lease get in touch with your usual Forvis Mazars contacts or one of those noted below.