The 2020 tax reform, which has been passed but has yet to be published, includes an amendment to Article 183 of the Mexican Income Tax Law, which governs maquila activities carried out by nonresidents through companies with maquiladora (IMMEX) shelter programs.

The key changes to the provision include the addition of part of the requirements and obligations contained in Rule 3.20.6 of the Miscellaneous Tax Rules in effect in 2019, requiring nonresidents to fulfill their income tax payment obligations through the company with the IMMEX shelter program for an indefinite period. This means that nonresidents may carry out activities carried out through companies with IMMEX shelter programs indefinitely, without being limited to a specific term.

In general, the obligations and requirements to be met by the nonresident through the IMMEX company with the shelter program include: (i) to request registration in the Federal Taxpayer Registry ("RFC") without tax obligations, (ii) to file estimated and annual returns, (iii) to file the maquiladora information return no later than in June of each year, for the preceding calendar year, (iv) to file a notice with the Tax Administration Service ("SAT") when they cease to engage in maquila operations within the month following the month in which this occurs, (v) the nonresident's tax jurisdiction must have a broad information exchange agreement with Mexico, and (vi) as applicable, nonresidents may sell products manufactured in Mexico, provided that they are covered by an export declaration (pedimento).

While nonresidents will fulfill certain obligations and pay their corresponding income tax through the IMMEX shelter company, the article further provides that the nonresidents will not constitute a permanent establishment in Mexico. In this sense, it remains to be seen whether this provision will generate conflicts for the nonresident when crediting the income tax paid in Mexico, for tax purposes in its country of residence.

Article 183-BIS is also added to the Mexican Income Tax Law to establish the requirements to be met by the IMMEX companies with shelter programs, namely: i) to identify the transactions corresponding to the nonresidents and determine the respective tax profit for income tax purposes (either under the safe harbor rules contained in Article 182 of the Mexican Income Tax Law or according to a private ruling pursuant to Article 34-A of the Federal Tax Code; ii) to keep the supporting documentation of the information on the nonresidents, and iii) to be jointly liable for the calculation and payment of the tax determined on the nonresident's behalf, pursuant to Article 26, section VIII of the Federal Tax Code.

Lastly, a transitional article is included for nonresidents engaged in maquila activities through shelter maquiladoras under Article 183 of the Income Tax Law in effect through December 31, 2019, to elect to comply with the new provisions of Articles 183 and 183-BIS of the Law once the four-year period referred to in Article 183 in effect through 2019 has ended.

While these new provisions afford legal certainty to nonresidents' investments to continue performing maquila activities in Mexico through IMMEX shelter companies for indefinite terms, there is still uncertainty as to whether the tax paid in Mexico will be creditable in the nonresident's country of residence, due to the poor wording of the first paragraph of Article 183. Therefore, we suggest analyzing each particular case from a tax standpoint to confirm whether (i) the nonresident's transaction gives rise to a permanent establishment in Mexico under the double tax agreements, and ii) if such tax paid in Mexico is creditable in the nonresident's country under its domestic laws and the double tax agreements.

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