Mexico’s Investment Incentives: Opportunities in 2023
In order to attract private investment to the economy, the federal government of Mexico implements incentive programs. However, these programs no longer provide direct tax breaks as a result of a 2007 reform. This reform was driven by strained public finances and the structural weaknesses of a narrow tax base. Nonetheless, certain assets located outside Mexico’s major metropolitan areas of Mexico City, Guadalajara, and Monterrey may still qualify for an accelerated depreciation scheme.
At the federal level, Mexican development banks such as Nacional Financiera (Nafin) and Banco Nacional de Comercio Exterior (Bancomext) offer general financing incentives. These development finance institutions typically provide preferential fixed-rate loans to small and medium-sized enterprises. Additionally, they support technical assistance, technological development, and infrastructure modernization.
Companies investing in infrastructure can access a range of incentives, primarily through the National Bank for Public Works (Banco Nacional de Obras y Servicios Públicos) and the National Infrastructure Fund (Fondo Nacional de Infraestructura). These institutions offer support for infrastructure projects, aiming to promote their development and improvement throughout the country.
President Andrés Manuel López Obrador’s focus on austerity measures has limited the government’s ability to provide necessary support to Mexico’s stagnant economy. Even during the COVID-19 pandemic, the government has offered minimal relief measures for companies, falling behind regional standards. In 2020, fiscal commitments, including budgetary spending and off-budget guarantees, amounted to barely 1% of GDP by year-end (World Bank & EIU Estimate). In comparison, Peru allocated approximately 20% of GDP, Chile 13%, and Brazil 12%. The lack of fiscal support is expected to have long-term consequences, including permanent business closures and a lower-quality job market.
To address rising price pressures during the Russia-Ukraine war, President López Obrador has introduced several measures. These include the elimination of import duties on basic staples and inputs, fuel tax exemptions, and fertilizer subsidies. However, inflation is expected to remain persistently high in the short term, despite these measures.
Incentives by Industry
he majority of Mexico’s industry-specific incentives primarily focus on the export sector. The main beneficiaries of these incentives are in-bond assemblers, commonly known as maquilas. Maquilas import parts to be assembled into goods intended for international markets.
In 2006, the government introduced a maquila program called the Program for the Manufacturing Industry, Maquiladora, and Export Services (Programa de la Industria Manufacturera, Maquiladora y de Servicios de Exportación—IMMEX) to promote such exports. The IMMEX program grants certain tax exemptions to participants, including import and value-added taxes on imported goods used in manufactured exports. A manufacturer qualifies as a maquila if it exports at least 10% of its annual production or if it has annual export sales worth at least US$500,000. Specifically it includes the following:
- Duty-free imports for a period of up to 18 months for raw materials and supplies for companies certified under the IMMEX program.
- Zero-rate value-added tax on exports, even when the goods are physically exported to a third party.
- Value-added tax refunds within a significantly shorter timeframe of 20 working days for manufacturers certified under the IMMEX program, as opposed to the usual 90 working days.
- Import duty refunds for inputs incorporated into finished products that are either exported by the manufacturer or sold to another entity for export purposes.
- Streamlined security measures for supply chains, including enhanced shipment security, reduced inspections, access to dedicated FAST lanes at the border, and reduced shipment times.
- Preferential support from the Foreign Trade Bank, including loan guarantees, assistance in export policy and program development, and financial aid for direct exporters.
Non-Mexican companies have the option to purchase goods from specific Mexican suppliers at a zero-rate value-added tax if the goods are physically delivered to a maquila facility.
A Sectoral Promotion Program (Programa de Promoción Sectorial) offers reduced import tariffs for specific inputs used in manufacturing and production across 24 distinct sectors. These sectors include electronics, furniture, shoes, agricultural machinery, chemicals, and cars. The reduced-tariff regime is regularly updated and can be accessed through a dedicated website operated by the federal government
Incentives by Regions
The federal government provides companies with the opportunity to benefit from accelerated depreciation on specific assets located outside major metropolitan areas such as Mexico City, Guadalajara, and Monterrey. This scheme allows for faster depreciation of fixed assets including machinery, equipment (including personal computers and laptops), and real property. The Income Tax Law (Ley de Impuesto Sobre la Renta) contains a comprehensive schedule outlining the percentage of deductions applicable to each fixed asset.
At the state level, governments offer various local tax incentives, such as temporary exemptions from payroll taxes (impuesto sobre nóminas) and property taxes. Many states also provide temporary exemptions from taxes and fees associated with new business registration, property and vehicle registration, and transfers of real property. Additionally, some states offer funding for employment training programs.
For more detailed information on state-level and regional incentives, individuals can consult the Ministry of Economy (Secretaría de Economía), the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores), and the representative offices maintained by each state government in Mexico City, the capital.
In relation to investments in the downtown area of the capital, there are federal and municipal incentives available. These incentives include exemptions from federal income tax and Mexico City’s 2% payroll tax for employees working in the area. Furthermore, property tax exemptions are also applicable.
Export Driven Incentives & Zones
The majority of export incentives primarily focus on manufactured goods in the maquila industry. The Programme for the Manufacturing Industry, Maquiladora, and Export Services (Programa de la Industria Manufacturera, Maquiladora y de Servicios de Exportación—IMMEX) underwent an amendment in 2014 as part of a tax reform. This reform narrowed the definition of maquila for maquilas-in-bond assembly factories that export goods duty-free from Mexico. Under the new regulations, revenues associated with production must solely come from maquila activities as listed in the 2006 decree promoting IMMEX.
Furthermore, the 2014 reform eliminated preferential tax treatment for maquilas, resulting in an increase in the effective income tax rate on their profits from 17.5% to 30%. Foreign residents with maquila status, meaning those who establish a maquila business in Mexico without owning a Mexican business, still receive protection against permanent establishment, but this protection is limited to a maximum of four years.
In Mexico, there are designated areas called strategic fiscal areas (recintos fiscalizados estratégicos—RFEs or Reefs) that function as free-trade zones. These RFEs were established in 2002 and serve as bonded areas allowing for the temporary warehousing of goods, merchandise, and primary materials. Import taxes and regular import processing are waived within RFEs for the purpose of storage, sale, transformation, repair, display, and export. Imported goods and materials can be stored in RFEs for a duration of up to two years. As of the end of 2022, there were 28 RFEs operating in Mexico.