Mexican Legal Reforms for 2019


By Fernando Holguín and René Mauricio Alva, EC Legal Rubio Villegas

On December 1, 2018, the elected president Mr. Andrés Manuel López-Obrador took office as President of México. As with every change in the presidency, the new President brings reforms and changes to certain regulations as part of his government’s policies and Mr. López-Obrador was not the exception. The new President, who comes from a leftwing political party, has issued two critical reforms that impact foreign investment in Mexico, one that targets the legal minimum wage in Mexico and the other on taxes (Income Tax and Value Added Tax).

Both reforms became effective January 1, 2019 and entail the following: 


By Decree of the President, the legal minimum wage in Mexico increased from MXP$88.36 per day to MXP$102.68 per day in the entire country except for a special zone defined as the Northern Border Region which includes, amongst other, the following cities: Ensenada, Rosarito, Tijuana, Tecate and Mexicali (State of Baja California), San Luis Río Colorado, Puerto Peñasco (Rocky Point), Caborca, Nogales, Cananea, Naco and Agua Prieta (State of Sonora), Ciudad Juárez and Ojinaga (State of Chihuahua), Acuña and Piedras Negras (State of Coahuila), Nuevo Laredo, Reynosa, Rio Bravo, Valle Hermoso and Matamoros (State of Tamaulipas), which border with California, Arizona, New Mexico and Texas (the “Border Region”), where the daily minim wage increased to MXP$176.72 (approximately USD$9).

The Border Region is known for the presence of manufacturing companies, specially US companies that have set up their operations in Mexico due to the benefits that a special tax and customs program provides, which is commonly known as IMMEX or Maquila Program. The increase in the daily minimum wage in the Border Region will certainly impact the cost of doing business of those manufacturing companies located in said region; however, many companies are restructuring their compensation packages in order to mitigate this additional cost.

The increase of the daily minimum wage is part of the commitment made by the Mexican Government in the new NAFTA (now known as T-MEC or USMCA). 


As part of the 2019 economic package that Mexican Government submitted for approval to Congress, they included two items that standout. These two items are (i) the tax benefits for the Border Region, and (ii) the cancelation of the universal tax compensation.

The benefits consist of a credit that allows the taxpayer to reduce their Income tax by 1/3, as per the legal provision under the Mexican Income Tax Act, but subject to meeting specific requirements, the most important being the following:

    1. Register in a special registry no later than March 31, 2019.


    1. Has its tax address in the Border Region for the last 18 months.


    1. 90% of its income comes from commercial activities within the Border Region.


For those taxpayers that have not had their tax address in the Border Region for the past 18 months, they can enroll in the special registry and apply for these tax benefit but must prove to the Mexican IRS that they have the facilities and financial resources to perform their activities.

It is also important to mention that this benefit cannot be applied to the sale of real estate and intangible assets (software, royalties, etc.).

The other important tax benefit that is currently in effect, is the reduction of the Value Added Tax that will be charged in the Border Region. Business in this region will be allowed to charge only 8% instead of the normal 16%.

The purpose of the benefits related with the Income Tax and Value Added Tax in the Border region is to allow businesses to be more competitive and create larger investment and more jobs.

Regarding the cancellation of the universal tax compensation, prior to 2019, taxpayers in México were allowed to apply any balance they may have had for Value Added Tax to all other taxes owed to the Mexican IRS, meaning that if the taxpayer had a tax credit for Value Added Tax it could apply this to its Income Tax and other taxes retained to third parties. This will no longer be the case, as of January 1, 2019, taxpayers in Mexico cannot make this type of compensations and will only be authorized to compensate the same type of taxes.

Also, taxpayers are no longer authorized to compensate Value Added Tax, they are only allowed to request the reimbursement thereof through a formal petition to the Mexican IRS which, in our experience, usually takes months to get it approved.

In our opinion, this new regulation violates rights of the taxpayers that are protected under the Mexican Constitution and may be subject to a challenge through a Habeas Corpus (Constitutional Trial).

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