On Oct. 11, 2011, the President of Mexico, Felipe Calderon Hinojosa, signed a decree (the Decree) extending the term of the benefit of the Flat Tax Rate (Impuesto Empresarial a Tasa Única or IETU) until Dec. 31, 2013; a benefit granted to Maquiladoras (companies operating under the IMMEX program) that was set to expire on Dec. 31, 2011.
This fiscal benefit was granted by President Calderon on Nov. 5, 2007—with the aim of relieving the impact that IETU would have on Maquiladoras—to become effective as of Jan. 1, 2008. Effective tax rates of more than 50% were estimated to be the impact of IETU. The benefit consisted in that Maquiladoras would pay income tax (Impuesto sobre la Renta or ISR) and IETU combined at an effective rate not exceeding 17.5% on the ISR taxable profits.
Since its implementation, this fiscal benefit was meant to expire on Dec. 31, 2011 as the Department of Revenue and Public Credit (Secretaría de Hacienda y Crédito Público or Hacienda) had to submit an analysis on whether or not Title II (Legal Persons) of the Income Tax Law would continue to exist or IETU Law would be the only one remaining. Since there was a possibility that the results of the analysis affected some aspects of the IETU law, the effective term for the tax benefit was established for this same year so adjustments could be designed, if required.
This announcement and the execution of the Decree put an end to the uncertainty of Maquiladoras’ shareholders. However, this is not a final solution for the issue, it only extends the fiscal benefit for two more years allowing some time for Hacienda to find a permanent solution that provides the legal certainty that Maquiladora investors are expecting.
New requirements for the application of IETU’s fiscal benefit
As part of the extension of the IETU benefit for Maquiladoras, a set of requirements have been incorporated in order to obtain this benefit; this will cause Maquiladoras to strengthen actions aimed at securing the compliance of the new requirements set forth in the Decree – applicable as of Jan. 1, 2012 – as listed hereunder:
- Filing all annual and monthly federal tax returns the companies are required pursuant to the tax provisions, regardless of having a balance payable or not,
- Complying with the provisions of Federal Fiscal Code Article 32-D, paragraph 5 (right to grant incentives) only in connection to Fractions I, II, and III of the aforementioned article (paid and unpaid tax credits, and not registered in the RFC (Taxpayer Federal Registry),
- Filing a statutory audit opinion on the company’s financial statements under the Federal Fiscal Code, if applicable, or, if the company decides not to file such opinion under Article Three of the "Decree by which administrative facilities were granted in the area of taxpaying simplification" published on June 30, 2010, in the Federation Official Gazette; filing the information according to the terms and means established by the Revenue Administration Service (Servicio de Administración Tributaria or SAT) through general application rules under the terms of the aforementioned article,
- Filing the informational report of transactions with third parties (Declaración Informativa de Operaciones con Terceros or DIOT) under the terms and conditions established in the fiscal provisions,
- Filing the informational report of Manufacturing Companies, Maquiladoras and Services Exporters (DIEMSE, for its initials in Spanish) under the terms and conditions established in the fiscal provisions,
- The federal taxpayer ID must be active. For this purpose, the ID is construed as active when it is not in suspended operation, liquidation, or cancelled under the current fiscal provisions,
- The information provided to the Federal Taxpayer Registry is not false or nonexistent, and address change notices are filed, as well as the notices regarding the opening of premises, branch offices, and locations where merchandise is stored or, in general, any type of location or premises used for the company’s operation,
- Complying with the requirements set forth in Article 24, fractions I, III, IV, VI, VII and IX of the "Decree amending the requirements for the manufacturing industry, Maquiladoras, and service exporters" published in the Federation Official Gazette, and amended on Dec. 24, 2010,
- Having all the documentation related to foreign trade operations.
- Complying with the requirements set forth by the authorities to file the documentation and information to comply with tax and customs requirements in connection to their maquiladora operations, and
- The name or registered address of supplier or producer, and consignee or buyer, in a foreign country, as stated in the appropriate customs pedimento or invoice, is not false or nonexistent.
As previously stated, we strongly recommend the upright compliance with these requirements since missing only one of them will result in the loss of this tax benefit and an impact on IETU. Additionally, the Decree points out that the failure to comply with any of the assumptions set forth in Fractions I through V of this Article will cause SAT to proceed to the suspension of the taxpayer from the Importers Registry referred to in Customs Act Fraction IV Article 59.
Keep in mind that IETU’s tax benefit consists in that Maquiladoras would pay Income Tax and IETU combined at an effective rate not exceeding 17.5% on the taxable profits, thus the importance of complying with the new requirements.