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On 1 December 2018, Andrés Manuel Lopez Obrador sworn into office as Constitutional President of the United Mexican States during the session of the General Congress, held at the Legislative Palace of San Lazaro.

On speech before Congress and before the general public in the Zocalo of Mexico City, President Lopez Obrador reaffirmed the main points in his government's agenda, among which is the creation of a special fiscal regime for the northern border of the country, which includes: •A "free zone" to be established in a strip of 25 kilometers parallel to the dividing line with the United States of America, and will also include the municipality of Ensenada, Baja California;

  • Reduction of the Income Tax rate to 20%;
  • Reduction of the Value Added Tax (VAT) rate from 16% to 8%;
  • Reduction of the cost of gas, gas and electricity;
  • Increase in the general minimum wage paid in said area to double of the current amount.

Moreover, during his various speeches, President Lopez Obrador has repeatedly indicated that the crime of tax fraud would be modified to prevent abuses in the application of the preferential measures that will be granted to the "special fiscal zone" of the country's northern border.

In consideration of the above, we suggest companies to, in anticipation of the issuance of the special measures to be established in the northern border area, proactively consider the following: •Undertake an analysis of functions, assets and risks of the operations that would be carried out in the northern border area;

  • Activities to be carried out in the northern border zone must have substance and/or "materiality", in order to be in a position to apply the announced benefits;

  • Compliance with transfer pricing obligations for transactions between national companies, in order to prevent the authority from considering that a possible tax fraud / elusion is incurred;

  • In cases of companies that operate under the fiscal regime of maquila operation and of companies with distribution operations in Mexico, analyze the possible financial, accounting and fiscal effect of carrying out operations in the northern border area;

  • Evaluate alternative operating models for manufacturing and / or commercialization activities in Mexico (greater flexibility for making sales in the National Territory), which could lead to a higher level of profitability.

In addition to announcing the imminent entry into force of the announced benefits for the northern border, we put at your disposal our team of economists and tax professionals, as well as our experts in tax audit and tax litigation to identify the possible effect that the special northern border tax regime may have on your operations, considering you current model of operations, as well as alternative models of manufacturing and / or commercialization.

In Baker McKenzie we are committed to share valuable information with our clients and friends. If you would like any further advice regarding the above, as well as to resolve any other inquiry you may have, please do not hesitate to contact us.

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