02 Jan Nearshoring in Mexico
What is nearshoring?
Near-shoring is a business trend based on the practice of moving commercial activities to a geographically closer country (main market), rather than to a more distant one. Within the Mexican context, nearshoring generally involves the transfer of production processes, lines or the entire manufacture plant from Asian or European countries to Mexico.
What are the advantages of nearshoring in Mexico?
- Cost Optimization: Reduction of operating costs for international companies.
- Employment Generation and Economic Development: Contributes to economic growth and job creation in Mexico.
- Trade Facilities: The United States–Mexico–Canada Agreement or USMCA, facilitates commercial activity between Mexico, the United States and Canada, as well as to some other countries to which Mexican has free trade agreements.
- Geopolitical Proximity: Geographic proximity to the main market (USA) reduces transportation risks, costs and facilitates supply chain management.
- Efficient Supply Chains: Agility and security in supply chains.
- Labor Productivity: Access to skilled labor.
- Tax Benefits: Tax incentives from the Mexican government to attract investment and nearshoring operations, as well as some other duty deferral programs (IMMEX/Maquila).
What tax incentives exist in Mexico to attract nearshoring?
On October 11th. 2023, a new executive order was published granting tax incentives to promote investments, with a focus on ten highly export-oriented sectors (the “Executive Order”). Such tax incentives are focused on:
1. Immediate Tax Deduction of Investments: This incentive consists of making the immediate deduction of the investment in new fixed assets , acquired as from the effective date of the Executive Order and until December 31, 2024. This allows technology and research companies to deduct, in each fiscal year, the amount resulting from applying the percentages established in the Executive Order, to the original amount of the investment according to each asset type. The rates established in the Executive Order range from 56% to 89%, depending on the type of fixed asset.
It is important to consider that the amount of the investment of the corresponding assets, can be restated for the period from the date on which the asset was acquired, until the last month of the first half of the period since the investment was made, and until the end of the fiscal year in progress.
The requirements to be able to apply the immediate tax deduction are as follows:
- The deduction only applies to those investments that remain in use for a minimum period of two years immediately following the fiscal year in which the immediate deduction is made.
- The incentive does not apply to furniture, office equipment, automobiles, automobile bulletproofing equipment, or any fixed asset that is not individually identifiable, nor to airplanes that are not used for agricultural aero spraying.
- Those who apply for the immediate deduction of the investment in new fixed assets in fiscal years 2023 or 2024, must calculate the profit coefficient of the provisional payments to be made during fiscal year 2024 or 2025, adding the tax profit or reducing the tax loss of fiscal years 2023 or 2024.
- A specific record must be kept for the investments for which this deduction was applicable, keeping the supporting documentation, description of the type of asset, relationship with the business activity, process or specific activity in which the asset was used, among other information.
2. Additional 25% Tax Deduction: This deduction equals to 25% of the expenses incurred for the training received by its employees . For these purposes, the increase will be the difference between the expense incurred for training purposes in the applicable fiscal year, and the average expense incurred for training in fiscal years 2020, 2021 and 2022, averaged when no training expense has been incurred in such fiscal years.
In the event that the additional deduction is not applied in the corresponding fiscal year, the right to make the deduction in subsequent years will be lost; therefore, this deduction cannot be accumulated in subsequent years.
General information for both incentives:
- Those taxpayers whose name, denomination or corporate name and Tax ID (RFC) or that of any of their partners or shareholders are considered as sham operations found in the publication of the Tax Administration Service's (“SAT”) web page will not be able to apply for these incentives.
- These tax incentives cannot be applied by those taxpayers that: (i) have outstanding tax assessments, have not guaranteed tax assessments or partially guaranteed assessments; (ii) do not comply with any of the requirements established in the Executive Order; (iii) are in the process of dissolution of the company; (iv) are in the procedure of temporary restriction of the use of digital seals for the issuance of digital tax receipts through the Internet; or (v) have cancelled the certificates issued by the SAT for the issuance of digital tax receipts through the Internet.
- To be eligible for these tax incentives, the following requirements must be met: (i) Registration with SAT and have a Tax ID (RFC), (ii) have a positive opinion of compliance with tax obligations issued by SAT, and (iii) submit a notice stating that they are opting for the application of the tax incentives.
Which business activities are eligible for these tax incentives:
- Manufacture of parts for automotive vehicles.
- Agricultural industry.
- Manufacture of pharmaceutical products.
- Manufacture of other electrical equipment and accessories.
- Manufacture of electronic components.
- Production of cinematographic and audiovisual works.
- Manufacture of non-electronic equipment and disposable material for medical, dental and laboratory use.
- Manufacture of fertilizers, pesticides and other agrochemicals.
- Manufacture of aerospace equipment.
- Manufacture of measuring, control, navigational, and medical electronic equipment.
Nearshoring between Mexico, the United States and Canada is emerging as a key business strategy in today's international business landscape. Geographical and cultural proximity from the main markets, supported by trade agreements such as the United States–Mexico–Canada Agreement or USMCA, offers companies the opportunity to optimize their operations and reduce costs without sacrificing quality. Tax incentives implemented by the Mexican government add an additional attraction, providing strategic sectors with a framework for growth and investment. In this context, nearshoring not only boosts efficiency and competitiveness, but also contributes to sustainable economic development in the region.
Should you have any questions or comments, please do not hesitate to contact our team of subject matter experts.
Contact
Alejandro Martínez
Rafael Sánchez
Victoria Parra
Jorge González
Hugo Cuesta Tamayo
Santiago Mena
THE ABOVE IS PROVIDED AS GENERAL INFORMATION PREPARED BY PROFESSIONALS WITH REGARD TO THE SUBJECT MATTER. THIS DOCUMENT ONLY REFERS TO THE APPLICABLE LAW IN MEXICO. WHILE EVERY EFFORT HAS BEEN MADE TO ENSURE ACCURACY, NO RESPONSIBILITY CAN BE ACCEPTED FOR ERRORS OR OMISSIONS. THE INFORMATION CONTAINED HEREIN SHOULD NOT BE RELIED ON AS LEGAL, ACCOUNTING OR PROFESSIONAL ADVICE BEING RENDERED.