As discussed in our newsletter dated December 11, 2018 (http://www.kyjcpa.com/news-updates/mexico-free-trade-zone/), the Mexican government proposed 2019 tax law change which includes the Border Trade Free Zone (the “Border TFZ”) provision.  The bill is enacted with an effective date of January 1, 2019.  Following are the enacted provisions that may impact the companies with manufacturing facilities or businesses in the northern border region of Mexico.

• The border region is along the northern Mexican border, stretching 25 km into Mexico, including Ensenada, Playas de Rosarito, Tijuana, Tecate, Mexicali, Reynosa, and other municipalities in Baja California, Sonora, Chihuahua, Nuevo Leon, Coahuila de Zaragoza, and Tamaulipas.

• Elimination of Universal Compensation – taxpayers are only permitted to compensate balances of the same tax nature.  See additional discussion at http://www.kyjcpa.com/news-updates/mexico-proposal-to-eliminate-universal-compensation/

• Reduction of VAT rate – the Border TFZ provides for an immediate reduction of the VAT rate from 16% to 8%.  Taxpayers must apply for the reduced rate by January 30, 2019.

• Reduction of income tax rate – the Border TFZ provides for a reduced income tax rate of 20% to qualifying taxpayers. Taxpayers must apply for the reduced tax rate with the Office of Registry by March 31 of each year.

• Other provisions – taxpayers in the Border TFZ area are subject to the new increased minimum wage requirement and reduced utility rates.

Korean version will be ready shortly.